The (awesome) economics of open source (

Post Syndicated from jake original

Over at, Red Hat’s Michael Tiemann looks
at open source
the perspective of the economic theories of Ronald Coase, who won the 1991
Nobel Prize for Economics. Those theories help explain why companies like
Red Hat (and Cygnus Solutions, which Tiemann founded) have prospered even
in the face of economic arguments about why they should
not. “Successful open source software companies ‘discover’ markets
where transaction costs far outweigh all other costs, outcompete the
proprietary alternatives for all the good reasons that even the economic
nay-sayers already concede (e.g., open source is simply a better
development model to create and maintain higher-quality, more rapidly
innovative software than the finite limits of proprietary software), and
then—and this is the important bit—help clients achieve strategic
objectives using open source as a platform for their own innovation. With
open source, better/faster/cheaper by itself is available for the low, low
price of zero dollars.

As an open source company, we don’t cry about that. Instead, we look at how open source might create a new inflection point that fundamentally changes the economics of existing markets or how it might create entirely new and more valuable markets.”