Well said! I was just about to point out that there *are* open source billionaires, but then I reached the end of your post. ;)

> There probably won't ever be any open source billionaires

Hmmm, what the hell am I workingon this Subtext crap for?

I think there's more of a problem. Enterprise applications take lots of developers, and they all cost money. Assuming you want professionals (you know: professional people who often have mortgages and kids) you have to pay for them.

This means that if you want to make money in complex open source software you have to sell services (or the software as a service). This is great, only the services cost a lot to run too. Apart from the odd dot-com-bubble 2.0 massive buy-out like youtube this isn't a great way to run a business.

Note that I'm talking about complex stuff like operating systems that have ongoing development needs rather than relatively simple software that provides a valuable service, like flickr.

I believe in open source, but at the end of the day I want to make a living as a developer, and that means being able to charge for what I do all day. It's a complex enough job as it is without doing it for free and then providing a service on top.

"Duplicating software is about as close to legally printing money as a company can get; profit margins regularly exceed 80 percent."

Aren't you overdoing it? It may be true for one Microsoft product in 2002 (the article is from 2002, when MS was higher-flying than now), but "regularly"? I don't believe that.

Also, as a software developer, you know full well that software has a cost. In a commercial world, it's obviously covered by the companies that do it. In OSS world, it's mostly covered by commercial interests. Volunteer work helps, and motivations are normally honorable, but it doesn't seem to me that it's volunteer that work gives basis for the stability and long life of OSS products. All the important things (GNU/Linux, OO, Firefox) have corporate backing, which pays for the work. My point here being, printing CD's or hosting software downloads is far from printing money.

Copying software being as close to printing money as you can get?

Nah, that would be the Wizard of the Coast with the magic the gathering franchise. Printing 15 cards, putting them in a wrapper and then sell the package for several dollars. Now that is printing money :)

Bill Gates and Larry Ellison are paper billionaires. They've paid themselves a lot in salary over the years (Ellison much more than Gates) but it only amounts to a few million - maybe $100m tops. That's directly come from customers buying the products.

These guys are paper billionaires because they hold a lot of stock in the companies they founded, and the stock market has decided that the stock is worth that much. This valuation isn't really based on anything in reality, otherwise Microsoft's stock, based on huge sales of real products with a large barrier to entry, would be worth much more than Google's (large ad sales, no real products to speak of beyond the ad system). If they tried to realise those assets by selling the stock, they would immediately depress the stock price and wipe huge amounts off their personal valuations.

Microsoft's major benefit over open source - although it may not feel like it at times - is that they test their software in-house before shipping. Go look at Firefox's test 'plans'. Barely even there. And Firefox is _good_ in the test department - the Linux kernel has no public test plans whatsoever. Also, Microsoft plan ahead and give you a schedule of when new software is likely to arrive and the features it's intended to have (yes, sometimes they cut features late or delay the release). Release planning seems to be alien to most of the open source world. Windows Vista is a real exception to the rule - it's the first time I'm really aware of where Microsoft have so publicly messed up and been unable to complete the original project. Windows Vista isn't really "Longhorn" at all - they pretty much restarted from scratch (well, XP SP2) about two years ago, and if you assess on _that_ basis, it's quite impressive what they got done in the time.

ITS NOT ABOUT THE MONEY, for crying out loud. its about doing something worth doing.

christ, some people just don't get it.

Open source is a software development model, not a business model. To get rich you must have a strong business model. Now let me repeat this in front of a mirror ...

"The lack of open source software billionaires is by design. It's part of the intent of open source software -- to balance the scales by devaluing the obscene profit margins that exist in the commercial software business."

no shit. This is the dumbest coding horror article i've ever read. Thanks for stating the obvious. talking about opensource and riches is oxymoronic. and it's only propeitary fanboy "sheep" that would ever put the words rich and opensource in the same sentence.

Very well said Jeff, indeed who asks "Why aren't there any open source billionaires?" doesn't understand the reasons behind this development model and the fact that you need a good business model to support it in order to make profit out of it. Also I believe they fail to see the true potential about being open and the advantages that it can bing like large communities that form behind it and the easy way in which it can be adopted.

Have fun!
Mihai

Your last point sums it up perfectly. The value is not in the software but what it does for you.

"ITS NOT ABOUT THE MONEY, for crying out loud. its about doing something worth doing.

christ, some people just don't get it."

yes, you're working for the better tomorrow and I'm in "IT" for the money.

The only way to really make any money in Open Source is to land a big service maintenance agreement for a critical Open Source application. I have seen small development companies (5-10 developers) get multi-million dollar service cotnracts. So it can be done.

The benefit of Open Source is also it's curse. Even though many developers can pool their resources to create a unique product, no one can produce a protected work. And before the label dries on the CD, there are a dozen varieties of your app out there.

I think the three big industries that can't really afford to jump into a free-market software system are health care, education and government. I believe those three industries should be using nothing but Open Source software. The upside to that would be tremendous.

"ITS NOT ABOUT THE MONEY, for crying out loud. its about doing something worth doing."

I do things that are worth doing every day at work. In addition I make money which allowed me to buy a Wii and a new car, and look into getting my own apartment.

I don't see that happening with open source development. I don't want to work as a burger flipper so that I can provide some esoteric "good" to the world through free software.

"There are real millionaires-- even billionaires-- who built companies on open source software. Just ask Larry Page and Sergey Brin. Or the YouTube founders. The real money isn't in the software. It's in the service you build with that software."

I dunno. I think if I developed some tools, then some other guys used them to become billionairs I might be a little upset that I gained no recompense for the deal.

I guess I just don't understand the motivation for open source development beyond being an arena to practice your skills.

I'm not an idealist on the matter, but your final point (about the Google and Youtube guys making buckets of money by building services on open source) makes me a little sad because those examples are of people who only made their money by stepping away from open source to a large degree.

Granted, Google still contributes significantly to open source projects. So they're still good guys. But they do jealously guard their crown jewels and would never consider making those open source.

