For a long time, I’ve been wanted to do some serious research into the economics of free software: there is an awful lot of opinion about how you can and cannot make money out of free software, and not really much fact (or, at least, no-one has looked at the experiences of companies who’ve been in this industry for the last 10-15 years).
No-one has really gone through the history of all these businesses and tried to construct some picture of how businesses have done. There are examples of businesses that are pretty successful – Red Hat, Google, MySQL – are there are examples of those who haven’t been successful. Progeny are the most recent example, and are why I’m thinking of this right now – I just read the article on Linux.com about their demise.
The case of Progeny is really quite interesting. It sounds like the advent of Canonical helped make up some people’s minds – Murdock in particular seems to imply that he realised the game was up. Given that Canonical don’t even plan to break even until 2008 (and I’d be somewhat surprised if they did by then), it’s obvious it would be difficult to compete against someone so well funded and with such a similar plan.
I found a comment at the article a bit off:
“Earth to Galvin: in services, your “IP” is what your employees know, not the secrets of your widgets.”
When two of your important employees have just walked out the door, your “IP” has just gone as well – to that extent, I agree with the comment. But I disagree with the rest of it – that kind of “IP” isn’t something you can invest in, unless you’re willing to invest in it on the basis that your investment could turn to nothing overnight.
I think in a way, that highlights a problem that free software companies face. If you don’t have something which sets you apart, there isn’t much reason for new customers to come to you, and if someone else starts doing what you do better, there isn’t much reason for old customers to stay with you. From the point of view of the customer, they obviously like the idea of competition, but from the point of view of the company, it’s not a great situation – in many ways, the free software market is very commoditised, and commodity markets are rather different to traditional IT.
My gut feeling is that free software is pretty difficult to fund per se: most of the success I see is free software almost as an industrial by-product, produced as an adjunct to some other process. But, it would be interesting to do an actual study.