Open source has been around for more than a decade but we have not quite figured out how it works. It is easy to explain why people will use free software, but what’s the motivation behind investing in the development? Other than one simply doesn’t like the big software companies or cannot afford them, is that a viable business? Is open source equals to Fair Trade? So yeah, there’s the advantages of being able to tweak and customize to do exactly what your need, but if you are not rolling up your sleeves to do some work, your voice won’t be heard since you did not pay anyone to produce this. You can argue Open Source may distribute value, but it doesn't create or even if it does it won't be able to capture value.
This is a simple view and may still apply to 90% of open source software. Take a deeper look at Red Hat you might discover something more. They have their own set of economic value drivers, including the needs of their customers, which they then apply to the calculation around their participation in certain projects. As the reach of open source extends, so do end users actually start to get an indirect say in what happens. But it is not really free.
In recent research published in Production and Operations Management, Deishin Lee (Harvard Business School) and Haim Mendelson (Stanford Graduate School of Business) are using them to teach a course on how to "Divide and Conquer: Competing with Free Technology Under Network Effects." Is open source just a cheaper substitute? If so its long-term impact will probably be marginal, not revolutionary. The question is whether you see the "market" the same as the "community?" And whether you see "non-consumer" (those who cannot afford to buy but need it) will play a role.
They suggest that
...[T]he ideal scenario for the commercial vendor is to bring its product to market first, to judiciously improve its product features, to keep its product "closed" so the open source product cannot tap into the network already built by the commercial product, and to segment the market so it can take advantage of a divide-and-conquer strategy.
It is about owning the network (or community). It can get ugly if the open-source product gets to market first. In that case, the commercial vendor does well to enter the market with a compatible product and then quickly invest in new features to make its product compelling. In this case, being "open" actually helps the commercial firm tap into the network created by the free product. Then, the commercial firm must compete by out-innovating the free product to justify its value.
Red Hat's CEO, Jim Whitehurst was interviewed by Bangkok Post earlier this year. Read his interesting views on the "the economics of abundance" versus the old notion of "intellectual property." Whitehurst spoke of "the economics of abundance" that applied to software, and how, in the digital age, when intellectual property could be copied for free the question was "How do you build economics around that?" And he noted how the use of "old-world concepts" such as "it's mine and it's property," by calling it "intellectual property," built on an old-world sense that it had value and cost a lot to duplicate.
Emphasizing that Red Hat was a very strong believer in intellectual property rights, he said that in the old-world, with physical things, you couldn't give away a product for free to try out, "but if you think about the economics of abundance, where bits can be copied for free, why shouldn't that be a business model?
"It's kind of flipping business models on their ear," he said. "Rather than apply old-world physical products' commercial principles, let's start from scratch and say 'is there a whole new way to create value?' And that's what we think we're doing and that's pretty extraordinary too. We still have a long way to go. And I don't think that we're fully there in understanding yet. All content, music ... how do musicians make money? Should it be using DRM, or is there another way to do it?
