The Simple Economics of Open Source

Gordon McMillan gmcm at hypernet.com
Thu Apr 27 11:42:16 EDT 2000


Raffael Cavallaro wrote:

> In article <vndya62ykbi.fsf at camelot-new.ccs.neu.edu>, Justin
> Sheehy <dworkin at ccs.neu.edu> wrote:
> 
> >You mean like BSD/OS, from BSDI?  
> >
> >It happened 9 years ago, and they've been selling it ever since.
> 
> Yeah, and BSDI is just tearing up the software world. BSDI sells
> *support* not software, because the software they sell is
> essentially interchangable with the free BSD variants. BSDI have
> *themselves* recognized this fact by merging with Walnut Creek.
> In future, they'll be merging the code of FreeBSD and BSD/OS.

I guess you missed ESR's talk at IPC7. Software company 
sells package for $500, street price is $400. Software 
company goes broke. What's the street price now? If software 
were a product, it would be, say $300. But the street price is 
$50. Software *is* a service, the price is a reflection of 
expected future support.

Other counter-examples: you can pay thousands for your web 
server, or get it for free. You can pay hundreds for your office 
suite, or get it for free. You can pay hundreds to thousands for 
your compiler or get it for free. (You're stuck with Python - that 
only comes for free). Even where the closed source package 
has technical advantages, it does not support the price 
differential.

Closed source protecting an original piece of intellectual 
property is actually quite rare (and where it exists, it's quite 
short-lived). Normally it "protects" an investment of money and 
effort. And actually it reflects what consumers are willing to 
pay for utility and (quite probably deluded notions of) future 
support, upgrades and porting.

The closed source world is based on a diseased model 
(pretending software is a product). The open source world is 
currently in large part shaped by being a reaction to the 
closed source model. Thus, it too is deformed.

One of those open source delusions is that being open source 
somehow makes a difference to the end consumer. Bunk. End 
users don't read code, and never will. Opening the source 
benefits other developers, who in turn will almost certainly 
benefit you by making the code better, or integrating with 
other software - thus indirectly benefitting users.

Consumers benefit directly because the "product" price is 
based on the marginal costs of production (near $0), and 
support costs are based on reality.

Back to your art world analogy - how much would still be true 
if you considered only the sub-market of unlimited production 
prints with trivial reproduction costs?

Scarcity of an intellectual secret may make a software 
package containing that secret more valuable, but scarcity of 
a software package is likely to make it less valuable (since 
support will be hard to find, and upgrades unlikely). OTOH it's 
scarcity of a piece of artwork that makes it valuable.



- Gordon




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