Open source, like digital media, doesn't suck money out of hitherto profitable industries. Instead, the opening up of software and information simply changes where the money gets made.
This is obvious to the Googles of the world. It's probably equally obvious to the Microsofts of the world. The difference is that the latter can see the train coming but is powerless to stop it, and the former is driving the train.
The evidence for this is increasingly clear and is driven by a shift in how content is sold and consumed. The problem is neatly summarized by Google CEO Eric Schmidt in a Wall Street Journal op-ed piece directed at the newspaper industry:
[T]he Internet has broken down the entire news package with articles read individually, reached from a blog or search engine, and abandoned if there is no good reason to hang around once the story is finished. It's what we have come to call internally the atomic unit of consumption.
That newspaper was "the package," but is increasingly too slow and out-of-sync with how people prefer to discover news content. New packaging is rising, including Google News, that will shift who makes money on news content.
Reporters will still get paid. They'll just have a new employer on their payroll check. Maybe it will be Google.
Think about what is happening in music. I could download New Order's "Regret" for free using LimeWire, but I bought it on iTunes because of the "packaging" which makes my experience easy, high-quality, and legal.
Still, the primary drivers are ease and quality.
Such packaging is worth a lot of money--and to an entirely new breed of vendor--as a quick look at Google's latest income statement suggests.
It's happening in software, too, particularly in open-source software. Red Hat is an example of a company that does a great job of turning software license into an ongoing service contract that enterprises buy. It does this by packaging the power of others' development in the form of a subscription, as Red Hat CEO Jim Whitehurst recently highlighted.
But Red Hat is just Open Source 1.5. Open Source 2.0 looks more like Google or IBM. For every dollar Red Hat makes selling subscriptions to use open-source software like Linux and JBoss, both Google and IBM make multiples of that dollar using open-source software to sell something else, something they've packaged in hardware or Web-based services.
The hardware is running open source. The services are based on open source. The money is made in the packaging of open source.… Read more