They will never, ever open source pagerank or whatever software runs adwords or whatever software runs youtube or gmail. Saying that "well, these are services, not products" doesn't really make much sense to me. The software running them could be open sourced, and isn't. (And GPL3 is going to close this "running a website isn't distributing" loophole.)

There is no technical reason why they couldn't open source gmail so we could all run our own; it's purely a business decision to stay away from open source on the things that make them money. Heck, even something that is clearly a "distributed product" and doesn't really make them any money like picasa is kept closed.

So, while Google definitely uses open source for their infrastructure and definitely contributes to open source projects, I think that it is a real stretch to call them an open source company. The conclusion that we should draw from Google is: use open source to lower your infrastructure costs but, whatever you do, don't open source your company's products/services.

I think you're missing the point. Open-source is a development philosophy, as is the free software movement. It's not a business plan.

To talk about the two like you have done indicates that you are trying to confuse people, or that you are confused your self.

To further illustrate my point, compare GNU with Redhat or Novel.

Two of those organisations make huge amounts of money.

All of those organisations are in the business of free (or open source as you have termed it) software.

To say that you can’t make money from free or open source software is a fallacy. The most lucrative part of the software industry is support, not distribution.

> "Microsoft's major benefit over open source - although it may not feel like it at times - is that they test their software in-house before shipping."

this is NOT a benefit by any stretch of the imagination. Have you payed any attention to all the security issues that windoze has been through these passed years? you want to know why that is? it is because they only test in house. opensource's "release early, release often".. is the BEST way to test. because users find bugs much better than programmers do. this is a fact. I think you need to re-read mythical man months chapter on debugging.

This is econ 101.

The open source model is one of an industry with perfect competition: no barriers to entry, no proprietary advantages of one competitor over another, free and open access to the means of production. (At least, it's a helluva lot closer to perfect competition than the Microsoft/Oracle model.)

In perfectly competitive markets, suppliers never get rich. In fact, they never earn anything more than subsistence. All the benefits of economic exchange of value accrue to the consumers.

"I dunno. I think if I developed some tools, then some other guys used them to become billionairs I might be a little upset that I gained no recompense for the deal." - Telos

Just because an application is open source doesn't mean it's public domain. You can still license your code (for example, GPL). If someone takes your code and uses it without giving you credit, it's still piracy. Just like in school, if I write verbatim what an article has already stated (even if I "didn't know") it's still considered plagiarism.

Don't disregard the value of the open source software itself - just because something isn't money doesn't mean it isn't valuable. JUST the linux kernel has been estimated at about $612 million to redevelop:
http://www.dwheeler.com/essays/linux-kernel-cost.html

Everyone who has a copy of linux is in a way a paper multimillionaire, they have got $612 million of development on a CD, and are free to do almost anything with it (unlike a copy of windows which is heavily devalued by your inability to legally modify and copy it).

That's the thing about information - giving a copy to someone else doesn't mean you lose the original. Life doesn't have to be a zero-sum game. If A+B+C collaborate on open source development, A+B+C ALL have product(A+B+C) - this contrasts sharply with the physical world. And they haven't lost anything if D gains product(A+B+C) too - even if D never does any work.

I'm not sure that comparing open source with Microsoft is really valid. Don't forget that Microsoft is (and was convicted of being) a monopoly. That is certainly one way to become a billionaire - make enough money quickly to hire lawyers to keep the feds off your back long enough to make more money and get people dependent on you so the feds will be loathe to punish you too severely because it will adversely affect the economy.

@max

"...no shit. This is the dumbest coding horror article i've ever read..."

Easy there, buddy. You could have left out these two statements and I would have agreed with the rest of your post.

Customer's who are cheap and don't want to pay you for your software are "bad customers". It turns out that most customers looking to use open source software for economic reasons alone end up being bad customers that you don't want anyway. IBM, Microsoft, and the likes have all figured this out. You really need to pass on this type of customer or risk losing your business. It's very much like trying to target Win98 users. If they are too cheap to buy a new computer in an age where computers are dirt cheap, what makes you think they will pay you for your software? The same can easily be seen by looking at the desktop Linux world. Most individuals who use desktop Linux are of the opinion that everything should be free. They make for very bad customers indeed!

Not all OSS users fit into this category. But it only takes a small percentage to run your business into the ground with inflated support costs with virtually no return revenue.

The dumbest premise I've seen in a while: if it's good, then producing it will create billionaires. Two factors create billionaires (I mean, out of making things, not inheritance or outright theft like poor-country dictators): marketing and poor distribution of incomes. At Japanese companies like Toyota, the CEO makes something like 20 or 25 times the average worker, at most (and without gigantic, backdated stock options) In most of the world it is regarded as absurd and disgusting to pay enough to create executive billionaires. It is no measure of the value of what's produced when a company manipulates the market to keep prices high with the goal of padding the pockets of billionaire executives.

Now that open source is turning into a business opportunity, does this mean it's getting the respect it deserves? Or is it getting perverted by thankless capitalists who are hungry to turn social ventures into private money making machines?

John Pirie's comment, I think, is right on the spot. Open source is the raw matter that is waiting to be transformed before being made relevant to the market. Everyone knows one of the main problems with open source is its accessibility: people are either afraid of it or uneasy with it. Solve this problem and you will have software worth millions of man-hours at your disposition and thousands of developers willing to help you for a slight compensation.

Is this workforce still too expansive for your means? Learn to collaborate, then; with your competitors, even. Share the cost of production and share the results. There is more than one way to add value to a product or service, and this is where your profit margin comes in. One could argue that you're cashing in on the back of open source while increasing collective wealth.

That makes me wonder what incentives do open source contributers have in return. Are they really giving away more than what they're getting? Is open source really fair in the end?

"ITS NOT ABOUT THE MONEY, for crying out loud. its about doing something worth doing."

All code developed should be something "worth doing" or you are in the wrong industry. The company I work for is closed source, yet the code I develop, and the software they provide makes the end user's work a bit easier. Wouldn't it be a safe assumption that all software developed accomplishes this, and thus it is worth doing. 6 months of 50-60 hour weeks to save each of the hundreds of thousands of users many hours of frustration.

