The Lack Of A Billion Dollar Pureplay Open Source Software Company Shows The Market Is Working Properly

from the economics-of-monopolies dept

Tue, Jun 29th 2010 9:08am — Mike Masnick

A few weeks back, Glyn Moody wrote a column discussing why there were no "billion dollar open source software companies," in response to a discussion he had with Redhat's CEO (Redhat is in the $750 million range):

He said that he did think that Red Hat could get to $5 billion in due course, but that this entailed "replacing $50 billion of revenue" currently enjoyed by other computer companies. What he meant was that to attain that $5 billion of revenue Red Hat would have to displace software that currently costs $50 billion. Selling $50 billion-worth of software -- even if it only costs $5 billion -- is somewhat hard, which is why it will take a while to achieve.

I immediately knew I wanted to write up something about it, as it reminded me of a point I've been wanting to discuss for a while. But I got busy with some other things, and in the meantime, a bunch of other folks picked up the ball and ran with it -- and each time they did, they added something different to the conversation, which gave me more to think about before writing up this post. Matthew Aslett pointed out that this is leading many companies to adopt hybrid models while Stephen O'grady pointed out that the question was really irrelevant. Katherine Noyes, over at LinuxInsider highlighted many other points that people brought up as a part of the discussion. It's all a very interesting read, though none really hit on the two key points that Glyn's original column got me thinking about:

There absolutely are billion dollar open-source companies, but they're not pure play open source companies. But that's okay, because a "pure play" open source company is like a record label trying to focus on just selling music. You're in the wrong business -- trying to sell infinite goods -- so of course the direct profits should be limited.
The lack of billion dollar pure play open source software companies is a sign of a working efficient economy. In fact, billion dollar pure play open source companies would be a sign of a market failure.

On that first point, I would argue that tons of companies are, actually, billion dollar open source companies: Google, IBM, Facebook and many others, for example, all rely heavily on open source software and are valued at well over a billion dollars. It's unlikely that any of the three would be anywhere near what they are today without open source software. It's just that all of these companies were smart enough not to be in the bad business of selling an infinite good. Instead, they all looked for ways to use an infinite good -- for free -- to make something scarce massively more valuable. With Google it was user's attention and all of the information out on the web. With IBM it was services to support enterprise technology. Even Redhat, the company that kicked off this discussion, really makes its money from services and expertise.

Arguing about the profits directly attributable to pure play software sales of open source software is like only counting CD/digital download sales and claiming that's the "music business." It's not. It's the recording industry.

But the more interesting and more important point is about the lack of billion dollar pure play open source software companies is the fact that this is a sign of a strong, healthy and efficient marketplace. Even if you go all the way back to your Adam Smith, you would know that when you have a company making outsized profits, competitors will enter that market. That's the nature of a free market, and it tends to lead to efficiency, innovation and (most importantly) consumer surplus.

I'm reminded of various studies on modern societies without intellectual property protections (or with very weak intellectual property protections) that often saw thriving and highly competitive industries in those areas. One area that has been particularly interesting to me lately is looking at various countries that did not have patent coverage for pharmaceuticals, but then were forced into it. If you look at the pharma industry in those countries, you see the same story almost every time. Without patents, the industry is thriving with many, many different firms (sometimes hundreds). Yes, a percentage of these firms are certainly pure "copycat" firms, but the ones at the top are not. However, after patent protection is introduced (often with the claim that it will help investment, help competition and help innovation), the exact opposite occurs. Instead, many, many firms either go out of business or are gobbled up by large multinational conglomerates. The overall profits increase to those conglomerates, but the innovation and social welfare declines.

This is, of course, exactly what Adam Smith saw nearly two and a half centuries ago. If you give companies monopolies, they will take monopoly profits, but those monopoly profits come at the expense of innovation and consumer benefits.

So, giant billion dollar companies in markets -- especially markets of infinite goods -- suggests a market inefficiency of some sort. The lack of such pure play billion dollar companies is a good thing. It means the market is acting as it should, and being more efficient and creating greater economic benefit to the wider market. And this goes back to a point that Glyn makes in his original column:

I think this is the first time I've heard someone as senior as Whitehurst admit something rather profound: that open source solutions save money for customers by doing away with the fat margins for existing computer companies -- and thus shrink the overall market. Opponents of open source like to paint this as "value destruction" that takes money "out of the economy" -- as if free software went around burning down offices and warehouses.

