Wired Asks the Wrong Question about Open Source

“Where are all the open source billionaires?” Wired asks in its March issue. Wrong question. The right question is “Who will become billionaires because of open source?”

Wired provides an eclectic mix of insight, commentary, and predictions about what’s coming down the pike. I always enjoy reading it because it’s thought-provoking and stimulating and mostly right. But it got it dead wrong about open source software last month. In its “Wired Business Tends 2008” the magazine’s #1 trend is “Open Source Tycoons: The Sotware that Made Developers Cool can now Make Them Rich.” It goes on to discuss the potential for open source software riches and proclaims that big dollars are around the corner for open source entrepreneurs. (I’d provide a link to the article, but the Wired website doesn’t seem to have the article, and has an impossibly lame search capability; how well does that square with a self-proclaimed role as the prophet of the digital revolution?)

Notwithstanding the recent acquisitions of several open source companies for significant sums (and I maintain their valuation was based on their strategic importance to the acquirers, not to their real economic value), there aren’t going to be any open source billionaires. The whole point of open source is that it deflates the value of software — that’s the definition of commoditization. Open source companies will be good businesses but we will never see the Oracle equivalent in the open source world. Oracle and its brethren made their mark when the potential of computing was opening up and there was a shortage of software available to take advantage of it. Those conditions are now gone, as evinced by the fact that there are several open source alternatives to the Oracle database. The software shortage is over, so the opportunity for huge fortunes from software is over as well.

However, that doesn’t mean that open source won’t create new billionaires. Because the cost of software has plummeted, new companies are being formed that take advantage of open source to create new offerings — and these new companies will build enormous fortunes on the back of open source. I refer to this phenomena as “the migration of margin.” The enormous margin previously enjoyed by software is going to move to the new products and services made possible by open source software. If you want to see the billionaires of open source, you’ll have to look elsewhere. In the next week or two, I’m going to discuss a few of these companies, ones that have leveraged open source to develop products and services that wouldn’t be possible in a proprietary software world.

Meanwhile, to Wired: Sorry you got it so wrong, but the fate of a fortune teller is not often kind.