More on topic, the open source model isnt broken, the business models that are behind these companies typically are.

Jeff, I have enjoyed your blog for quite a while, thanks for taking the time to do it.

-- The real money isn't in the software.

Holy crap, bad news for people earning money for theirs daily bread by software making. It sounds good, to be a billionaire (or just a millionaire), but - in your words - is it a definitely wrong approach to make money as an ordinary developer?

No, we are ALL open-source billionaires! After all, didn't some bunch of consultants say that the corpus of open-source software would cost billions and billions of dollars to create, which means I personally have the use of billion-dollar assets. :-)

Of course, it is difficult for me to directly trade these rights in for cash, because everyone (apart from a few GPL violators) has the same rights already...

"I don't see that happening with open source development. I don't want to work as a burger flipper so that I can provide some esoteric "good" to the world through free software."

Every day I build software for money. That software is used in Clinical trials to track and report data. We often release my products to other institutions under an Open Source license. I still get a salary whether we do or not.

I'm not flipping burgers, yet I'm working on OSS. hmmmmmmmmmm.

Right on the money! When I was 18, still young and impressionable, I stumbled upon and purchased a copy of Richard Stallman's "Free as in Freedom." I didn't understand the complete concept he spoke about, but as I started diving more into open source software, I began to see exactly what he meant. Free software is more about Freedom than Price. Freedom to patch software to fit your specific needs. Freedom to fix bugs instead of waiting for an update. Freedom to not worry about whether your employees have pirated OSes on their systems, or that you may have lost the physical licenses.

@Jack
"yes, you're working for the better tomorrow and I'm in "IT" for the money."
See yesterday's great post on the Dot-Com bubble 2.0 I think this ties in with it. Build a service with free software that is a great service, not just a service so you can make money. That's how we can avoid the next dot-com crash. Get out of it if you just want to make money, because you'll be no better off than the "Free iPod" advertisers.

I've been reading your blog for quite a while. Thanks for WRITING something worth reading

"The real money isn't in the software. It's in the service you build with that software."

Oh if I could just Digg that one statement!

> it a definitely wrong approach to make money as an ordinary developer?
> The most lucrative part of the software industry is support, not distribution.

It depends on your definition of "lucrative" and "make money". You can make a very decent living writing open source software; people are doing it right now. And businesses thrive selling support for open source software. But I doubt we'll ever see an Oracle, Adobe, or Microsoft come out of that.

> [over 80 percent profit margins in software] may be true for one Microsoft product in 2002 (the article is from 2002, when MS was higher-flying than now), but "regularly"? I don't believe that.

Gross profit margins [through mid-2006] in the Software sector ranged from 95.0% (CHKP) down to 31.1% (FISV), with the median for the group at 76.8% and the average at 67.2%.

http://software.seekingalpha.com/article/10166

Software companies with profit margins greater than 80% from that chart: CheckPoint, Citrix, CA, Adobe, McAfee, Symantec, Trend Micro, Intuit, Microsoft, Mercury Interactive.

> Gross profit margins [through mid-2006] in the Software sector ranged from 95.0% (CHKP) down to 31.1% (FISV), with the median for the group at 76.8% and the average at 67.2%.

Fine. However, there is also that nasty little statistic that something like only 28% of software projects suceed, 23% fail outright, with the balance late and over budget. In any business model the reward has to balance out the risk. Large companies especially need that margin on some products if only to keep the rest of the company afloat. I can't recall ever hearing of a company that could net 80%.

Mike:

You say that Microsoft has an advantage over linux in that they test their software before they ship it. I would say that testing is the biggest advantage Linux has over Microsoft.

Here is how testing works on the Linux side of things. Linux is used by lots of companies to do lots of things. The engineers working at those companies (deploying servers running linux) are the testers. There are millions of them around the world. When one of those engineers sits down to upgrade some of their servers, they pick a kernel version they want to upgrade to and test the hell out of it for performance, stability, and functionality. In the process, they find bugs. They report those bugs to the kernel developers, who fix them.

The world has never seen an OS kernel tested as thoroughly or in as many different configurations as the linux kernel.

For every hour spent writing kernel code, there are probably a thousand hours spent testing it. Even Microsoft can't afford to hire a tenth as many testers as linux has. And even if it could, it wouldn't know what to tell them to test. The linux testers test the parts of the kernel that matter to their particular real world application, of which there are thousands, if not hundreds of thousands.

christopherlmarshall@yahoo.com

Just as Jimmy Rogers was shocked years ago to discover that Nigeria had three billionaires ("There should not be ANY billionaires in Nigeria!" is my rough remembering), I don't think there should be any Open Source billionaires. To go from multi-millionaire to billionaire means dipping into a huge trough - drinking water that fed a LOT of developers and a LOT of sales and marketing travel plans and a lot of cubicle space, etc.

I do not expect the same sheen and performance from Open Source software. It is NOT me getting what I paid for it, because often I get a lot MORE than what I paid - and sometimes I get a lot LESS when I buy commerical products. I am looking for the right tool at the right time for the right price. I think of open source (aka non-MS products:-) as sometimes just the right thing. Not always, but sometimes.

Would Mark Shuttleworth count as an Open Source Zillionaire (or whatever his current net worth)?

http://en.wikipedia.org/wiki/Mark_Shuttleworth

> Would Mark Shuttleworth count as an Open Source Zillionaire (or whatever his current net worth)?

No, because he made his money selling SSL certificates.

@BG - are you trying to say that there's worse? hehe ;)

"ITS NOT ABOUT THE MONEY, for crying out loud. its about doing something worth doing.

christ, some people just don't get it."

Tell that to your kids when they get hungry. It IS about the money. It takes money to live after all. Some idealists or hobbyists just don't get this apparently. I would imagine they have other jobs that pay the bills or they have no bills. Doing something worth doing is great. Doing something that someone will actually spend money on is a different story all together.

If an industry creates billionaires, it is not healthy.

