Understanding What Makes Open-Source Superior

Recently, I was trying to explain the free economy, in general, and the economics of open-source software, in particular, to a friend who spent a number of years in the executive ranks of a fortune 500 corporation. Coming to the conversation, he brought his industrial era management mindset, which insists that perpetually giving value away makes little economic sense.

Now my friend is incredibly bright, so he had no trouble getting his head around the process by which open-source software is created. He understands that it is created and maintained by contributors, who freely donate their time and effort to create it. He also understands that the resulting software is made available to anyone who wishes to use it, for free. He even understands that open-source it is driving a significant portion of our information economy. However, he has difficulty appreciating how open-source can be any good. He can’t see how it could be competitive with or, as in cases like Drupal, be superior to proprietary software that is created to make money for organizations in a market economy.

The reason my friend, and so many others, have difficulty with the free economy is that its fundamental principal is based on a human behavior that is foreign to most classical economic and management theory. In fact, it seems foreign to the very concept of capitalism. Yet, the free economy is a vibrant and productive part of the world economy, producing valuable products like Linux, Apache and Drupal, and encompassing a greater and greater share of information technology economic segment.

This video provides an outstanding explanation of the motivations that drive the free economy.