Theory of competition fails in open source, elsewhere

The natural state of a market doesn't appear to be broad competition between Lilliputian-sized competitors. Rather, markets tend to crystallize around a few dominant players.

Ironically, this is as true of open source as it is of proprietary software.

In September I asked if open source can monopolize a market. ZDNet's Dana Blankenhorn and others gave great feedback, but the market since then has provided the best evidence:

Yes, we can have an open-source monopoly (at least, a natural monopoly). In fact, this may actually be the normal state of a healthy open-source market.

If we think of markets broadly, e.g., the "e-mail/messaging market," we're unlikely to have open source dominate such a market in the near term, though with Linux, Firefox, and other open-source projects gaining momentum, full market monopoly may not be too far off.

If we constrain a market to just open-source competitors, however, we're already there.

Within the open-source market, Red Hat dominates Linux. Firefox dominates browsers. VLC dominates media players. MySQL dominates databases. Android dominates mobile operating systems. SugarCRM dominates CRM. And so on.

Name the market, and you're almost certainly going to come up with just one dominant open-source project or vendor. There are exceptions, of course: Drupal and Joomla duke it out over supremacy in Web content management. We'll call them a duopoly. But these exceptions prove the rule:

Open source loves a monopoly.

This shouldn't be surprising. While the theory of unfettered competition sounds great, it's actually hard for mere mortals to process.

For example, when I walk into a grocery store, I don't want 30,000 cereals competing to be my morning meal. I want just a few. (Ever notice that the same cereals sold when you were a kid persist on those store shelves? We don't seem to want much competition over time, either.)

It is convenient for open source to think itself different, and to rally the troops against "Darth Vaders of IT." But that's all it is: convenient. A convenient fiction that makes us feel that this time it will be different, that this time it's all about kumbaya and the customer.

The customer doesn't want 50 vendors providing support for one open-source project. It wants to invest in Red Hat, Canonical, or Novell, and probably just one of those. It wants Android or Symbian, MySQL, or Postgres. And so on.

Manageable choice. Choice that starts to look an awful lot like monopoly. It's not that customers want to have a market dominated by a single vendor. It's just that they'd rather have a limited choice of a few good vendors, rather than an unwieldy choice between scads of competing vendors.

The difference is code transparency, process transparency, data transparency, standards transparency, and so on. This lets customers buy into a limited choice, but have a more open option for exiting that choice. It's a distinction that is more meaningful in theory than in practice, but it's still worth something.

Just not as much as we thought.

[XCMeathead]

Symbian dominates open source mobile operating systems, not Android

[kschroedermwi]

Depending on the size of the market, yes there is almost always a monopoly in a vertical market. However, that is looking way too narrowly. For example, if you look at cloud solutions running on the Microsoft platform, there is a monopoly. But when you look at cloud solutions, there is not. When you look at programming languages running native in Apache on Linux running MySQL there is a virtual monopoly. But when you look at programming languages on deployed websites there is not. Dittos for operating systems, databases, web servers, CMS, ticketing systems, workflow systems, business intelligence, etc. If there is no competition in a market then it means that either a) the market isn't worth competing for, or b) the examination scope is too narrow.

[cerebralmastication]

the 'thin slicing' argument you make here is spot on. I was thinking the exact same thing. Market choice is VERY different than saying 'how many things does one person consider?" Very good comment.

[rmva]

Matt, <br /> <br />Whatever happened to Declan? I miss his wild-eyed rants.

[Pete Bardo]

Customers do want choices from several vendors, but so many of us choose only the best, judged by whatever criteria. Inevitably there will be one big player in the field, with a bunch of little gnats biting at their heels.

[chedlin]

You just mentioned "the exception that proves the rule" to an audience with years of logic experience? You sound like a PHB from this programmers seat.

[cerebralmastication]

Matt, you make some good observations, particularly about the 'paradox of choice.' You are spot on that people don't really like wading through the long tail of offerings and really just want to brush their teeth with Crest, just like they did as a kid. <br /><br />However I think you are really off the mark with a few of the economic terms you use pretty loosely. The 'freedom to fork' which most all open source licenses include, means that any open source project is capable of becoming its own competitor at any point and with minimal barriers. This means that if I like PostgreSql but they take a turn which I don't like I can immediately start my own distribution of PostgreSql. That's a VERY powerful feature of open source licenses and open code which really matters. It's not, as you stated "more meaningful in theory than in practice." If you review the forking of the Media player XBMC (http://en.wikipedia.org/wiki/XBMC#Third-party_forks_of_XBMC) you'll see a LOT of ambiguity about which project will ultimately become the most common. This is the very essence of competition. <br /><br />A monopoly generally means more than 'most people use this'. It generally implies some sort of control over a market. Open Source allows the user to be in control, not the vendor. <br /><br />I suspect your article was written with intent to get emotions going. I understand that as I do the exact same thing sometimes (http://www.cerebralmastication.com/?p=391). As an economist and an advocate of open source software, I feel you have a few points in your argument that could use some refinement. <br /><br />-JD Long