"Where Are All the Open Source Billionaires?"

We the people, are the Open Source Billionaires, every one of us and all of us together. Open source creates value and leaves it 100% with the users, Microsoft creates value and keeps 30-50% (?) of it.

Well, according to myself, open source software is mainly about sharing ideas, not earning money. If my software is popular and I'am tired of my job, I would sell my expertise. It's easy to share ideas when they are free and downloadable. Then, most of the developers that make open source softwares do it for the pleasure, not for the money. Their fridges are full, their job is enought for that. Some people use to collect stamps, other are coding for the pleasure, sometimes for the glory. And then, if it useful, it makes them even more happy !

Isn't the point of open source software to increase opportunities for customization? Most closed software programs have limited customization because it is limited to whatever the developers thought of at the onset of the project. Sometimes new features can be added, but they require a lengthy formalized process, or a significant investment by the customer. With open code and a little bit of talent, businesses can customize software to meet their individual needs.

Yes this prevents billionaires from popping up, but it allows many more people to sell their services instead of one organization selling a commodity. Open source software fits in to the service oriented economy better than closed source software. It really gives more IT people a chance to become independent workers, which in turn results in higher career satisfaction.

Bob Young (Red Hat founder) once said something like (sorry, no reference) of Red Hat circia 1999, "our goal is not to beat Microsoft in revenues, it's to commoditize the market so Microsoft makes *less*". This strategy is working as designed. Folks like Dave Winer might grouse about this in the context of not being able to sell applications that have been commoditized, but this is just the way any market works (at least given free trade). The market ownership gravy train doesn't go on forever, as IBM found out, Novell after them, and Microsoft will soon. There's just no such thing as royalties in perpetuity.

Chris, I was thinking of that exact quote too, but I can't source it.

"Gross profit margins [through mid-2006] in the Software sector ranged from 95.0% (CHKP) down to 31.1% (FISV), with the median for the group at 76.8% and the average at 67.2%."

I always thought gross margin didn't make any sense in the software industry, since it doesn't consider "fixed" costs...like development costs. You end up with insane margins like that, with actual net margins down in the 5-10% range (or worse).

You forgot Fermi Linux which begat Scientific Linux to my knowledge.

SELinux is not a distro.. DUHHH

I love it...

"There are real millionaires-- even billionaires-- who built companies on open source software. Just ask Larry Page and Sergey Brin. Or the YouTube founders. The real money isn't in the software. It's in the service you build with that software."

Exactly... do you think we would have sites like Digg, Google and YouTube if these guys had to pay Microsoft for the software to startup their business?

They are no open source billionares becouse people who use open source are not money grabing evil people hell bent on taking over the world and making everything controled by there company.

Great post!

<A href="http://en.wikipedia.org/wiki/GNU/Linux_naming_controversy">GNU/Linux</a> my ass.

Linux. Not "GNU/Linux", no matter how much Stallman stamps his foot, and no matter how long the Debian people persist.

Sorry. Pet peeve there about GNU credit-grabbing.

(When Torvalds decides to rename Linux to put GNU <I>in front</i>, I'll stop thinking it's a petty thing for Stallman to do.)

Also, "<i>The lack of open source software billionaires is by design. It's part of the intent of open source software -- to balance the scales by devaluing the obscene profit margins that exist in the commercial software business.</i>"?

Was that the intent of the BSD license? To "devalue ... obscene profit margins"?

Or maybe the idea was just to let people have some cool software and spread it around?

I wouldn't assume the former ideology is universal or defines "open source software". It might define "GNU-Style Open Source Religion", though.

Nobody "designed" "open source" as such. People gave away or shared code before Stallman and his crusade. He deserves credit for popularising it, and for amassing that huge GNU library of tools, which is staggeringly useful.

But I personally like "obscene profits", since they pay salaries and get me products that wouldn't otherwise exist.

(Then again, the economist in me suggests that fiscal competition for actual profits, "obscene" or not, produces a superior product. Seeing how well free software often <I>doesn't</i> work, the argument seems empirically correct as well.

Photoshop vs. The Gimp.)

Why are we all so money centric? Hardly anyone here acknowledges the great advances that could be achieved through open source (…and has been achieved).
Of course you could argue that “everyone has to pay rent” but why a billionaire. Frankly, I think one could work on open source and make enough money to live. Stop confining yourselves to the goals of society…the “American Dream” or more recently “Get rich or die trying”.
Seriously folks, life have a little more to do about progress and personal growth than it has to do with financial wealth.
Finally, criticize the open source model all you want but that does not affect its effectiveness. There are so much examples of good development out there…Linux

The trick is to corner the market so that the worker bees think that there's no other option than to buy your product, simply because everyone else does... that way you can charge $120 for a product that is only really worth $15.

I'd be pretty happy with windows and office at $15 each.. ..that would be good value. But £120 for XP..?? It leaves a bad taste in my mouth for sure..

Now open source.. if windows was $15, how many people would feel anti-microsoft enough to give Linux/buntu/suse a try..?? alot less I think.

I agree, the money is made with the service you provide with the software.

I had a conversation with an Austrian whose name I forget while I was at Buenzli in Switzerland, a demoparty, and she told me that the European demosceners figure the reason why the demoscene and demos in general haven't caught on in America is because people would want to get paid for doing demos because they require so much effort.

The open source movement is a good example why this is incorrect, but some of the comments here are an example of why it might actually be a good reason. Jeez, guys, I don't know about you, but once my rent and utilities are paid and I don't have to put all my car repairs on a credit card, I'm pretty content with how much money I have. Let the fanboys at gizmodo blow all their money on dumb gadgets and the nerd equivalent of ricing up your car.

I almost don't know how the education sector could provide services expected on campuses these days if it weren't for open source. Money is usually very scarce for college IT departments, so open source is the name of the game unless there is a commercial solution that does 10,000 more things than the open source equivalent, does them better, and comes with really good support.

