Over at Opensource.com, Red Hat’s Michael Tiemann looks at open source from 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.”