The harsh economics of open source

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In the free market, the laws of supply and demand would suggest that the lower the price of something is, the easier it is to sell it — Based on this, you could infer that something which costs $0 and which delivers real value to its users would “fly off the shelves”.

Unfortunately, this is rarely the case when it comes to open source software. When applied to the software industry, the laws of supply and demand seem to break down in surprising ways.

One unusual aspect of the industry is that the supply curve for software does not taper off as it gets closer to the $0 price point; even at that point, there is still a lot of competition — not only between different open source projects but also between ‘free’ (ad-supported) software services.

What is most surprising about the software industry though is that solutions offered at a $0 price point often find themselves having to compete with equivalent software solutions at a much higher price point. This clearly defies the laws of supply and demand and indicates that there are other forces at play.

One of those forces is advertising; unlike open source software, commercial software can tap into its profits (or VC funding) to launch targeted advertising campaigns to skew public awareness and opinions in its favor; this targeted advertising creates a false sense of added value in the minds of consumers — It taps into people’s fears and their beliefs that the most expensive solution is more reliable and delivers the most value.

Another force which works in favor of commercial software is the highly interconnected (and centralized) financial landscape of the software industry; this is particularly relevant when it comes to B2B solutions. SaaS startups which have financial connections to venture capitalists can leverage those connections to gain access to big corporate clients. The tech industry as a whole is a minefield when it comes to conflicts of interest; to the point that they are often ignored completely. As an extreme example, even today, it’s not uncommon for popular tech blogs/publications to have direct financial interests in many of the companies that they help to promote.

The current economic landscape of the software industry has made it very difficult for open source software to exist, let alone compete for market share. Even companies behind some of the most popular open source solutions find themselves resorting to business model innovations like the infamous ‘Commons Clause’ in order to keep their projects in a financial equilibrium. When Redis Labs decided to apply the Commons Clause to some of its optional add-on modules, there was immediate and significant backlash from the community.

It’s ironic that most people don’t seem to bat an eyelash when it comes to locking themselves into expensive proprietary ecosystems like Amazon Lambda/AWS but they can’t tolerate the idea of an open source company like Redis Labs trying to monetize a few optional add-on modules on the side.

Surprisingly, people seem to get upset at the idea of an ecosystem which is open at the core but proprietary on the edges but nobody seems to be getting upset about the opposite scenario which is an ecosystem that is proprietary at its core and open source only on the edges. No one is complaining about the existence of the Serverless framework for example; even though its main purpose is to be a gateway drug to Amazon’s proprietary ecosystem.

When it comes to ethics, it doesn’t make sense that companies whose core mission is to develop open source software should be held to a higher standard than commercial software vendors whose core mission is to generate profits; it should be the opposite.

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