Wow. I'm impressed. By the end of that post, it turned out that someone *finally* sent the memo to Jeff. ;)

Um, the FSF has been shouting that claim from the rooftops since RMS came up with his bright idea. Whether or not it's a *good* idea is an entirely separate question - but the open source people have been saying "give away software, sell sevices" for as long as there has been open source.

Also, Bill Gates didn't make his billions from software - he made it from his business. It's a pedantic detail, but there's a lot of people working at Microsoft who aren't billionaires because it's the business people who make the money, not the coder. Bill is rich because he applied his business skills to software, not because of his l33t hackz0r skillz. (He may be a great coder for all I know, but he bought the original DOS, he had brilliant marketing and business strategy, and that's *why* the original DOS was so effective for him.)

Debates over morality, legality and coding skills aren't the point here - the fact is he's a brilliant *businessman* which is why he has the money.

"Open source billionaires" will be the ones who apply their business skills and use open source accordingly.

Where are all the closed source billionaires? Oh thats right, theres only one.

huh? the premise of the article seems rather ill-formed. I see no necessary causal relationship between a particular technology and a success level. plus, it so happens (from the article!) that there *are* open source billionaires! odd, very odd.

WOW!!! Thank you thank you thank you. If only this was available when "not to be named" thought to themselve we should get a blog, oh and use word press. Never mind the multiple flaws and dangers involved, but when the database got screwed, they all wondered what happened, some screw up in the dashboard. No 1 - 800 number to call, no customer service rep, no tech support email addy. Oh wait, that's right it was free. We didn't pay for that. And didn't much help from that wonderful host that specializes in open source apps.

Open source has its time and has its place. But to think it will yeild across the board profits, or make closed source apps absolete is insane. There's room in the market for both, just like there is room for lawyers who charge $300 an hour, and those that routinely work for free... you know because they have passion for the job.

How many billionaires have started companies in the last 15 years, selling nothing but shrink-wrapped software? None.

Who cares, anyway? (a) Making millions is more than most anybody reading your blog, and (b) open source is the biggest competitor for proprietary software. How many companies make large profits on shrink-wrapped software? Very few. Let's see you compete with Microsoft.

You might not like competing with open source, but that's life. The vast majority of programmers don't even make their living writing proprietary software for distribution. Here's a better question: why does open source thrive? If software is worth billions, where is it?

And to the commenters writing about business models, stick to programming and let people who know something run the business. The cost of entering the shrink-wrapped software industry is very high, open source has lowered the barrier to entry, you have no idea how an open source software business works.

"The lack of open source software billionaires is by design. It's part of the intent of open source software -- to balance the scales by devaluing the obscene profit margins that exist in the commercial software business. Duplicating software is about as close to legally printing money as a company can get; profit margins"

many people make this mistake. The cost of software is not in the duplication, it is in the research and development. Software costs many hours in development, which amounts to many thousands of dollars (and sometimes millions). The reason there are (and probably won't) no open source billionaires is because:

1) Most people using open source are tech savvy and will just download it for free.
2) Service based businesses take much longer to develop and usually fail because of the fact that you need to expand quickly (the more customers you have, the more employees you need to support the business. This is not the same with a software based business).

"To ask where the open source billionaires are is to demonstrate a profound misunderstanding of how open source software works. If you wanted to become obscenely rich by starting an open source software company, I'm sorry, but you picked the wrong industry. You'll make a living, perhaps even a lucrative one. But you won't become Bill Gates rich, or Paul Allen rich, by siphoning away the exorbitant profit margins commercial software vendors have enjoyed for so many years."

Which is why it will always be on the fringes of the software industry. The problem with this view is that almost everything that is a leader in innovation is driven by profit (look at any open source project, even popular ones such as apache, mysql, and even linux..and you will clearly be able to see how far behind technologically the projects actually are compared to its commercial counterpart).

mysql: has only recently added support for triggers, stored procedures, and views.

apache: has only recently added threading control models that do not involved spawning one socket per process.

linux: still behind Microsoft (driver support, software support, and GUI). Since Vista seems to be tanking, this is the one chance linux has to dominate.

I think one of the only exceptions to this is firefox.

good articles

I agree that the way to make money in the open source world is providing a service.
That snappy timeline graphic is a bit misleading, seeing as how 95% or so of the market share for linux is shared by only 5 or 6 different distributions.

The google guys are open source billionaires.

Sorry I didn't read to the end of your post before I commented.

:)

first they ignore you,
then they laugh at you,
then they fight you,
then you win. ~Mohandas Gandhi~

He has nothing but vision but yet remembered till today and so will the open source model.

I like to have a free mind when I code and not a corp direction.

Bill Gates made a lot of money.That is major different between Gates
and regular IT guys,you have to understanding make money does not
mean you write good program, or invent something like genious.
It is all about control, which is fasinate Gates even he had 50 Bil$,
He still want to control not only you body or mind, but your land,
even seeds or plants you eat and grow, if windows is worst giant junk,
than he start to work on vaccine, seeds, GM food, and soil, window
like products will appear in future in these feild.He never think other things than CONTROL.

If you are good programmer, you are just a nice " worker" or "slave".
the reason you never get rich because you are too nice never think
about your product will control people's mind.

If Bill Gates never have able to make Window safe and relaiable, why bother involved in other fields, maybe future Microsoft will produce magic pill called xp-smart-drug to keep people addicting anything made by evil.

No, there won't be open source billionaires. And to hear the trolls tell it, it's the tragedy of the Universe that there won't be!

I think next time I get one of those "open source will put programmers like me out of work" numbskulls, I'll just try drawing them a picture:

Proprietary software:
$$$$$ 8D .:( .:( .:( .:(
Open Source Software:
$ :) $ :) $ :) $ :) $ :)

See, that's how it works. Not one multi-billionaire and ten thousand serfs shivering in rags and living on chicken feed, but the opportunity for a thousand millionaires and the rest to at least earn a decent living.

But evidently, a more even distribution of wealth is exactly what seems to scare the status quo the most: as long as there is one billionaire, they can dream all their lives that one day it will be theirs alone. An even chance to be a millionaire with a bunch of other people at the same time? What fun is that?

