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Why Linux Is Wealthier Than Microsoft

last modified 2006-02-22 03:47 PM

The "economic" model of FOSS.

The key argument of the article provides a good explanation of the power of the community model of development. The author simplifies the case by personalizing it into a confrontation between Bill Gates and Linus Torvalds:

    For starters, the two face a similar challenge. Even their
    big brains are puny compared to the wisdom and knowledge
    spread throughout their organizations. In Gates's case, it's a
    huge, publicly held company. In Torvalds' case, it's a loosely
    connected but increasingly powerful network of software developers.
    Both men must find ways to motivate people to work together so  
    knowledge can spread and have maximum impact on improving software.
    Microsoft (MSFT ) uses money to motivate.

    And no doubt about it, that's a powerful incentive. 
    But others exist. The community of Linux users and developers is
    held together by pride and the thrill of working toward a common
    goal of a universal,free (or at least relatively inexpensive), 
    elegant, bug-free or bug-resistant alternative to Windows, the 
    world's dominant computer operating system.

In August of 1999 I went to San Jose to the LinuxWorld conference. This was when GNU/Linux was just beginning the transition from a geek-loved OS to a hyped-up commercial power-house. Most of the attendees at the conference were still developers, not suits as marketing or management types are called (not very affectionately).

The keynote speaker was none other than Linux Torvalds who was going to talk about the soon to be released Linux 2.4 kernel. There must have been nearly a thousand developers in that room. What passed through my mind that myself and the handful of journalists in the room were significantly above the median age and significantly below the median IQ of the people in that room. That goes a long way to explaining why Linux specifically and other FOSS tools are so useful.

But pride, reputation etc. only partly explain the motivation of FOSS developers. There are pragmatic motivations as well. If hacker X (or software employee X for that matter) devotes 5 days a month to developing Free software A, perhaps he lost $5,000 of opportunity cost in consulting work. But he knows that a 100 other hackers are doing the same. So his $5,000 investment has just yielded a return in software now worth $500,000. The ROI of the FOSS model should make any VC envious.

As a side effect, even people who don't develop the software, that is who don't contribute directly, can get to use the software as well, most often without any payment. Proponents of proprietary software find this "free-rider" aspect most disturbing. But a rational economic model requires that I only calculate the benefit to myself. If my $5,000 investment gives me the $500,000 software I need today, which without my investment would not have existed, then why should I care that tomorrow others who didn't invest the $5,000 also benefit? Moreover, I do benefit by others using it, since they help find bugs and test the software so it becomes more secure and robust over time. So they too contribute value although of a lesser sort. While it is understandable that people who until now have made a living selling buggy, insecure and unreliable software find this model extremely disturbing, the economic rationale is quite compelling to the users of software.

The biggest over-simplification of the article is that Linux is only one of many FOSS projects, and Linus Torvalds only one of many FOSS project leaders. But that actually is part of the strength of FOSS - it's distributed development model conforms to many of the ideas of FourM. More about that another time.

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