What they fail to grasp is that the 90% savings do not just vanish like the smoke from those supposed conflagrations. That money is still in the economy, it's just spent on other items: free software allows people to use their hard-won money for things other than operating systems, office suites and applications. In developing countries, for example, it might mean more funds available for education or health.

And that's exactly the point. When a market is made more efficient, that actually spreads throughout other areas and helps consumer surplus, economic growth and the rest of the world benefit. Automobiles and airplanes "shrunk" the railroad market, but opened up massive new markets. The end result was a much bigger economy and greater economic opportunity and consumer surplus. Automated telephone dialing "shrunk" the telephone operator business, but opened up massive new efficiencies, leading to advancements like the internet itself. And that created massive economic efficiencies and growth and consumer surplus.

So, just as we shouldn't worry about the lack of "billion dollar" pure play open source software firms, we should also not fall sway to the complaints of companies who are being disrupted by these models, about how all that money they make is somehow "disappearing" if the government doesn't come in and protect their business model. What's actually happening is all that money is being put to more efficient use. Unfortunately, it's rare to see politicians or business leaders who actually understand this simple, but important fact, and it leads them to propping up legacy businesses, which actually slows down innovation, economic growth and consumer surplus.

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Filed Under: economics, open source, proprietary, software
Companies: red hat

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Anonymous Coward, 29 Jun 2010 @ 9:28am

Billion dollars of what? Profits? Revenue? Market capitalization?
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Mike Masnick (profile), 29 Jun 2010 @ 9:31am

Re:
Billion dollars of what? Profits? Revenue? Market capitalization?

Revenue.
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Anonymous Coward, 29 Jun 2010 @ 9:33am

"That's the nature of a free market, and it tends to lead to efficiency, innovation and (most importantly) consumer surplus. "

Who cares about consumer surplus, the purpose of the government is only to protect producer surplus. Otherwise, where will politicians get their campaign contributions to get elected and re - elected?
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Anonymous Coward, 29 Jun 2010 @ 9:41am

Of course monopolists make more money than individual competitors in a competitive market. Everyone wants a monopoly, who wouldn't? When an entire market is handed over to one entity that one entity will naturally gain more money than it would in the presence of competition because that one entity represents the spending power of more consumers being that it has the entire market share. But no one deserves a government granted monopoly and competition yields more aggregate output and consumer surplus than does a monopoly. With competition the revenue of all the competing entities combined will yield more money than the revenue of a single monopolist and aggregate output will be greater. and more aggregate output naturally requires more jobs (more employment is needed to produce more) and so free market capitalism yields more jobs than a government granted plutocratic monopoly.
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Anonymous Coward, 29 Jun 2010 @ 9:47am

Re:
Not to mention, since the collective economy in a competitive market yields more revenue they are more able to invest some of that revenue into things like R&D either individually or collaboratively. There is more total revenue that can go into R&D and just because one entity (a monopolist in a monopolistic economy) doesn't want to invest into the R&D necessary to bring certain products to market (as is often the case as is evidenced by the fact that most patents don't even make it to product) in a free market others are free to do so and the chances of finding at least one entity willing to invest when you have multiple people who have the freedom to profit from their R&D are greater than when only one monopolist is the only one who has such an opportunity.
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Nastybutler77 (profile), 29 Jun 2010 @ 9:56am

TAM, let me stop you before you get started. If you don't have a degree in economics you shouldn't comment. Using your logic of course.
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Anonymous Coward, 29 Jun 2010 @ 10:07am

Re: Re:
Why shouldn't there be such a company with a billion dollars in revenue? (Your argument that competitors should enter the market and prevent this seems to apply to profits, rather than revenue.)
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Hoeppner, 29 Jun 2010 @ 10:07am

I'm surprised that more hardware companies aren't "seriously" pushing open source. After all if someone doesn't need to pay a very large chunk of money on software licensing, they can spend more on hardware.
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interval (profile), 29 Jun 2010 @ 10:09am

Good write-up
I'm happy to see you write more on OSS and its ilk, Mike.
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Anonymous Coward, 29 Jun 2010 @ 10:09am

Re: Re: Re:
I think the point is that there is nothing wrong with the lack of a billion dollar company.
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Paul., 29 Jun 2010 @ 10:17am

yes, but...
yes, agreed to all of your post, however those same business leaders and politicians don't care about our economy, they only care about there bottom line and the big cushy couch they have at home. :(
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Hephaestus (profile), 29 Jun 2010 @ 10:30am

Thanks
"And that's exactly the point. When a market is made more efficient, that actually spreads throughout other areas and helps consumer surplus, economic growth and the rest of the world benefit."

