Open Source & The Fallacy Of Composition

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Spencer Critchley
Feb. 08, 2006 10:05 AM
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URL: http://news.com.com/Small+is+beautiful+for+Web+2.0+start-ups/2100-1012_3-60...

Recently I posted about the Fallacy Of Composition (which says that an advantage shared by everyone is not an advantage) and how it applies to digital music: If everyone can make and distribute music cheaply, the price they can charge goes down and they all make less money. It should apply to open source as well. Is there an escape route?

The very interesting discussion that followed my earlier post suggest there may be, and I sure hope there is. Does anyone have real numbers yet though, i.e. for a model that generates enough money to build a significant business?

An article at news.com.com called Small Is Beautiful For Web 2.0 Startups offers hope in the example of (among others) open source ASP 37signals, makers of the excellent document collaboration tool Writeboard, the project manager Basecamp and others:

In the two years since launching its first service, the self-funded company has signed on hundreds of thousands of customers and it has no debt, said [37signals president Jason] Fried. It has also founded a successful open-source Web development project, Ruby on Rails. "You can build a great business on a niche product because with the Internet, you can reach a million or a half-million people," said Fried.

The article suggests the old monolithic model of enterprise software development is ending in favor of small, nimble, lightly funded startups that rely on net-based word of mouth (word of net?) rather than huge marketing budgets.

But it seems to me that this is where the Fallacy Of Composition comes in. As the article notes:

Many Web 2.0 online applications can be put together with just a few people and relatively little upfront money and time. But by the same token, those services can be easily replicated, according to investors...

"We're seeing a proliferation of start-ups, many of which may be nice little businesses that will be beneficial to the founders, but few that have the fundamental ingredients for creating lasting, meaningful businesses," said Onset Ventures' [Mark] Hildenbrand.

Is the future then in millions of Mom & Pop shops? Will a free, shared network take over the platform role played until now by big corporate structures?

The red flag here is that it implies a Whole New Way Of Doing Business, and we've heard that one before. It reminds me of the Simpson's episode where Homer thinks he can prophesy the apocalypse. Lisa warns him that people have been predicting the apocalypse throughout history, and they're always wrong. "I know, honey," says Homer, "but I've got something they didn't have--a really good feeling about this."

On the other hand, one of these days there inevitably will be a Whole New Way Of Doing Business, just as one of these days the world really will end. Hurry up, Whole New Way Of Doing Business!

Spencer Critchley is an award-winning producer, writer and composer with experience in digital media, film, broadcasting and the music business.