Anshu Sharma explains how Open Source Software, the kind of Software that’s freely available in Source Code form, generates lots of value but little revenue. He references the book Co-opetition by Harvard Business Professor Adam Brandenburger and Yale Management Professor Barry Nalebuff, which is about how to balance Cooperation and Competition in Business to gain the benefits of both. Open Source Software originates from the work of volunteers who want to share their work with others for the benefit of the community as a whole. Vendors like Red Hat and Novell build pre-configured Open Source solutions for businesses. Because of low barriers of entry in the Open Source Vendor game, prices are kept low. Ashnu notes that “And this is exactly what game theory predicts- in a market with low barriers to entry it is hard to charge premium prices and make profits over an extended period of time.”
Companies like Google, Yahoo, and Facebook have been leveraging Open Source solutions to their own benefit. Even those who don’t benefit from Open Source directly benefit from the competitive pressure put on companies like Microsoft. Ashnu mentions that “the value added by open-source to the customers is not equal to the value added by open-source vendors” and that the low barriers of entry make it so that the potentially infinite pool of competitors divide the money going into Open Source solutions, so no single behemoth is reaping all the profit. He suggests that “You are much less likely to succeed by entering the game as a vendor. Your gains are much larger if you can leverage the low cost of open-source software to provide new services to the customer- consumer or businesses”.