Category Archives: economics-again

LinuxToday: Penguins vs the Dismal Science

This should be the last in a series of articles on the economics of free and open source software. In a ‘Where are we going?’ type article, by Lou Grinzo of LinuxToday. Grinzo holds a degree in “the dismal science” of economics which he states is prone to say ‘On the other hand…’. His most salient point is: ‘…Linux distribution companies will never grow very much…The open source
model eviscerates their revenue stream, making the outlook for these companies pretty grim.

On the other hand (hey, you were warned) aren’t we in a wholesale movement away from “bits for bucks”
to a services and subscriptions model, anyway? I believe we are…The big unknown in all this is how much people will be willing to
pay for which subscription services…’
Keep in mind however, that open source medical computing places another level of economic complexity on this since it can be seen as a public good like roads and bridges. The other difference is that the current closed-source model isn’t working very well for medicine.

‘…A key main reason there’s so much uncertainty in the industry right now is simply because we’re in
between equilibrium states. The prior state saw the closed source software/bits for bucks model
dominate, with free support, later moving almost entirely to paid support. In that state we had
software-only companies of all sizes making a profit, from one-person shareware shops to outfits like our
cousins up in Redmond. It was and largely still is an economically viable business model, and it fueled a
lot of companies and some spectacular investment portfolios.

The next equilibrium point will be more oriented toward open source, and I suspect that in the long run
this will all but eliminate the software-only companies. There will be a lot of consolidation as companies
merge and acquire each other, and also evolution, as companies try to stay independent and convert
themselves into service companies. I won’t guess how far this new equilibrium point will be from the old
one, in terms of either time or degree of change from the last point; I don’t think anyone can tell for sure
while we’re in the middle of the transition.

The really interesting thing is that the further we go along this path, the more software will be produced by
either the stereotypical open source project, staffed by people scratching an itch and not getting paid for
their work, or by large companies, like IBM, HP, Compaq, Intel, and others, that have a financial
incentive to spend big money on software they can give away.’