I had a similar discussion ths weekend. What happens when we have 85% efficient solar cells and local storage capacity for houses. It means 1 square meter at 1kw is 850 watts of power. A house with 900 sq ft of roof space generates 85 kw for 8 hours a day. Enough to heat, cool, light, and power a couple SUV's. This weekend we discussed the failure of the energy companies. It never occured to me to look at the benefits from this perspective.

Thanks for pointing these articles out. They were most helpful.
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Matthew Stinar (profile), 29 Jun 2010 @ 10:36am

Where is that patent study?
I'd be much better able to defend my stance on patents if I could cite an actual study that shows even pharma doesn't need them. Where can I read about that study? I was under the impression that any country large enough to have a real pharma industry had already been corrupted by the likes of WIPO.
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Anonymous Coward, 29 Jun 2010 @ 10:41am

Mozilla, IBM, Google all benefit far beyond $1 billion in services/3rd party revenue through use of Open Source.
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Comboman (profile), 29 Jun 2010 @ 10:44am

Pureplay?
Is it just me or does Pureplay(TM) sound like a new music DRM scheme?
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Mike Masnick (profile), 29 Jun 2010 @ 10:47am

Re: Re: Re:
Why shouldn't there be such a company with a billion dollars in revenue? (Your argument that competitors should enter the market and prevent this seems to apply to profits, rather than revenue.)

Actually, you're right. The original articles appeared to be discussing revenue, but you're correct that the economic argument applies to profits... mostly.

But, in general, the revenue argument applies to the economic argument as well: i.e., if a company is seen as making a billion in revenue -- even if they're not initially profitable -- it is seen as a market that is ripe with opportunity for others to come in and figure out ways to create profit from that revenue.

But the point is a good one. Confusing revenue and profit makes the argument a little more muddied.
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Hephaestus (profile), 29 Jun 2010 @ 11:01am

Re: Thanks
Enough to heat, cool, light, and power a couple SUV's

Enough to heat, cool, light, and power your house, and power a couple SUV's
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Duderino, 29 Jun 2010 @ 11:02am

"I'm reminded of various studies on modern societies without intellectual property protections (or with very weak intellectual property protections) that often saw thriving and highly competitive industries in those areas."

Have any links to the published studies by any chance?
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Greg, 29 Jun 2010 @ 11:08am

OSS is a force multiplier
One or a group of software companies lose some revenue, but thousands of companies (including the tech startup that I work at) leverage OSS to produce new software that provides value. The difference is that our software is highly specific, while most OSS is much more general-purpose. My company would likely not exist without OSS, so our value (such as it is) would not have been added to the economy.
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Richard (profile), 29 Jun 2010 @ 11:32am

Re: Where is that patent study?
I think that Boldrin and Levine have a fairly substantial section on this issue. You can find it here:

http://levine.sscnet.ucla.edu/papers/ip.ch.9.m1004.pdf
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Anonymous Coward, 29 Jun 2010 @ 11:36am

Profit as indication of Market Failure
It occurred to me a while ago (tho I'm sure it's not an original thought) that any industry that continually reported above average profits (year after year after year, not an odd blip) was an indication that the market had some sort of distortion that needed correcting. In essence, the existence of excess profits (year after year) indicates that there is some barrier to entry that is prohibiting new-comers in the industry. We should look to pass laws that remove or reduce these barriers as opposed to creating additional barriers. Patents and copyright are such barriers and we can see in industries (like pharma) that patents are distorting the market.
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Anonymous Coward, 29 Jun 2010 @ 11:37am

Not a product company
Open Source companies are really more a service company than a product company. The product costs $0, it is the service and support that generates revenue. Moreover, they are a 'single product' service company. I can not think of too many single product service companies (OSS or propr.) that are $1 billion in revenue. All companies in that bucket are either multi-product service or have a product revenue stream (IBM, HP, Apple, MS, Cisco, Oracle, TTC TECH, etc. all have product revenue, Big consulting companies, Gartner, etc. are usually multi-service).
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Anonymous Coward, 29 Jun 2010 @ 11:39am

