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The (awesome) economics of open source

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The more things change, the more they stay the same. Consider how changed a world we live in today when The Economist openly questions the bulk behavior of capitalists as evil bureaucratic rent-seekers and suggests that perhaps Karl Marx has something to teach after all. But the world remains stubbornly the same, as expert after supposed expert attempts to argue that open source software makes no economic sense and that a company like Red Hat cannot, therefore, exist (the latest example being this article on Medium.com).

Arrgh!

W. Edwards Deming said "experience teaches nothing without theory," so I'm going to explain the theory that I believe underlies the 30+ years of experience I've witnessed in the world of successful open source software. A disclaimer: I didn't develop this theory. Credit goes to Ronald Coase (Nobel Prize in Economics, 1991), Oliver Williamson (Nobel Prize in Economics, 2009), and others. And indeed, I was unaware of this theory when I started Cygnus Support, the world's first company to provide commercial support for free software back in 1989. But I did joke, in all seriousness, that someday an economist would win the Nobel Prize in Economics for explaining the theoretical basis of that company. Open source exceeded expectations yet again when not one, but two economists were so honored. And so I begin with a lengthy paraphrase of Coase's Nobel Prize lecture to set up the theory.

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