Open source is creating multi millionaires, I know many businesses that are making money from open source applications but using these open source applications to create customer values. Open sources are strengthening the economy by allowing smaller companies grow.

A letter question will be "How many millionaires are over 30% depended on open sources", then do a sum. It will be huge.

Why does everything always have to be about money?

Some of us (self included) already have enough money to live nicely for the rest of our lives. So let's do good stuff and give it away for free. Funnily enough it brings the benefit of giving a nice warm feeling inside.

David

I think the key point that a lot of people have touched on is that you can't make money DEVELOPING FOSS. Instead you make money using FOSS and selling it to people. There are companies out there that will set up a FOSS server system for a school or business. (I think IBM does this on a larger scale) There are some PDAs out there running on FOSS and they're making money. There are companies like Novell and Red Hat who sell support contracts to their software. I heard a couple of car companies were using embedded Linux in their cars. Yahoo! runs their servers off of freeBSD.

So it's very easy to make money off FOSS, just not from developing it. So if you're making money off of it and want it to continue, you subsidize some of the development by making donations to the projects you depend on. This allows the projects to be funded and you get a tax writeoff and free software. Not only free software, but also standards-based software. And if you have a lot of money like Google, you can hire the main developer(s), but still harness the good of the developing crowd. Why would they develop for you to make money? Because they get the benefits of your contributions back to the software and they can use it in THEIR businesses.

Also, the distro diversity is not really harmful in the same way that non name-brand clothes doesn't dig into the name-brand clothes' market. I could buy from Red Hat or get the exact same thing as CentOS for free. So why choose Red Hat? First of all, they are the brand name. That carries a lot of weight in IT departments. But second. because when I have a question, I can call them instead of having to be in an IRC room or forum.

And here's an example of what I spoke of:
http://www.linuxdevices.com/news/NS3199690426.html

making money by selling slackware systems

Thanks for answering the question, "Why are there no open source billionaires" so well :)

What's interesting to me however, is that was not the only question I asked. The other question, a far more interesting one to me, is how Microsoft makes a living in this space. Nobody seems to want to talk about that so much, which as an outsider I find utterly fascinating.

Hi Guys,

I thinks the controversy comes from comparing two things that independent one from each other: making money and philosophy.

You can be millonaire in many ways. Bill Gates was only a lucky ( and competent ) at right moment, and there are many similar stories, like Henrry Ford. He just found a way to make money out of software, but you have to remember that in those days, the software was free, which was actually obvious since it didn't exist enough hardware to make it profitable. Good for Bill. Bad for us.

Now you have the Open Source philosophy, where it's supppose to be 'free', which is a complete lye. From the value point of view you're obtaining CONTROL over the sofware, and an EQUAL level of competition with your partners. Just imagine how that would cost in the Windows world. I mean, how much money do you need to compete with Bill Gates. And that it's a good thing if you want to write sofware. But, as spiderman said, with great power comes great responsability, so you provably end up messing with the system, learning bash, compiling driver and those kind of stuff that windows people will never do. And that's exactly what Mr. Gates are selling them. He is selling them TIME and CONVENIENCE.

Saying that you can be billionare in the OS world it doesn't make sense to me. If look at real world, there a lot of people that makes a tons of money from open source technologies. Think about it. How many people make money from farms, ( I mean, seeds are equal for everyone of us ) or taking minerals out the earth ( have shovel? ). Many millonares beagan just like that. The world around us are (thank god) an open source one.

Another thing with software ( or any kind of job for that matter ) is that NOT EVERYONE WANTS TO BE MILLONAIRE. And that is something many Americans don't understand. A millonaire has actually a very complicated live. And when you choose not to being one, some other bussines models make more sense. You can be an employee, a modest consultant, just living from art, like painting or doing performing arts like drama and music, and WRITING OPEN SOURCE SOFTWARE. So here is where de OS model comes quite well. Many people do sofware like sex, just for the joy of it. Take that Bill.

One final piece of advice: If you want to be millonare don't write software using the windows APIs. I can assure Bill Gates will want a piece of that amazing idea you have on your head. And will be usefull to have a choice when that happens.

Peace
Omar

Hi Hugh,

> how Microsoft makes a living in this space

When you say "in this space" you mean "with proprietary commercial software", correct? I think that proprietary and open-source software will coexist for a long time. Neither will be the death of the other. However, open-source will continue to erode the massive profit margins associated with proprietary commercial software over time.

As you can see, this won't happen overnight-- but in the course of our lifetime, I expect we'll see more and more hybridization of the open-source and proprietary models. It's already happening, even at Microsoft.

Very well said Jeff.

I think there are more an more people who are trying(and dreaming) to cash in with the boom of open source software.. same have suceeded but alot of these folks wont even reach the million dollar barrier mainly because of the number of competitions you are generating when opening your source code.

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So an 80% gross profit margin is bad? Should we spare a thought for the millions of dollars they invested to develop their products? Just because software is easy to duplicate doesn't mean that's all there is to being a successful software business.
The gross profit on a telephone call must be around 99% -- once the telco has spent a few million or more on infrastructure.
Also why should software be free exactly? When my mortgage is free then I'll consider working for nothing. Until then I'll leave the altruism to the well-fed Western bourgeoisie that can afford it.

Snap!

http://news.com.com/MySQL+hits+50+million+revenue%2C+plans+IPO/2100-7344_3-6179290.html?tag=nefd.top

Like it costs so much to use Windows Server technologies ? Anyone can singup at servepath or whatever and get a quad core, 6G memory, sql server for just $1000 monthly, cheaper severs with dual are also avaliable.

The company that can't handle that has a real problem justifying their existance, their business model will never work.

> Software companies with profit margins greater than 80%

Last available annual data for Red Hat:
http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=4163807&format=PDF

Revenue: 278
Gross profit: 230
Gross margin: 82%

Just wait. Times of change - Change of Times. Zeno.

The real money is in web traffic, not the applications themselves necessarily, i've been looking very closely about getting traffic on the net and found that its not that simple.