Re: Where is that patent study?
It's lengthy, but this is one of the best books I've read on the subject. [http://levine.sscnet.ucla.edu/general/intellectual/againstfinal.htm]. In my opinion you can not call yourself educated on this topic if you have not at least read this book. You can disagree with it, but you should read it.
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Mike Masnick (profile), 29 Jun 2010 @ 11:46am

Re: Where is that patent study?
I'd be much better able to defend my stance on patents if I could cite an actual study that shows even pharma doesn't need them. Where can I read about that study? I was under the impression that any country large enough to have a real pharma industry had already been corrupted by the likes of WIPO.

There are a variety of studies on the topic.

Some good places to starts:

Eric Schiff's research into Switzerland in the late 19th century, looking mainly at its chemical and dye industry (the precursor to pharmaceuticals -- many pharma companies trace their history back to these firms) in a period when it did not have patent protection.

More recently Johan Murmmann's research on this subject (especially in Germany) has been quite useful (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=907189). There's a good summary of his work here (http://www.etss.net/files/JIBS_Review_Murmann.pdf) and I'll quote a couple points:

According to Murmann’s analysis, the strength of the German industry stemmed
not only from high absolute numbers of firm births
but also deaths. By 1914, 116 dye firms had entered
the industry in Germany, 47 in Britain, and 35 in
the United States (p. 42). In all, 91 of these firms
failed in Germany, 36 in Britain, and 25 in the US.
He argues that the high numbers of business
models generated in Germany helped to provide
the German industry with more variants from
which to select. These business models, in turn,
generated many organizational innovations from
which the market could select, as well as many
variants of activities that firms could select and
replicate as routines...

Murmann’s longitudinal analysis isolated a number
of components of the institutional playing field
that would not have shown up in an industry
snapshot. In particular, he found that a lack of
patent law strengthened German producers’ competitive
advantages, by subjecting them to intense
domestic competition.

Then there's this paper: http://www.nber.org/papers/w10159.pdf by Chaudhuri, Goldberger and Jia, which notes the overall economic benefit to pharma patents in India and conclude

"We estimate that in the presence price regulation the total annual welfare losses to the Indian economy from the withdrawal of the four domestic product groups in the fluoroquinolone sub-segment would be on the order of U.S. $305 million, or about 50% of the sales of the entire systemic anti-bacterials segment in 2000. Of this amount, foregone profits of domestic producers constitute roughly $50 million. The overwhelming portion of the total welfare loss therefore derives from the loss of consumer welfare. In contrast, the profit gains to foreign producers in the presence price regulation are estimated to be only around $19.6 million per year.

i.e., adding such patent protection in India drove more money to a few foreign firms at the cost of domestic competition.

Research from Josh Lerner highlighted how greater patent protection led big firms to focus on regulatory issues rather than greater discovery:

Case studies suggest, for instance, that foreign
pharmaceutical companies aggressively expanded their operations in countries that
enhanced pharmaceutical patent protection. In some of these cases, the new entrants
hired many local researchers away from basic research positions with local firms. Often,
the foreign companies used the scientists for more applied roles (e.g., obtaining local
regulatory approval for already-developed drugs). Since in many cases the local
companies found it hard to replace these individuals, fewer domestic patents may have
resulted.

There's also the research of Lanjouw on India and Scherer and Weisburst on Italy...
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Andrew F (profile), 29 Jun 2010 @ 12:15pm

Re: Pureplay?
Nope, that's what I first thought when I read the title too.
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Raffi, 29 Jun 2010 @ 12:24pm

why there were no "billion dollar open source software companies,"
Mike, you certainly hit the nail on the head. In our society the preoccupation of making a buck above all else have led us to this situation. Now, don't get me wrong making a buck is always a good incentive to achieve greater and greater results but it seems that we have spun out of control and we don't see that there is another side to this issue. As Albert said 'for every action there is an equal and opposite reaction' and here you are showing us that 'unseen' side. Unseen because you're the first one to point it out to us.
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reboog711 (profile), 29 Jun 2010 @ 12:29pm

