In the Direction of Dreams

There is a lot of money to be made in software platforms.  But that doesn’t mean they will be expensive to their users.  On the contrary, the most valuable platforms tend to gravitate towards being free.  In fact, it is because they are valuable to so many people that they have a tendency to become free.

A big platform may start out being expensive.  The early movers in a space may choose to charge a large fee, as Microsoft did to its customers, or a big commission, as Uber does to its drivers.  They then reinvest that money back into the platform, which makes it difficult for new entrants to compete on product, at least initially.

New entrants can, however, compete on price.  If they are able to establish prices low enough, they can get enough market share to allow them to invest more money into the product.  The improved product in turn serves to increase market share, which in turn enables more investment in the product.  Eventually the less expensive platform becomes just as good or better than the initial platform, and at that point, it is only a matter of time before it dominates.

It doesn’t always play out this way, and in fact it rarely plays out this way when a platform is niche and its users are rich.  (Bloomberg, for example, will be expensive for a while.)  But it does work this way often enough that many platforms will choose to be free from the beginning.

In many cases, the only sustainable way to be free is to be open-source.  Bitcoin can be free in a way that PayPal cannot.  And open-source platforms establish, either explicitly or implicitly, open standards that let the platform interoperate with others.

We see this dynamic most clearly in programming tools.  Our dominant web servers, databases, programming languages, version control systems, editors — the list goes on — are  all free, open-source, and interoperable.

Our programming tools comprise the most mature ecosystem in software.  They have been around since the beginning of computers, and they might give us a glimpse into the future of our younger software ecosystems.   If so, we should expect that more major platforms will become free, open-source, and interoperable, like our dominant browsers, operating systems, and encyclopedias have recently done.

Some will do so out of a generous spirit of their creators, and others will do so out of the rational calculations of the companies that start them.  The sum effect, regardless of the motives, is that we will create the most valuable gift economy in history.

Indeed, we already have.