I've got friends that have some great web 2.0 applications but not able to get anyone to use them, even if they are great!

I'll be posting some more info on my blog about these bits of software, check it out by clicking on my name, or go to http://www.davegoldmaker.com/

A little historical perspective might be in order.

After Linux, arguably the most successful open source project around is probably Apache (though Sendmail and Bind are probably right up there too).

These are examples of software originally developed internally in academic environments, with research funding, for both research and operational purposes.

Over time, they stopped being research (hence, no more research funding), but had been widely adopted across the Internet community. Open source code, and community support have proven to be a good model for supporting widely-adopted code.

In essence, open source has been largely driven by user communities - where employer-paid users (e.g., in IT departments of various sorts) are providing distributed maintenance of a shared code-base.

The trick seems to be to have a good reason to develop code for internal use, with internal or customer dollars - then spread ongoing support costs over a large user base. I.e., the goal is to cut your own costs rather than to make money selling software.

Zope comes to mind as another example.

In spain we'd say, the guy who wrote this article can't tell speed from bacon.

There are open source billionaires. I believe the president of redhat might be one. The company is certainly worth billions.

The free software movement has political and religious overtones that many do not appreciate. Obviously for money software will be seriously challenged by free software. In the end all software will probably be free. I say that because I believe that machines rather than people will write code in the near future. Obviously industry shrinks from such a prospect. But if you think of the Buddhist monks who go with a begging bowl to get the left over food from others plates so that they can avoid a need for money it starts to kindle some feelings. The early Christian church was very similar. The notion that people should make money is not all that firmly established in our culture if you consider that notion over very long periods of time. Free communication and free information challenge the powers that be. To that extent the free software movement is revolutionary in nature.

Yes, Jeff, I see more and more hybrids going on over time... I mean, it's hard to imagine a world where that would not be the case.

Then I imagine the value would shift away from "owning" the code to "managing" the code. And if somebody figures out how to do a good enough job of it, in a way that can scale to millions of people relatively cheap and easy, then why wouldn't an open source billionaire [or at least, millionaire] be inconceivable? Just asking.

> how Microsoft makes a living in this space

Thruth is open source usually sucks big time, if it works at all it's usually impossible to make sense of because of lacking documentation or sorting out the correct version of fifty different versions with hundreds of dependecies that are all still buggy in different ways.

Thats why Microsoft and any other company doing proper software makes billions, their stuff works, without diving into config files or hunting often non existing documentation.

What amazes me is that there are actually people that questions how companies can make money creating software, why wouldnt they ?

That Linux distribution timeline almost killed me.

The open source billionaires can be found at Google. Linux and open source technologies are essential to their success, allowing the company to rapidly develop at lower costs new services.

The model of open source-enabled services, rather than software companies in the mold of Red Hat and Novell, will produce the first wave of billionaires.

Going off a tangent, the taxpayers funding national and state governments in places like China and Brazil appear to be the other big winners. Public services delivered using open source technologies and supported by domestic technology eco-systems (software, hardware, services, support, IT, etc) are already saving these and other countries millions.

"These guys are paper billionaires because they hold a lot of stock in the companies they founded, and the stock market has decided that the stock is worth that much. This valuation isn't really based on anything in reality, otherwise Microsoft's stock, based on huge sales of real products with a large barrier to entry, would be worth much more than Google's (large ad sales, no real products to speak of beyond the ad system)."

This is an economic noob statement. MSFT's market cap is nearly double that of GOOG's, so in reality MSFT stock is really worth more than GOOG's. There's just more shares of MSFT floating around compared to GOOG.

Henry's right. MSFT is worth twice as much as GOOG, and once the dust settles I expect the ratio will be much higher.

Very little of the value of Google and YouTube is in any way related to the role open-source software has played at those companies. Red Hat is probably the best open-source success story, but remember-- Red Hat doesn't make money from selling the software. Red Hat has made its money by supporting the software. If there was no Linux, the Red Hat business model could be applied to Windows instead (and I think a lot of people wish someone would do exactly that).

The author of the original article got the facts right, but merely danced around the obvious conclusion. Pure open-source projects like Linux will never make anyone any money because nobody has an exclusive right to the work. Without the ability to exclude competitors, there's no profit, no return on investment, no commercial incentive at all.

But-- if you enjoy developing software, please do work on open-source software. It really does help make the world a better place.

. png

Excellent discussion.

Speaking of Google, perhaps it's time to admit that the emperor is buck naked? Google is no longer an asset to small business. It's digressed into a black box designed to extract as much money as possible from small business while giving back as little value as possible. This piece explains why Adwords is something to be skeptical about: "Why Google Adwords is Not Helpful to Small Business" http://smartstartup.typepad.com/my_weblog/2007/07/a-fable-doing-b.html

Free software does not reduce profits "By Design" -- it's "designed " to grant Freedom to the user, which is something totally different from reducing profits. Whether or not it affects profits is totally secondary to what it's "designed" to do, which is to grant Freedom to the user. Now, as for "Open Source", which is not necessarily the same as "Free", (although usually any "Free" program is also "Open Source" and so one could say "Free" programs are a subset of "Open Source"), I'm not so sure, but Free software definitely is not *designed* to affect profit but to grant freedom to users.

"Peter G." wrote:
"But-- if you enjoy developing software, please do work on open-source software. It really does help make the world a better place."

But what about making money from the software, so I can then go and spend that money on helping the world instead of just hoarding it as an end in and of itself?

How to be an Open Source Billionaire

by Alex Nartin

Too many open source programmers think the same way.

They think: No bucks, no money.

Here is how to be an Open Source Billionaire:

Think of the Wild West!

The telegraph brought the news to people quickly!

So goes Open Source Billionaires!

The code will be so good, it will be free! The network is formed.
Agents of the OS Billionaires (OSB) will charge reasonable sums to
deliver (by foot, bicycle, parasail or car or US Mail) the great new
OS software! The software is free, but a person who chews on the bacon will say--"OK, cool $20 for delivery of UltraMountain 2.0 and 2.5 in the next 6 months, cool, I'll take it! Get the CD over to me!
You don't think I'll waste my time and ComputerPort resources downloading the sucker, right?"

