Free Open Source Software Costing Vendors $60 Billion, How Naive! - Adventures in Switching to Linux

Thursday, May 8, 2008

Free Open Source Software Costing Vendors $60 Billion, How Naive!

I read a post over at CNet a while ago that Study Finds "Free Open Source Software Is Costing Vendors $60 Billion". Granted I have not read the $1,000 report but the title is a very naive assessment of the cost and benefits of Open Source software.

I imagine the argument in the report goes something like this: You can get a free and open source web browser, web server, operating system, office suite, database or two, ftp client, im client, email client, file de/compression utility, image editor, anti virus, PDF generator, etc. (the list could go on almost forever) so you don't buy the commercial version. Not buying the commercial version is $60,000,000,000 worth of unsold software. That argument is likely true in a lot of instances. Why would someone pay for software when they could get software that meets the same needs for free?

The biggest issue I have with this assessment though is it treats the use of Open Source over commercial software as zero sum. The idea that if you use Apache instead of buying IIS, Microsoft just lost X dollars in revenue (add it to the $60 billion) and you saved X in expenses, The End. But if you are also a commercial software vendor, which is very possible, then you can use the money you saved to develop your commercial application and make many multiples of X more. If you are not a commercial software vendor then you just saved money that you can spend on a better more specialized software package. Sure Microsoft got a smaller piece of the pie (or no pie) but thanks to the money you saved and were able to invest in your own product or spend on some other software you could not have bought otherwise, the pie is now considerably larger.

Open source software also raises the bar for commercial software leading to better, more useful software and ultimately more software sales. When Microsoft sees that Apache is a serious competitor to IIS, they can either improve IIS so it is better than Apache or they can ditch it and focus on improving their more profitable software like Windows and Office. Do you remember how it took Microsoft forever and a day to get from IE 6 to 7? Do you know why? They didn't have any reason to until Firefox became serious competition. Open Source software raises the bar for commercial software that competes with it and that is good for all consumers. Open Source provides the basics and lets commercial vendors concentrate on the specialized. The Gimp certainly has not killed Photoshop.

And one last note. What about all the revenue from services provided by the companies that back Open Source software. IBM, Red Hat and others are doing pretty well.

What are others saying?

1 comment:

IllegalCharacter said...

> it treats the use of Open Source over commercial software as zero sum.

Not sure if this is entirely true...

Basic economics: If some company sells X copies of their software for $P that is a lower price than another company offering a similar software at price $P2, it does not necessarily mean that they are taking away X sales from the more expensive company. By the law of demand, a lower price will yield more copies sold (all else equal) so the actual number of sales taken away is a bit less than X (or when the cheaper software is free, a lot less than X). The difference between X and the actual number of sales taken away is the group of people who weren't willing to pay $P2 for the product.

Perhaps they actually did take this into account and the $60 billion actually is an accurate number.