The Power of Free

I heard a great story the other day on NPR that oddly enough was related to Open Source Software. It was a story about behavioral economist Dan Ariely's new book 'Predictably Irrational'. Ariely's book offers a new explanation for our decision making processes that is contrary to traditional economic theory. He argues that our decision making processes are much more irrational than previously thought, influenced by emotions rather than hard economic reasoning.

One of Ariely's main discoveries is the power of free. What he found was that when the price of something is zero, it becomes irresistible to the consumer even in the face of other options that deliver logically better value. He uses as an example an experiment where children chose a small piece of chocolate for free rather than a much larger piece of chocolate for nominal fee even when the children were given the funds to pay the fee (in this case the currency was chocolate kisses).

For open source software companies this finding is a powerful vindication of their business model. Ariely's theories suggest that software customers are predisposed to prefer a product that is free even if it is not the best. We see that every day in open source software. Open source software is often not feature compatible with or as polished as commercial alternatives. But as we have seen over the past 10 years, free software has made incredible inroads in the software business. Consumers are willing to make accommodations and allowances for something if they can get it for free.

The challenge for open source software vendors is to find a way to monetize software in different ways that deliver real and perceived value after free software has been adopted. In addition to service and support, new business models might include advertising, creating dynamic marketplaces, and selling the knowledge that makes software intelligent.

Every software developer I know likes to eat. So it is important to make money developing open source software. As Sun takes xVM open source, we are trying hard to create sustainable business models that complement the delivery of free software.

Tags: openxvm, foss, open source, free

Posted at 06:40AM Mar 03, 2008 by Scott Lehman in Sun  |  Comments[0]