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Comment by kiyoto | Hacker News Reader

>The question is, how much do free market economics apply in open source?

This is something I ask myself a lot (as someone focused 100% on open source at a company whose core business is not open source support).

For all the hype that open source has enjoyed as a business model, it is much smaller/untested/too early to tell compared to the proprietary model. The most financially successful open source company to date is Red Hat, which, at 10B USD+, is a great success by anyone's measure. But that's the best any open source pure play company has done. If you look in the other direction, Oracle is worth 180B USD, and even a fledgling BI company like Tableau is in the high single digit billion.

As much as I'd like open source companies to be an Oracle-grade blockbuster success, the brief story is not exactly promising.

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I guess it's a question of what the company is selling. Google for example uses huge stacks of open source to run their business. And even though they are far from being pure open source, they do contribute back to the community in multiple ways, for example with contributions to the Linux kernel and open source projects like Chromium and Go. And then there are projects like Qt, that mix open source tools with enterprise support.

But I think that the field of IT is still extremely young and that in the future larger companies will discover that collaborating on open source platform and infrastructure projects will give them much better synergy effects and lower IT costs by removing the license cost and at the same time lowering the support cost. Compared to history, the 20-30 years that mainstream computing has is really just a spark and there is so much change coming that will be directed by market and competition.

re: your Google example, that's why I said open source "pure play". Of course, we wouldn't be where we are without all open source projects that sprang up in the last few decades.

And yea, it's too soon to tell. Software & software business are evolving rapidly under our feet. I am curious to see what will happen next.

As well as Red Hat has done, they are dwarfed by many other companies. This post about open source compressing the market size by 10x made a lot of sense, and was also a little depressing. http://kellblog.com/2014/11/18/it-aint-easy-making-money-in-...

But isn't that exactly how innovation and disruption works? Taking a market and saying "we'll do it for 10x less".

It depends what kind of innovation. Disruption often involves business or marketing innovation combined with technical non-innovation. Shrinking a market by 10x can be a good way to ensure that there won't be enough profit left to invest in R&D.

I think that's the wrong comparison, because companies like Redhat are pretty much by design forcing down margins in the spaces they are operating in by lowering the bar to compete. E.g. to compete with Redhat, you can start by learning their products and offering consultancy services on them, and then gradually forking each one of them to offer specialised products; but conversely so can everyone else.

We should not expect to see open source companies get to Oracle sized valuations; instead we should expect to see them chip away at the market share of companies based around proprietary software until said companies margins shrink, and either their valuations shrinks with them or they expand into new areas in time to delay it.

But ultimately we should expect larger and larger parts of the software space to be commodified and margins driven down for core features like this.

I consider Twitter to be an open-source company. The amount of open-source work they sponsor and incubate surpasses that of most traditional vendors.

Their business model is also a lot better. They have a nice unrelated service they make money off of instead of trying to charge for enterprise support or licenses.

I think valuation is the wrong thing to measure here. Open source companies do not seek to maximise value capture. The surplus created through open source by its nature are spread throughout the user base and ecosystem. Perhaps Red Hat has produced 100B+ of value but only is valued at 10B or whatever because that is the part they have been able to capture effectively with their business model.

conversely, look at companies like facebook, google, and walmart who have all made the decision to open source their code. software and non software companies alike recognize that contributing their work to the world adds value to their own product.

i think in the future you will have more non technology first companies, like walmart, with strong software divisions promoting and funding open source software. they dont need to make money directly off selling the software when they can make money off what the software does.

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