Facebook is an open source company?
What makes Facebook an open source company?
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Anonymous Coward, 29 Jun 2010 @ 12:34pm

"The lack of billion dollar pure play open source software companies is a sign of a working efficient economy. In fact, billion dollar pure play open source companies would be a sign of a market failure. " - here i think you are wrong, and contradict plenty of evidence to the contrary.

first off, the open source is not the product, service is the product. the more customers you have, and the better your product is (support is for problems, not for failings of the product), then you start getting into both economies of scale and top of mind awareness / market domination.

at some point, redhat should be able to provide support for their product much cheaper than anyone else, and they should be the superior product in the marketplace. they should be the most efficient and as such, dominate the market. after all, an efficient market would naturally get attracted to the lowest cost / best service / best product combinations.

it has already been shown over and over again in other marketplaces that scale allows economies which are passed on to consumers, who in turn continue to help scale things up. the reality is monopolies or near monopolies are often the most effecient marketplaces.

"hat he meant was that to attain that $5 billion of revenue Red Hat would have to displace software that currently costs $50 billion. " - this is truly the biggest issue, if redhat becomes that big of a player, they will have destroyed more market than they will create. worse yet, they may take enough money out of the os software world to impede future progress on commercial and retail operating systems, in fact slowing progress down. so they could take net 45 billion out of the market to be a 5 billion a year company.

sometimes the short term, close up view is good, but the long term effects are terrible for everyone.
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senshikaze (profile), 29 Jun 2010 @ 12:35pm

Re: Good write-up
ilk?
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senshikaze (profile), 29 Jun 2010 @ 12:36pm

Re: Re: Thanks
really, really, really long cables.

;)
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Mr. Oizo, 29 Jun 2010 @ 12:43pm

Re: Good write-up
Ditto
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Mike Masnick (profile), 29 Jun 2010 @ 1:36pm

Re: Facebook is an open source company?
What makes Facebook an open source company?

That it's built it's offering on top of an open source platform. Just like Google.
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out_of_the_blue, 29 Jun 2010 @ 1:36pm

Costs aren't as high as M$ makes it appear.
As proven by hundreds of versions of Linux with thousands of applications, software development doesn't have to follow the M$ plan -- they seem to have taken Soviet Russia for a model. A few geeks with computers is really all that's required. -- Nor does "support" cost M$ much; they charge $50 just to file a bug report#.

Apparently comments above assume that support is needed (for business, I guess) and won't *also* be provided free by enthusiasts. That's simply not the case with much of Linux today. The actual cost is only a download, plus a CD if old-fashioned and installing on base hardware. That's it so far as direct *costs* to have any of numerous versions of Linux that easily rival Windows 7 plus any applications for what *most* people will actually do. It's amazing that this still isn't generally known, because it's certain that today's Linuxes are better than any Win9x version, at zero cost, and probably won't need to know anything to install and use.

Anyway, to tie this to the topic: if development costs are *low* then overall revenues will of course be proportionately low, or maybe lower.

And I agree with Raffi that people insanely pursue money as if it's the *only* measure of value or success. It's an unstable basis for civilization, and we need another round of cutting down The Rich, by about a head.

(# Source: http://blogs.msdn.com/e7/, W7 battery problems, angry comment after M$ tech *requested* such detailed report. Their free forums have no guarantee of even a shrug in response.)
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Mike Masnick (profile), 29 Jun 2010 @ 1:38pm

Re:
his is truly the biggest issue, if redhat becomes that big of a player, they will have destroyed more market than they will create. worse yet, they may take enough money out of the os software world to impede future progress on commercial and retail operating systems, in fact slowing progress down. so they could take net 45 billion out of the market to be a 5 billion a year company.

That ridiculously bad logic is debunked clearly in the piece, but since you chose not to read it, I'll highlight it:

the 90% savings do not just vanish like the smoke from those supposed conflagrations. That money is still in the economy, it's just spent on other items: free software allows people to use their hard-won money for things other than operating systems, office suites and applications. In developing countries, for example, it might mean more funds available for education or health.

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Anonymous Coward, 29 Jun 2010 @ 1:42pm

OSS pureplay? Does that infer that OSS businesses are ethically superior? Nonsense. Pure and simple. You get unethical OSS businesses just as easily as proprietary ones.