[PdxTRK]

Matt, I love when see people attempting to use economic theory applied to real life situations. Good for you. But I can see from your article that you are not trained in economics as you have reached some untenable conclusions which were derived from flawed analysis. The reason that open source tends toward monopolistic market activity has nothing at all to do with the demand side which your article presupposes. Rather, it is entirely based on Supply side and the natural walls erected to market entrance. For instance, it would be almost impossible for me to enter the database market with a new product if I have no possibility of financial remuneration. But as a consumer, I might very well want some other choices as to which database I use. The time and money it would take for me to create a new database creates an astronomical barrier to me entering that market. In fact, any area of economic activity that requires a huge investment (whether time or money) tends towards fewer players on the supply side. Without those barriers the supply curve will move upwards to the left and the quantity supplied at equilibrium will increase.

[v.ap]

Software in general tends towards monopolies. At least, that's been argued by some Schumpeterian economists, pointing to zero marginal costs of production and the barriers between different software programs.<br /><br />And this was one of the arguments made by Microsoft in its favour in the courts cases over Internet Explorer back in the 90s. <br /><br />I agreed with the argument a few years ago - now, I'm no longer sure. I think that the established player gets cut out by a new entrant, and if this repeats often enough, there will be no monopolies. Think Netscape &lt; Internet Explorer &lt; Firefox &lt; Chrome.<br /><br />Just remember: This too, shall pass.

[henrikingo]

Hi<br /><br />If you count Symbian as Open Source (which it now is), Android surely is not the dominant Open Source mobile operating system.<br /><br />Other than that you are absolutely right! <br /><br />Regarding the mobile platforms however, the game has just started. Symbian may well be headed for life support (or not, time will tell), but even between Linuxes Android was there first but may turn out too proprietary to win. Maemo, Moblin... For instance Nokia's volumes alone can sway the market whichever way.<br /><br />Even so, I expect the mobile market eventually to stabilize on a similar monopoly. Just not there yet.

[tony_ash]

Enterprise competition is not really customer-centric. It is enterprise-centric. Any availability of "consumer choices" is a side-effect of competition. The direct effect of competition is that the enterprise is in peril of the loss or reduction or reduced growth of its revenue stream at the hands of a competitor. This leads the enterprise to make choices to influence the customer to continue or expand the purchase of the goods or services of said enterprise.<br /><br />What the consumer perceives as choice is really a detriment to the consumer in many cases, due to incompatibilities or inconsistent feature-mixes between goods or services rendered by the enterprises providing the alternatives. It is a benefit to Consumers if some consumers choose the non-dominant enterprise, because that keeps the enterprise working harder to improve goods or services. <br /><br />A market over-run with competitors is not beneficial to anyone, as was stated in the article. Microsoft, by virtue of their size early on, formalized things, giving us a standard platform to work from. However, M$ is "just a little too big". Since the early ninety's, they agree to standards, and then don't really abide by them; they invent their own, slightly different standards.

[ArtInvent]

The concept of monopoly centers around control - how one entity can control a market and thus be the sole beneficiary of market transaction. But the concept of open source guarantees that no one can exert sole control over the code or its distribution. One of the great attractions of open source is expressly that monopolistic practices like those of MS, Apple, Adobe, Autodesk, etc. are impossible.<br /><br />Thus, the whole concept of 'monopoly' and all the concerns of anti-trust and anti-competitiveness that this term engender become moot. They simply don't apply. <br /><br />An open source app is not locked into any one vendor. I or anyone else can take Ubuntu or Android for example and package it and 'vend' it to whomever I want. Thus, it's not possible for Canonical or Google to exercise a 'monopoly' over even it's own product! Let alone over the entire Linux ecosystem or the entire OS market.

[finalfanoffkey]

I guess the reason there is no one folking ubuntu is there is no money to make if Ubuntu is free. Yes you can alter Ubuntu and resell it, but for what? Want a piece of Ubuntu support market? Is there money to make, even Canonical is losing money on Ubuntu. There is no point of doing that. The reality of open source software is more of preventing others from making money for now and trying to figure out how to make money for tomorrow. If there is a law today say relying on money from business other than selling/supporting their software to kill competition is illegal, then 90% of the open source software vendor will be gone. <br />Millions lines of free available code is de facto a kind of monopoly. No customer has the ability to really folk it unless they are backed by the some big money they don't really need to fight for.

