The Limits of Open Source

NEW YORK (TheStreet) -- This is another one of those 1% vs. 99% stories. But you will not find politics in it.

This is a software story.

Technology history is one of software platforms and control over those platforms. Generally, the more companies allowed to participate in a platform the more growth that platform can generate, because no one company can possess all the good ideas.

International Business Machines (IBM) dominated the mainframe era, and raised the ire of the antitrust authorities. Digital Equipment Corp. created competition with its minicomputer platform, but development costs were starting to sunset that era even as the PC era began.

Microsoft (MSFT) eventually dominated the PC era, although it wasn't there at the start. It won by absorbing the new platform of the 1980s, client-server, where Novell enjoyed first-mover advantage.

The Internet of the 1990s was Microsoft's Waterloo, thanks in part to the government. Open standards kept the Internet open, they continue to do so, and this remains the high-water mark for competition and growth within any platform.

How can that be guaranteed into the future?

That's what open source was all about. Open source creates competition for anyone who builds a dominant platform. Linux beat Windows, but Linux did not create dominance any more than the Internet's TCP/IP protocol did, because everyone had access to it.

The problem for investors is that within an alternative environment, dominance is hard to achieve. Dominance remains where the big profits are. So even under open source, the path to big profit lies in somehow closing the platform, creating a walled garden, becoming the only choice.

The device market is the platform of this last decade and we all know the name of the big winner. It's Apple (AAPL). There is an open source alternative in Android, leading some to think there must be huge profits there, as Ed Liston explains at SeekingAlpha.com.

But that's not true. Competition from Apple did not come from open source. It came from building a new platform.

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