OSS can only be a means to an end - Google, FB, Twitter et al. If a business sees OSS as an end in itself they need to get a new business model or fail.
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nasch (profile), 29 Jun 2010 @ 1:47pm

Re: why there were no "billion dollar open source software companies,"
As Albert said 'for every action there is an equal and opposite reaction'

That was Isaac.
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nasch (profile), 29 Jun 2010 @ 1:50pm

Re:
OSS pureplay? Does that infer that OSS businesses are ethically superior?

No, where did you come up with that?
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reboog711 (profile), 29 Jun 2010 @ 2:00pm

Re: Re: Facebook is an open source company?
Does Facebook contribute to open source projects? Does it have it's own open source projects?

As far as I knew, the answer was no.

They have benefited by using open source technologies, but I wouldn't say that makes then an open source company.

There are plenty of companies who use PHP on their web sites. Plenty of companies who use Flex for application development. Would you say that they are open source companies too?

Where is the line between a company that uses open source software projects and an open source software company?
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Nastybutler77 (profile), 29 Jun 2010 @ 2:17pm

Re:
Like I said in my comment above, if you don't have an economics degree TAM, don't comment on economic issues. That's just using your own logic that no one without a law degree should express an opinion on a court ruling.

So by commenting on this subject which you clearly have no knowledge of, you've not only shown your utter ignorance, you've once again proven that you're a hypocrite. Way to go.
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Nastybutler77 (profile), 29 Jun 2010 @ 2:24pm

Re:
OSS pureplay? Does that infer that OSS businesses are ethically superior?

I think you meant "Does that imply that OSS businesses are ethically superior?" Regardless, it wasn't implied, but somehow you infered it. Pureplay has nothing to do with ethics. How you came to that conclusion is beyond me.
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Mike Masnick (profile), 29 Jun 2010 @ 2:29pm

Re: Re: Re: Facebook is an open source company?
There are plenty of companies who use PHP on their web sites. Plenty of companies who use Flex for application development. Would you say that they are open source companies too?

Yes.

Where is the line between a company that uses open source software projects and an open source software company?

I think that line is artificial and meaningless.
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Mike Masnick (profile), 29 Jun 2010 @ 2:31pm

Re:
OSS pureplay? Does that infer that OSS businesses are ethically superior?

Um. No. It's just a way of saying that the company's only business is in open source software. That's all. No ethical implications at all.
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Anonymous Coward, 29 Jun 2010 @ 2:33pm

Re:
The most unethical one is the cdrecord guy that threatened everybody who disagreed with him. Until people forked and stopped talking to him.

If it was proprietary people would have to live with the guy for eternity minus 1 day.
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Anonymous Coward, 29 Jun 2010 @ 2:56pm

Re: Re:
mike, did you miss the part in your mba about money cycling through the economy, and how it is the number of cycles that really makes the difference? 45 billion spent on software leads to people having jobs, getting paid, and in turn, spending that money again in the economy. you have to remember, if an industry shrinks its income by 80%, something has to give. normally, it is the number of people actually working in the industry.

remember, the company that buys the software sells something as well, that in the cycle of things, the employee of the software company may buy (or as the money cycles around, comes back to buy it).

i guess you missed that class.
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interval (profile), 29 Jun 2010 @ 3:32pm

Re: Re: Good write-up
Wtf?
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Big Al, 29 Jun 2010 @ 3:36pm

Re: Re: Good write-up
Ilk – noun
Family, class, or kind: he and all his ilk.
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Nastybutler77 (profile), 29 Jun 2010 @ 4:00pm

Re: Re: Re:
Logic fail. You're still missing the very simple and obvious point that if a company can save (or not get overcharged) $5000 on a piece of software, they'll spend that money on something else. The money still gets spent. How are you not getting this?

Why do you argue against the most basic economic principles then claim that Mike doesn't understand economics, or claim that he "missed that class" as a snarky way of trying to defend your moronic rebuttal?

Where did you get your MBA again TAM?

Why do I keep asking a troll for answers that I'll never get?
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Mike Masnick (profile), 29 Jun 2010 @ 5:06pm

Re: Re: Re:
mike, did you miss the part in your mba about money cycling through the economy, and how it is the number of cycles that really makes the difference? 45 billion spent on software leads to people having jobs, getting paid, and in turn, spending that money again in the economy. you have to remember, if an industry shrinks its income by 80%, something has to give. normally, it is the number of people actually working in the industry.