[shirgall]

The "open source" boundary for a market is an odd choice, but I suppose if there is a customer that will ONLY choose open source it might count. Even so, what customers primarily buy in such markets is support or they invest in in-house administration and development, not the software itself.<br /><br />Even so, MySQL is hardly the 400 pound gorilla in the open source database market. There are a ton of competitors, especially in niches. Add to this the fact that it appears to be forking, there may soon be multiple MySQL competitors fragmenting the market.<br /><br />The open source markets don't seem any different than other kinds of markets in this regard. What REALLY matters is the barriers to entry for that market... that is what leads to fewer competitors.

[ProDigit]

Ubuntu is the most famous OS so far for consumers and home desktops.<br />Mandriva is at a close second in my estimation.<br />DSL is close too.<br />I don't know about the server market which used RedHat Linux before, I don't know if it's still to this day the most used Linux OS for servers.<br />A tiny community supports slax.<br />The rest are derivations of those Operating systems like Kubuntu,Xubuntu, backtrack, ...etc...<br /><br />FF is the leading in opensource browser,with google chrome coming in second. There is clear choice there!<br />Mozilla thunderbird is mail client, and Pidgin is a main open source messenger/skype alternative. There are many small programs out there, but for those 2 there is indeed kind of a monopoly.<br /><br />VLC comes out as a leader in movie players, together with mplayer, the latter does not come with it's own included decoders.<br /><br />It's much like powerDVD is Window's main DVD player, Windows Media Player is a main media player together with WinAmp, and Ahead's software Nero is a main CD/DVD burning program.<br /><br />Clusters are formed naturally. Out of a bunch of programs they are the few that provide either the best user interface, are performance wise on top, or offer the most configurable options.<br /><br />In the latter case for instance, you will find Azureus Vuze being one of the main chosen bittorrent clients, thanks to it's wide user interface,and multi plugin compatibility!<br />Users that want less system resources and better performance,might go with uTorrent or the Bittorrent torrent client.<br />A typical example of user interface was the beginning of Vista, many went to vista for the looks.<br />Many later returned for performance issues.<br />Many are skipping vista all together for performance issues.<br /><br />anyways,I'd just look around! there are many programs that come in as a second program, and many linux users use them!<br />I'd not say that there is a monopoly.<br />Ubuntu on itself has more downloads than RedHat, and of Ubuntu there are at least 4 or 5 versions. I don't use the main Ubuntu version but the Xubuntu version.<br />So I don't really see where this article is going to, other than to be an article to be an article!

[Lpartain]

All of this discussion assumes one thing, that we have an unfettered and completely free market within which companies compete with each other, we don't. Everything from the regulatory regime, to the massive inflation and funny money from the Fed muddies the waters. Today economies of scale are a far bigger advantage then they used to be largely due to the effect of inflation on the price sensitivity of consumers. This price sensitivity has done everything from making good rich old-fashioned chocolate bars into the waxy stuff we eat today, and given rise to the big box store. Also the massive regulations put the squeeze on young and new enterprises who find it difficult to comply while the big boys can more easily absorb the costs.<br /> The theory is sound, but everything is being done to prevent the natural effects of a free market place. In such an environment the big eat the small. Mom and Pop shops Unite !!!

[CoffeeGroupUSA]

Matt, Interesting snapshot analysis. It's rather early to be coming to a conclusion or theory though, don't you think? For instance, it's only been less than two years (and 1.5 budget cycles) for those in the closed world to suffer, and begin seriously considering OS. No, seriously this time. <br /><br />Right now, community-driven (grass-roots) OS software is bumping into both closed solutions as well as commercial-driven (stem-down) OS solutions. <br /><br />I look forward to 2011 - 2012, to see whether this snapshot analysis is vastly different, or there are more players in the OS realm.

[john.mark]

Matt,<br /><br />I agree that customers want to settle on a couple of easily managed choices and leave it at that. The difference between open source and proprietary is that an open source vendor, understanding that this term can be defined in different ways, will have to be more friendly to it's community of users and developers. This is because of the rules of the game that they agreed to when releasing open source software. That hardly anyone ever forks a project is almost immaterial. That the threat it real keeps the open source vendor more honest than others. <br /><br />Yes, markets trend towards monopolies, but as has been demonstrated multiple times, it is possible for a new open source competitor to "out-open" or out-feature an existing product and change the market dynamics. <br /><br />-JM<br />http://www.johnmark.org/blog/