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Emacs didn't kill word or Wang or WordPerfect.Not sure how to respond to that. Emacs is around, the latter two I believe not, but approximately nobody is using them anyway. And I say that as someone who lives in Emacs.
> OS vendors still make money despite Linux and FreeBSD.
Apple makes money on hardware. Microsoft makes money on cloud, and has been desperately trying to turn Windows into a subscription service for a while now. They even non-humorously said exactly this in some message in (IIRC) installer or update screen - I remember Windows 10 telling me "Windows is a service" as if that was a good thing.
> The GIMP didn't kill Adobe.
No, but again, GIMP and Krita are used by approximately no one, meanwhile Adobe switched to a quite abusive subscription model.
> And if you want to sell proprietary libraries your market is going to be limited because OSs will distribute them and it will be hard to keep up when customers are fixing their own problems.
I don't see how. Think about the 100 (or 10 000, if you're doing webdev) dependencies your product uses. Most of those could be a licensed product, creating a cottage industry of small vendors making a living from developing specialized libraries. This thing is real in some areas, e.g. industrial software, where there are e.g. protocols that are too complex and boring for Open Source community to care about supporting in full. But it's something impossible in general, because popularity of open source simply prevents this kind of market from forming.
Now, to be clear: I don't have a strong opinion on whether this is good or bad. Still trying to fully understand that one. But what I know for sure is that open source is a huge disruption to how the market would've worked otherwise.
> What killed the shrink-wrapped market was first piracy
I'm not convinced about that. Maybe video games had a problem, but money in software in general was in B2B, not B2C, and there the piracy was effectively mitigated by the legal system. In fact, both Microsoft and Adobe used piracy as opportunity because of that - kids would grow up using pirated copies of professional software, and then as adults, their companies and their employers would have to buy the properly licensed versions of that same software, because that's the only thing anyone has experience in using.
> The SAAS model also has the benefit of aligning value delivery with outlays temporally. No more wait a year before shipping: instead get quick iteration with an ongoing revenue stream. You can recover from missteps in a way that the old model could not.
SaaS has some benefits, but they tend to be single-sided, unless the customer and the vendor are comparable in power, which usually isn't the case. So while e.g. IBM or Microsoft can force Google or Adobe to behave, my small business will be taken advantage of by large SaaS vendors.