Or, um, that $45 billion is used by the companies that would have paid that for software to *hire more people* for its own workplace. Or for some other service.

In other words, the money still cycles through the economy just as much -- if not more, because it's actually more efficient.

remember, the company that buys the software sells something as well, that in the cycle of things, the employee of the software company may buy (or as the money cycles around, comes back to buy it).

Remember, the company that buys the software hires people as well and buys other services as well -- and those services have employees too.

So your whole argument is flat out wrong.

i guess you missed that class.

Heh. I was there, but it seems you took another "sick day" that day. It's pretty amusing that you get such basic concepts so ridiculously wrong. I'm still trying to figure out which of the total bullshit comments you post you actually believe. This one you clearly cannot because it's so ridiculous to be beyond belief. I'm down to thinking you actually believe about 60% of what you post.
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Anonymous Coward, 29 Jun 2010 @ 5:15pm

Re: Re: Re: Re:
as always, mike is dismissive rather than considering the alternate view (the one that is provided in school too).

your assumption is that the money cycles. it may or may not, it may become some offshore companys profit, or it may end up in the bank account of some rich company president who doesnt spend it. who knows? perhaps the company paying less for the software also lowers their prices to consumers, and as a result, the money never exists (because it never cycles in).

it is sad that you miss the basic concepts. it is truly a head shaker.
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Lawrence D'Oliveiro, 29 Jun 2010 @ 6:01pm

Scarcity & Scalability
There is still a valuable scarcity that can be sold with Open Source, and that is service and support.

Proprietary software companies get large because they get economies of scale thereby; because proprietary software is so expensive to develop, but the marginal cost of copying and distributing it is so low, in a competitive market, prices can sink to the point where only the largest company is making money, and everybody else loses and goes out of business. Sound familiar? Yup, it’s happened lots of times.

Whereas I don’t think the economies of scale are that pronounced with Open Source service and support. A one-person operation like myself can offer it to a correspondingly small customer; there’s no benefit to their going to Red Hat, who probably wouldn’t be able to offer them the personalized touch anyway. And most of the world’s GDP comes from small businesses, not large ones. That’s why I think Open Source will never be dominated by large companies.
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Anonymous Coward, 29 Jun 2010 @ 8:48pm

Re: Re: Re: Re: Re:
"your assumption is that the money cycles. it may or may not, it may become some offshore companys profit, or it may end up in the bank account of some rich company president who doesnt spend it."

Which could happen with closed source companies as well. Your point?

"perhaps the company paying less for the software also lowers their prices to consumers, and as a result, the money never exists (because it never cycles in)."

Ok, now you're just being silly. If the saving are passed to the consumer the consumer still is able to spend that money on other things. It doesn't magically retcon itself out of existence.
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Anonymous Coward, 29 Jun 2010 @ 9:09pm

Re: Re: Re: Re: Re: Re:
perhaps the company offering the support outsources to a third world country. who knows? there are plenty of ways for the money to leave the market and not come back quickly.

if a whole bunch of industries suddenly dropped 80% of their sales because of open source, we would find a whole new bunch of companies too big to fail. that after the stock markets crash to a level that would make the dirty 30s look like a picnic.
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Mike Masnick (profile), 29 Jun 2010 @ 11:53pm

Re: Re: Re: Re: Re:
your assumption is that the money cycles. it may or may not, it may become some offshore companys profit, or it may end up in the bank account of some rich company president who doesnt spend it. who knows?

You've clearly never taken an economics class in your life, have you?

There is actual research and evidence on this, and has been for about a century now. The money cycles. The more efficient the market, the more the money cycles. No two ways around it.

it is sad that you miss the basic concepts. it is truly a head shaker.

You make me laugh.
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Mike Masnick (profile), 29 Jun 2010 @ 11:56pm

Re: Re: Re: Re: Re: Re: Re:
perhaps the company offering the support outsources to a third world country. who knows? there are plenty of ways for the money to leave the market and not come back quickly.

