Why (almost) everyone likes open source development.

Linux and general open source development is of great value to the general population including those who will never use an open source application in their lifetime. In order to explain why this is true it is necessary to understand the motivation of software companies, the software market, and the effect of software copyright laws.

The motivation of software companies is usually straight forward: making money. Publicly traded software companies are locked into this motivation by law. It is not unusual for the board of a coporation to be sued by stockholders angered by value reducing actions. Privately owned companies can have more diverse motivations although making money is usually the largest goal. Since publicly traded software companies dominate the software market, we can assume that essentially all software companies are motivated solely by money making.

Now, we need to understand how software companies make money. The methodology is not the typical market practice expected from a first principles analysis. Instead of simply paying someone to make bit patterns (programs) available to you, you pay someone to allow you to use bit patterns (programs) in very limited ways. Typical limitations include: No copying, no examining, no reselling, etc... Software corporations are allowed to do this using "copyright" laws enforced by the government. Copyright as applied to software allows companies to prohibit copying. Other limitations are often built explicitly into contracts including the infamous "End User License Agreement" which is of questionable enforceability. Software companies succeed at limiting use of their products through a combination of law and obfuscation.

Copyright has a strong impact on the way software companies work. Typically, software companies first build a large chunk of source code from which they derive products. There may or may not exist other competing products in the software niche. Typically, new companies have no competing company in their niche and when competition does arise, it is often the case that one company will come to dominate the market anyways by network effects. A network effect works like this: every customer you get makes the product more valuable to new customers. The extra value can be derived in any of several ways including lowered training costs at companies and ease of interaction with other customers. Network effects imply that competition in software markets is an unstable equilibrium. Software markets tend towards monopolies.

The same argument could be applied to open source competitors where it will break down. Open source software is produced for many reasons, which typically do not include direct money making. The particular set of reasons is a matter of some debate, but it is obvious from the quantity of open source software available that significant reasons exist. Because open source competitors do not rely on profit they can exist (and even thrive) when the commercial market is dominated by a monopoly.

Monopolies have been described as "the failure of capitalism". Money motivated monopolies attempt to extract the largest amount of money possible from the customer base. This is drastically different from a competitive situation where the price is related to the cost of production. In the software business, the differences are extreme because the cost of producing the first copy is measured in millions of dollars and the cost of producing the next copy is measured in cents. Monopolies in the software market are extra worrisome because ownership of the "Operating Sytem" provides strong network effects for development of applications which use the "Operating System". This has been noted and exploited by the software company Microsoft to accrue large profits. It is now possible to use a computer with only Microsoft products.

Why does a user of proprietary software products benefit from open source development? Essentially, if there exists a reasonable open source alternative to a proprietary product, then there is another limit to the amount that proprietary monopoly can charge. The threat of a customer switching from the proprietary product to an open source product limits the maximum price that monopoly can charge. Since open source products are nearly free, this new limit can be a significant one.

Proprietary software users benefit a great deal from open source development. Open source users benefit even more. The only nonbenefitors of open source development are the holders of monopolies.