Can you make money with free software?

Open-source projects like Linux, Firefox and others are easy to understand from a community standpoint. Generous and interested people get together and help create, maintain and enhance a piece of software that people can benefit from. The larger the community of contributors, the more robust the software becomes, and the more features are added.

But what are the motivations of companies like IBM and Sun, who have each committed many millions of dollars of investment (as well as bequeathing once-proprietary technology) to the open-source movement?

It’s not their communitarian instincts, that’s for sure. If there wasn’t money to be made, these companies wouldn’t participate. Harvard Business School professor Marco Iansiti and consultant Gregory L. Richards have published a fascinating paper on the topic (”The Business of Free Software“), which was discussed in a recent article at Harvard’s Working Knowledge web site.

The authors group open-source software projects into two segments: the “money cluster” and the “community cluster.” Projects in the money cluster received 99% of the corporate investment. To the authors, the reason is simple: these projects (Linux, OpenOffice, Firefox and others) helped drive revenues to the companies’ core businesses. For IBM, the increasing adoption of Linux helps drive customer purchase of their servers (not just Intel-based, where Linux competes with Windows, but up to and including mainframe-class machines).

Simply put, free software is the razor, and companies’ core products (hardware, services, etc.) are the blades.

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