Indeed. And yet the actual economic evidence shows that it almost always cycles through the domestic economy more when that market is open and efficient. Can you present a single economic study that shows what you're suggesting? Of course not, because they don't exist.

if a whole bunch of industries suddenly dropped 80% of their sales because of open source, we would find a whole new bunch of companies too big to fail. that after the stock markets crash to a level that would make the dirty 30s look like a picnic.

That makes no sense at all. Lots of industries have seen their sales drop of due to advances in the marketplace, and the end result was always greater consumer surplus, not less. Your argument makes no sense and shows a near total ignorance of economics and economic history. I really do wonder why you keep making such statements when they are so obviously false. Really pathological.
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darryl, 30 Jun 2010 @ 10:09am

Open Source is a failure,,, sadly..
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Paula Hunter, 30 Jun 2010 @ 12:59pm

Acquisition curbs the quantity of large players
MySQL, Sleepycat, Xen, to name a few were open source companies that were acquired by multi-source companies before they grew too big to be affordable. Who knows if these and others that were acquired would have ever reached the $1B mark, but as long as they keep getting snatched up, it lessens the chances we will see more.
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Paula Hunter (profile), 30 Jun 2010 @ 1:02pm

Acquisition curbs the quantity of large players
MySQL, Sleepycat, Xen, to name a few were open source companies that were acquired by multi-source companies before they grew too big to be affordable. Who knows if these and others that were acquired would have ever reached the $1B mark, but as long as they keep getting snatched up, it lessens the chances we will see more.
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TtfnJohn (profile), 30 Jun 2010 @ 6:07pm

Re:
Those of us that do run it do tend to spend more on hardware and hardware makers, now realizing this either write their own drivers for Linux etc or release specs to groups who will.
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TtfnJohn (profile), 30 Jun 2010 @ 6:24pm

Re: Open Source is a failure,,, sadly..
Please explain just how, exactly OSS or FOSS or whatever you want to call it has failed.

Thanks!
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darryl, 2 Jul 2010 @ 8:21am

Why are you deleting my posts Mike ??
Just wondering ???

I could guess, but I would rather hear from you why ??
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darryl, 2 Jul 2010 @ 8:51am

Here is why it has failed, or more specifically never suceeded to start with.
"Please explain just how, exactly OSS or FOSS or whatever you want to call it has failed.

Thanks!"

If my previous post was not deleted, it did explain it, Fist I compared it with other markets, and compared it with its own "market".

Then I gave the definition of markets and market share, that shold FOSS really has no market share, as market share is the share of the market, the market is how much of a product is bought or sold.

FOSS do not sell product, so by definition it cannot have a market share.

If you give away dirt, you cannot say that everyone who uses dirt is using YOUR dirt, or that your dirt forms part of the market for dirt. it does not.

By your logic, if 100% of the people on earth uses dirt, and you give away dirt, you have 100% market share.

Then I compared it with other business models that attempt to profit in some way off something with no actual value (money value, that is).

Bottled water, it can be argued that your local council has a monopoly on bottled water, you allready pay for it with your taxes and rates. It's piped to your house, and its very very cheap.

But people will go out and pay between 240 and 10,000 times the cost of tap water for bottled water !!.

And the bottled water industry is massive, huge multi-billion dollar business, with many players and lots of competition.

So if groups can make huge profits selling water you can get out of the tap, and FOSS cannot make even moderate profits from their (they consider far more valuable than water) why cant FOSS turn a profit, clearly bottled water is an industry where the suppliers have worked out what the consumers want, and are willing to pay for, they is what they provide.

People who buy bottled water, dont care about high idealogies like "freedom" and "open" they just want something they want.

But with something that is supposed to be far more valuable than water, over the span of well over 20 years has gained very very little traction in any market.

Sure, they took some apps of UNIX, but after 20 years plus, far more is expected from FOSS than it has delivered.

And it still have no saleable product, therefore it cannot enter 'a market' because 'a market' is a trade of goods or services for money.

And foss products, (IT service is not FOSS), dont exist.

RED HAT is as much a FOSS or open source company as your local mechanic is toyota, he may fix toyota cars, RH might fix open source, does not make them "open source" and certainly not "pure" open source, whatever that means?
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nasch (profile), 2 Jul 2010 @ 1:17pm

Re: Here is why it has failed, or more specifically never suceeded to start with.
In other words, he showed open source is a failure by defining success as doing better than other companies at something open source software companies don't generally do (sell copies of software). Bravo.
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