I just wanted to amplify the thread of the last two posts, in which I join in support of the view that open source software is both economically viable and essential to liberty and capitalism. What inspired this particular post was reading the Prudential interview with Eric S. Raymond, in which he says, when asked about the viability of open source as a platform for capitalist enterprise:

Eric Raymond: I would say the best investment possibilities are companies who can use open-source technology to boost the value of our product bundle without being pure play software producers themselves. The prospect of capturing high returns from pure-play software companies I think is increasingly a mirage. I don’t think you’re going to see that happen anymore. And the reason again is fundamental.

What is it — let’s look back at basic economics and think about what is it that enables us to capture high returns from founding and floating a company? Well, basically it’s capital investment. You need to look for business opportunities where it’s possible to scale up returns by pumping in lots of capital and then collecting those scaled up returns. That’s not going to happen much anymore in software because we’ve passed out of a regime where you can scale up returns by pumping in capital.

The reason we used to be in that regime was because computers were expensive. So by pumping in capital, you could afford to equip the business with capital goods that would greatly raise productivity. Also, software distribution was expensive. You had to move physical media around, and that’s also something [else] that you could enable by pumping in a lot of capital.

Well, both of those bottlenecks are gone now. Computers are really cheap, and distribution over the Internet is nearly free, and that means there isn’t really an opportunity to multiply returns by pumping in capital, and the ultimate consequence of that is you shouldn’t bet the farm on a pure play software company. There are still ways for companies like that to make money but not at a volume that is going to sustain a lot of stock market investment.

So I’d say look for companies that are not pure play software but for which software is a critical enabler, something that greatly raises the value of their products, and look for the companies that are most successfully harnessing the energy of the open-source community and working with it to raise product value.

After reading that, I then found this Slashdot discussion when searching for information about use of GIMP in the fx part of the film industry:

Posted by michael on Wed Nov 13, ‘02 12:22 PM
from the thirty-percent-more-gimpy dept.

gosand writes “DesktopLinux.com is running this story about Film Gimp. It is a movie editor based on The Gimp that movie studios have been developing for their own use for a while now. The article is an interview with Robin Rowe about Film Gimp’s use, and includes some interesting info about the film industry’s use of GNU/Linux desktops. One quote worth noting: ‘Studios have become the leading desktop users of Linux. Three hundred Linux desktops at Dreamworks. That’s amazing! While the MPAA is campaigning for new restrictions on content, the artists at the studios are using and helping create open source. Having Linux and open source as a crucial part of studio operations may help executives rethink their corporate position on open source and Linux issues.’”

This excerpt reinforces some of Raymond’s observations, in the interview cited above, and elsewhere: that most code (95%) is written in-house; that it is, in fact private industry that writes most open-source code, because they collectively stand to gain enormously from it; that open-source is a superior model of software development; and that although one cannot profit directly (at least as much as used to be possible, pre-internet) from software, one can profit handsomely from services built around open-source.

This entry was posted on Thursday, February 10th, 2005 at 10:42 pm and is filed under Computer Science, General, Open Source. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.