"Along the way, I noticed something interesting about open source software, which is this: most of the companies spending big money to develop open source software are doing it because it’s a good business strategy for them, not because they suddenly stopped believing in capitalism and fell in love with freedom-as-in-speech."

"Every product in the marketplace has substitutes and complements. A substitute is another product you might buy if the first product is too expensive."

"A complement is a product that you usually buy together with another product."

"Gas and cars are complements. Computer hardware is a classic complement of computer operating systems."

"Demand for a product increases when the prices of its complements decrease."

"When computers become cheaper, more people buy them, and they all need operating systems, so demand for operating systems goes up, which means the price of operating systems can go up."

"First of all, when an economist considers price, they consider the total price, including some intangible things like the time it takes to set up, reeducate everyone, and convert existing processes. All the things that we like to call “total cost of ownership.”"

"Secondly, by using the free-as-in-beer argument, these advocates try to believe that they are not subject to the rules of economics because they’ve got a nice zero they can multiply everything by."

"The thousands or millions of developer hours it takes to revise every existing device driver are going to have to come at the expense of something."

"And until that’s done, Linux will be once again handicapped in the marketplace because it doesn’t support existing hardware. Wouldn’t it be better to use all that “zero cost” effort making Gnome better? Or supporting new hardware?"

"There is a finite amount of volunteer programming talent available for open source work, and each open source project competes with each other open source project for the same limited programming resource, and only the sexiest projects really have more volunteer developers than they can use."

"a lot of very large public companies, with responsibilities to maximize shareholder value, are investing a lot of money in supporting open source software, usually by paying large teams of programmers to work on it. And that’s what the principle of complements explains."

"In general, a company’s strategic interest is going to be to get the price of their complements as low as possible."

"The lowest theoretically sustainable price would be the “commodity price” — the price that arises when you have a bunch of competitors offering indistinguishable goods."

"If you can do this, demand for your product will increase and you will be able to charge more and make more."

"When IBM designed the PC architecture, they used off-the-shelf parts instead of custom parts, and they carefully documented the interfaces between the parts in the (revolutionary) IBM-PC Technical Reference Manual."

"Why? So that other manufacturers could join the party. As long as you match the interface, you can be used in PCs."

"IBM’s goal was to commoditize the add-in market, which is a complement of the PC market, and they did this quite successfully."

"When IBM licensed the operating system PC-DOS from Microsoft, Microsoft was very careful not to sell an exclusive license. This made it possible for Microsoft to license the same thing to Compaq and the other hundreds of OEMs who had legally cloned the IBM PC using IBM’s own documentation."

"Microsoft’s goal was to commoditize the PC market. Very soon the PC itself was basically a commodity, with ever decreasing prices, consistently increasing power, and fierce margins that make it extremely hard to make a profit."

"Unfortunately it seems to have backfired: apparently commodity PC hardware has already been squeezed down to commodity prices, and so the price of making an XBox isn’t declining as fast as Microsoft would like."

"The other part of Microsoft’s XBox strategy was to use DirectX, a graphics library that can be used to write code that runs on all kinds of video chips"

"And why don’t the video chip vendors of the world try to commoditize the games, somehow? That’ s a lot harder. If the game Halo is selling like crazy, it doesn’t really have any substitutes."

"They’re doing this because IBM is becoming an IT consulting company. IT consulting is a complement of enterprise software."

"Thus IBM needs to commoditize enterprise software, and the best way to do this is by supporting open source. Lo and behold, their consulting division is winning big with this strategy."

"They’re doing this to commoditize the web browser."

"Netscape gave away the browser so they could make money on servers. Browsers and servers are classic complements."

"The cheaper the browsers, the more servers you sell."

"When Netscape released Mozilla as Open Source, it was because they saw an opportunity to lower the cost of developing the browser. So they could get the commodity benefits at a lower cost."

"AOL/Time Warner is an entertainment company. Entertainment companies are the complement of entertainment delivery platforms of all types, including web browsers."

"This giant conglomerate’s strategic interest is to make entertainment delivery – web browsers – a commodity for which nobody can charge money."

"Microsoft wanted to make web browsers a commodity, too, so they can sell desktop and server operating systems"

"They went a step further and delivered a collection of components which anyone could use to throw together a web browser."

"Given that IE is free, what is the incentive for Netscape to make the browser “even cheaper”? It’s a preemptive move. They need to prevent Microsoft getting a complete monopoly in web browsers, even free web browsers, because that would theoretically give Microsoft an opportunity to increase the cost of web browsing in other ways — say, by increasing the price of Windows."

"Transmeta is a CPU company. The natural complement of a CPU is an operating system. Transmeta wants OSs to be a commodity."

"Sun and HP are hardware companies. They make boxen. In order to make money on the desktop, they need for windowing systems, which are a complement of desktop computers, to be a commodity."

"If you can run your software anywhere, that makes hardware more of a commodity. As hardware prices go down, the market expands, driving more demand for software (and leaving customers with extra money to spend on software which can now be more expensive.)"

"An important thing you notice from all these examples is that it’s easy for software to commoditize hardware (you just write a little hardware abstraction layer, like Windows NT’s HAL, which is a tiny piece of code), but it’s incredibly hard for hardware to commoditize software."

"Until the switching cost becomes zero, desktop office software is not truly a commodity."