Joel On Software's written an excellent article on the economic reasons for free software/open source. It all comes down to complimentary components: cheap plane tickets to Miami drive up the cost of hotel rooms in Miami, so Miami hoteliers want to lower the cost of plane tickets.
By the same token, it's in the best interest of hardware vendors to drive down the cost of operating systems; of media companies to drive down the (potential) cost of browsers, etc etc etc. The essay is clear and well-argued, and a nice defense of the economic value of free-as-in-beer software (it explicitly exempts free-as-in-speech from its scope), but I think Joel makes a misstep on the question of Sun.
Sun is in the business of commidifying software (through their support of free Unix variants and tools) and hardware (through their support of Java). When the costs of everything drop to zero, where is Sun's business? As Joel puts it: "Without proprietary advantages in hardware or software, you're going to have to take the commodity price, which barely covers the cost of cheap factories in Guadalajara, not your cushy offices in Silicon Valley."
But he is mistaken about Sun. Sun's unique sales proposition is what it has always been: interoperability. Sun has always led performance computing vendors on the free-as-in-freedom front. IBM and SGI and their ilk have built hardware that attempts to lock their customers in, making peripherals and software proprietary, high-cost add-ons. (I once had a gig running a proto-hosting service that was built on an SGI WebForce Indy. The machine shipped without a compiler, and SGI wanted to charge us $1000 for "developer tools" like perl). Sun's commitment to its customers is that its products can be hacked, that other vendors will be able to support them without punishing license terms, etc. That is why Sun isn't a commodity.
(Thanks, John!)
