I make the argument here using software because it is the easiest way to explain it. Previously, I used more elaborate economic models of supply and demand in open source, and they are still valid and principally the same, but then, well, more complex to explain.

However, this added complexity is not for nothing. There are actually multiple effects in these economic games: Less money spent on some software components not only makes it possible for customers to buy more, it even makes it possible for vendors to reach more price sensitive customers that were previously out of reach, see the referenced publication above.

I agree with your main point and I have been using a diagram like this for a few years when I talk to people about open source and commercial open source implementations. I think it is important to note that the money that is freed up by lowering the cost of the components can be spent (and I contend usually is spent) on services not on product. By spending this money on services instead of product you get a more successful outcome for the project.

If is useful at all I have a paper/wiki on the single vendor commercial open source model called the Beekeeper: http://wiki.pentaho.com/display/BEEKEEPER/

James Dixon

To add to this line of thinking, I believe this strategy can be applied to other types of businesses, especially online, where it is easy to give something away for free. When a company gives something away for free, such as an online service, it is also fighting the “war over the wallet”.

Take Google as an example, which offers a wide range of free online services, in direct competition with “offline” solutions such as MSOffice and Outlook. By providing private users as well as businesses service, they’d otherwise have to pay for, it leaves room for spending that money on, say, online advertising, in Google’s case.

Many, many people are self taught on the linux side of things at sys admin level and less frequently at developer level. Nonetheless the differential between rates of pay on the windows and unix side are simply controlled by supply and demand.

This was a very interesting article. I see the benefit for IBM post OS/2. Linking this to their ODF strategy, it seems they have some very decent thinkers in their business.

The consulting perspective is actually quite interesting. One might argue that consultants would like all software to be free so that more money is left for consulting and implementation services. However, if everything was open source, the barriers to entry to the consulting services market would go down significantly, as every high-school dropout could set up shop if they only had enough energy to dig into the software. So you’d want to strike a balance between employing open source and relying on (expensive?) proprietary source that protects your market value.

This is also interesting from the implementation consultancy point of view. Although the open source components are cheaper to “buy”, often they require more resources to implement and support (this is partly because many open source products are more focussed on features than on usability or documentation). From a consultancy perspective, this can be a good thing – even if the operating system or database ends up costing them customer nearly as much as the proprietary version, the extra implementation/support money is going to the consultancy instead of to a software vendor.