Wille Faler’s Buzzword Bingo

Eelco Hillenius brought someone elses claims of “Open source being communism” to my attention. As Eelco, I don’t agree with that assertion.

A hallmark of efficient markets is that profits and profit margins dwindle down to almost zero as a result of transparent market information and hypercompetition. In other words, when a market is extremely efficient, profits are hard to come by – there is nothing “communist” whatsoever about profit margins being eroded by new types of competition, it’s called “progress” and “competition”.

To make a parallell to the financial markets: in todays world, it is hard for the average investor to beat the market indices when playing publicly traded stock markets. Why? Because the markets are extremely efficient, no one player has any edge in terms of information over other players, the only way to “win” is by having more resources for research and sharper brains in the house.
On the other hand, for many years Venture Capitalists and Private Equity firms have been able to make astronomic profits, because the markets for VC and private equity capital have been inefficient, however that is something that is changing, and as a consequence VC’s and Private Equity firms are seeing their profits dwindle, and having to find new ways of working.

The same applies to the software market with the introduction of Open Source software: profit margins are going down for proprietary vendors. Why? A more effective market, and new forms of competition.
There is absolutely nothing that tells us that selling proprietary software licenses is the only way to make money of software, nor should we believe that proprietary software licensing is the be all, end all business model for software.

The simple fact is Open Source software is not killing the software market, it is merely changing the market and its rules in a similar way that airplanes changed the travel industry. Proprietary vendors have no birthright to stick to the same business model forever, they have to adapt their business models to changing circumstances, adapt or die.