The economics of open source

[mdlbear]

The Emerging Economics of Open Source Software

Many people have trouble understanding how Open Source could be self-sustaining if it does not operate according to the retail development paradigm. What pays for such software? It is funded directly or indirectly as a cost-center item by the companies that need it. Those companies need a great deal of cost-center, non-differentiating software. They are willing to invest in its creation through the Open Source paradigm because it allows them to spend less on their cost centers by distributing the cost and risk among many collaborators, and makes more efficient use of their software dollar than the retail paradigm. This is essentially the same source of funding that pays for proprietary software. It's important to remember that the software manufacturer isn't the ultimate source of funds: the customer is.

(Found via this interview with Bruce Perens)