Distribution is the first way.

The 2nd way is Independent Contractors (ICs). They will charge a mere $60-$80 to install or troubleshoot or upgrade OS systems.

Service is the second way.

The third way?

Let's call it "Dessert".

Let's say Willie Bob's "Mongolian Barbeque of Western Arkansas" has been having a lot of fun, very happy customers chawing at nice tender BBQ. He has been operating an Open Source software program called: "Mountain High Ultra Cash Grow Wealth Allocation System"
for the last 3 years. Cool! Not only does Willie Bob keep 1000's of customers and 20 employees happy, he regularly spends 3 week vacations WHEREVER he wants to!

So he gets a postcard in the Mail from the OS Billionaire Developer. Willie Bob paid a mere $25 for the original OS program CD 3 years ago. He says" "I loves free software that is followed by a mere 25 dollar shipping fee." Willie Bob's accountant Chumbly Humblee tells him--"Buy this upgrade, the $90 is tax deductible."

So Willie Bob buys the $90 Ultra Platinum edition of this awesome OS software, he gets it overnight on 4 CDs, and then his business grows up to BBQ palaces in 12 states, 300 employees, and Willie Bob only shows up in the office just 3 days a month!

Do you see the beauty of the OSB concept?

These developers make their billions in 3 ways:
Distribution, service and upgraded ULTRA editions

The fourth way could be the couriers, the installers, the service people and the upgrade indie contractors could all network nationwide
either through network marketing or an over-ride commission system (2 levels) with this great motto--"The network is the dream. We live the dream and share the wealth."

This is how it works!

Cool!

Alex Martin
Copyright 2008 by Alex Martin

Burger Flipping Billionaires?

Part 4 of my above book--the Network. Let's say, the great OS software is sold for a penny (to make it legal), then the rest of the cost can be distribution and upgrades. So everyone in the network makes money, they get commissions, they get overrides on those they signed up (only 2 levels in this network).

So a guy or a dudette might START OUT (it's not a sin to start!) as a burger flipper, might sell X many units of ULTRA HUMUNGO LIFESTYLE AFFIRMING WORDS open source software, sign up 6 people under him or her to sell ULTRA HUMUNGO.

Aha! What is this GENIUS doing?

Earning ultra-wealth through the network of OS moguls! Maybe Susie of Kansas or Wilbur of Louisiana has 8 or 20 people signed up, and they are all 1)Having LOADS of FUN, since they KNOW that LIFE is BIG, and money flows without worrying about it all the time 2) Using and learning awesome things from their OS Software and 3) Earning commissions and overrides from their OS software sales.

Just denominate their sales in scrip, say 1 penny equals One Million
Mongos! So they easily are Millionaires, just by enjoying Life, having fun, being themselves and benefitting from using their software!

OS Billionaires? OS Millionaires? Easy. The network of Indies (Contractors, Operators, all receiving their 1099's) spreading , using, refining and ultra-enjoying their ultra-easy very useful software!

It is real!

Alex

"So a guy or a dudette might START OUT (it's not a sin to start!) as a burger flipper, might sell X many units of ULTRA HUMUNGO LIFESTYLE AFFIRMING WORDS open source software, sign up 6 people under him or her to sell ULTRA HUMUNGO."

What your are describing has been around for many years. It's called multi-level marketing. It's basically a few steps down from a Ponzi scheme.

Does it work? to some degree. The people at the top make lots of money (top 1%) and the people below don't (the rest of the losers shilling for dollars). In my mind, this is worse than spamming.

"OS Billionaires? OS Millionaires? Easy. The network of Indies (Contractors, Operators, all receiving their 1099's) spreading , using, refining and ultra-enjoying their ultra-easy very useful software!"

If you enjoy your career as a programmer, you should listen to this statement. Basically, people using your software are getting value from it (and saving money). The original developers are getting nothing.

Eventually, as open source gets better and better, businesses will have less of a need for actual developers. This means less jobs in the future for software engineers and developers and more for code monkeys (and a cheapening of the craft overall. Think of the new programmers as mechanics rather than engineers).

This may be the future, but just realize that by developing open source for the masses, you are paving the road for it.

When people say there is no money in open source, they are talking about the people that develop code and sell it, not the free-loading user that is saving X amount of dollars by not having to purchase a couple of licenses from Microsoft.

"...to balance the scales by devaluing the obscene profit margins that exist in the commercial software business."

There's nothing obscene about them. They are determined by the free market. And if Open Source succeeds in a big way, it will lower those "obscene" margins. The free market at work.

You're also talking about gross margins but that's a whole other story...Exxon has lower margins but they make more money then any software company. Perfume bottles that sell for $20 contain 5 cents worth of perfume, and makes software margins look like peanuts, but the csot to market and advertise the perfume are huge. I realluy enjoy your bog but I just hate it when people make absurd economic statements.

Love the last quote. It is how you use tech to "work" for you.

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Umm, you know what, Google look pretty open source billionaire to me.

The whole thing of open source frameworks is that they're like the wheel. It's not conceiving it and patenting it, it's making it available that has a huge difference on general prosperity.

It's not what you've got, it's what you do with it.

oh yeah, BTW, bill gates was ousted for some thouroughly illegal and monopolistic business practise, with which he was conning lots of n00bs into using the highly inferior, and actually in some places hazardous MS tech.

In the land of the blind, the one-eyed man is king.

In the land of the n00bs, the MS software rules.

Google's got no products besides AdWords? Now where on earth did you get this idea?

Search (and all of the analytics behind it)

Android.

Google Docs

Analytics, aka Urchin

Google Code

Google Earth.

Google Chrome
________________________________

These are hugely valuable things, all the more so for being available ubiquitously free of charge. But that doesn't mean there ain't money in them there hills for those digging with neural net AI tools behind the scenes. And don't think that isn't exactly what they're doing.