with the news that redhat is scaling back a bit, i’m motivated to explore the viability of the open source as a business again, especially in light of coments made in the wired article:

“After Linux generated a certain level of buzz, big companies such as IBM and Hewlett Packard began to latch onto it. In recent months, some observers have questioned whether pure Linux companies such as Red Hat could succeed in the long term given the entry of such companies, with their firmly entrenched support services, into the market.

“The original idea of making money from a free operating system was dubious from the start,” said a former Red Hat executive who asked not to be identified. “To make it work, if it could work at all, would have required highly skilled management. But with the price of the stock going from 151 to about 6 today, it’s clear that the business model is impossible, or that Red Hat’s management isn’t up to the task, or both. Either way, it doesn’t bode well for Red Hat.””

luckily, i don’t have to look very far:

Lou’s Views: Penguins vs the Dismal Science

“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. Don’t think for a nanosecond that these companies want to spend horrendous amounts of money developing software they can give us because we’re nice or lovable; it’s simply in their best interest to do this to promote more pragmatic endeavors, like making money from hardware sales. Seen in this light, the only thing surprising about IBM’s stunning, wall-to-wall Linux commitment is that it’s not even bigger. IBM, thanks to the variety of hardware platforms it sells and supports, probably has more to gain from Linux’s long-term success and arrival as a unifying platform than any other single company.”

Making money on open source

“Another market with perhaps the biggest potential for Linux is embedded systems (see Resources for a link to another LinuxWorld.com article on embedded Linux). Linux isn’t the perfect embedded OS, but it’s fast, tight, and free. You can’t beat free, especially when the margins on devices can be low or even dip into negative numbers. (It is not unusual for companies to intentionally lose money on game consoles and other devices that use embedded operating systems, since they make money elsewhere.)

Pure software companies are in a much more difficult position than companies that add value through hardware in one way or another. It is getting increasingly difficult to sell people something they can get for free, and more and more software is free these days.”

“The problem isn’t to figure out how to sell it, but to mostly give up on the idea of selling software, and
look to add and sell value in other ways.”

Open Source vs. Commercial Software Development

“And what do we make? Software for those who grew up with computers. Software for people who hate wizards, and plug and play, and lack of control. Software for people who can see the beauty of a properly working system. We make software for people who love choice. We make software that works, even when hardware manufacturers won’t pony up the documentation, even when we have to reverse engineer things that should be publicly available, we make it happen.

These are the things that make open source great. This is why even after an 18-hour day, I still have the desire to settle down at my Linux box. This is why I work all week in commercial software and still look forward to a weekend of uninterrupted time to catch up with my own development projects. This is why I’m here, and why I’ll continue to be here. This is what open source is all about.”

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