And the next level of the phenomenon is that the entire software industry has shifted its business model to avoid having to compete with piracy or open-source. There are now, to my knowledge, two major for-profit companies building their own PC operating systems: Microsoft and Apple. There are four or five building mobile operating systems: Apple, Microsoft, Blackberry, Google, (maybe) Symbian. The number of for-profit IDEs and programming platforms is still mostly healthy, but much, much smaller than it once was.
"That which is not seen"? That is, the effect of this privative of profits on the real world? Almost whole fields have shifted over into the domain of unpaid, spare-time open source work. Thousands, millions of man-hours are expended for no salary and no equity.
Think what would happen if all the open-source programmers (paid and unpaid) went on strike. Now you're realizing the economic value of open-source code that goes completely uncaptured by its producers.
Yes, the result is that less gets done, because everyone has to find day-jobs, and that the software industry has changed almost entirely from product business models to service business models.
Now, another scary thought: what if someone stole the code and databases to your web-service? You say that your contacts and relationships are what really makes your web-app worth something, but frankly, that's a load of crap. I'm sure there are some starving Chinese coders who would love to steal your code and your data, bring up their own web-service identical to yours (but in Chinese), get a few million users, and then translate theirs back into English for North American and European usage.
The "relationships and business expertise" excuse sounds much like what everyone said when America sent its manufacturing overseas: "We'll do all the high-value services and design and development work here." Well, no, the manufacturing was itself high-value and the other high-value points in the supply chain eventually followed it, and we're China's bitch now.
There is an imperative to enable value-creators to capture some portion of the value they create as cash. Otherwise the entire foundation of not only capitalism but all possible market economies breaks down into mush.