The last big technology recession of 2001 made it clear that you can't give away a product for free and hope to make up the losses on volume. Nearly a decade later, we're re-learning the same mistake, both in Web 2.0-style businesses and open source.
When will we learn that there is no free lunch?
The Economist highlights the quandary plaguing the "free"-dom of the Internet, but the lesson also applies to open source:
The idea that you can give things away online, and hope that advertising revenue will somehow materialise later on, undoubtedly appeals to users, who enjoy free services as a result. There is business logic to it, too. The nature of the Internet means that the barrier to entry for new companies is very low....
Ultimately, though, every business needs revenues--and advertising, it transpires, is not going to provide enough. Free content and services were a beguiling idea. But the lesson of two internet bubbles is that somebody somewhere is going to have to pick up the tab for lunch.
The same is true of open source. The ability to distribute software at roughly zero cost and acquire customers at much lower sales and marketing costs is a hallmark of open source. It's why a host of proprietary software companies are likely toying with the idea of buying open-source companies or seeding open-source projects: cheap complements make nice on-ramps to their proprietary businesses.
But that's the hitch. There must be some commercial value that a customer can't get (easily) anywhere else to drive open-source monetization. There are not enough support dollars out there to fund a multibillion-dollar open-source industry, just as there are not enough advertising dollars to fund the Web 2.0 industry.
For the long-term health of open source, we need there to be billion-dollar open-source businesses. McKesson wants to buy from a peer. Accenture wants to deploy software from peers.
Red Hat is on its way to being the first billion-dollar open-source software company. (Sun Microsystems is over that mark, but most of its sales come from hardware, not software.) But even Red Hat is not really a pure-play open-source company, and it's going to need to accelerate and drive growth by selling solutions, which will require more tweaks to its licensing model--tweaks that will almost certainly make it look a bit more like the companies with which it currently competes.
This is healthy. So long as open-source companies ensure that freedom permeates their core offerings, they'll be able to maintain customer benefits from open source while maximizing commercial benefits to themselves.
Open source's free lunch is over.. That's a Very Good Thing.
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