The market mechanisms for funding (and making a profit from!)
open-source development are still evolving rapidly. The business
models we've reviewed in this essay probably will not be the last to
be invented. Investors are still thinking through the consequences of
reinventing the software industry as one with an explicit focus on
service rather than closed intellectual property, and will be for some
time to come.
This conceptual revolution will have some cost in foregone profits for
people investing in the sale-value 5% of the industry; historically,
service businesses are not as lucrative as manufacturing businesses
(though as any doctor or lawyer could tell you, the return to the
actual practitioners is often higher). Any foregone profits,
however, will be more than matched by benefits on the cost side, as
software consumers reap tremendous savings and efficiencies from
open-source products. (There's a parallel here to the effects that
the displacement of the traditional voice-telephone network by the
Internet is having everywhere).
The promise of these savings and efficiencies is creating a
market opportunity that entrepreneurs and venture capitalists are now
moving in to exploit. As the first draft of this essay was in
preparation, Silicon Valley's most prestigious venture-capital firm
took a lead stake in the first startup company to specialize in 24/7
Linux technical support (Linuxcare). In August 1999 Red Hat's IPO was
(despite a background slump in Internet and technology stocks) wildly
successful. It is generally expected that several Linux- and
open-source–related IPOs will be floated before the end of 1999
—and that they too will be quite successful. (Year 2000 update: they
were!)
Another very interesting development is the beginnings of systematic
attempts to make task markets in open-source development projects. SourceXchange
and CoSource represent
slightly different ways of trying to apply a reverse-auction model to
funding open-source development.
The overall trends are clear. We mentioned before IDC's projection
that Linux will grow faster than all other operating systems
combined through 2003. Apache is at 61% market share and
rising steadily. Internet usage is exploding, and surveys such as the
Internet Operating System Counter show that Linux and other
open-source operating systems are already a plurality on Internet
hosts and steadily gaining share against closed systems. The need to
exploit open-source Internet infrastructure increasingly conditions
not merely the design of other software but the business practices and
software use/purchase patterns of every corporation there is. These
trends, if anything, seem likely to accelerate.