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An open source loop is a scenario where an open source project stalls because it is run by a group of volunteers that are focused on technical prose (such as security or interoperability) over profit.

These loops happen because projects are run as volunteer non-profit groups mostly focused on tactical technical goals. For-profit businesses escape this loop because they do not survive without utility that leads to adoption and ultimately profit. Without a for-profit goal the project falls behind its’ competitors and its’ economic identity becomes its’ greatest bug.

EXAMPLES: 96% of software products developed in 2016 used open source software (R1) Yet, most open source projects unfortunately fall into this category -including Bitcoin and Linux. Without the ability to scale up economically on their own to pay for dedicated teams of developers, engineers, security, and support they fall behind and lose their first mover advantage.

For-profit open source companies have to both compete in the B2B/B2C market and innovate ahead of the open source code they are based on:

“If we look at Red Hat’s market, 50 percent of potential customers may use Fedora (the free Linux distribution,) and 50 percent use Red Hat Enterprise Linux (the version which is supported and maintained by Red Hat on a subscription basis.) So a large part of the potential market is carved off – why should people pay the ‘Red Hat tax’?” (R2)

Yet, SaaS built on open source such as Google, Amazon, IBM, and Facebook have shown “the most successful way to amass ridiculous sums of money and keep it to yourself is to build your business on open source software… These companies have learned how to use intellectual property (IP) laws to remove competitive threats and establish choke holds.” (R1) The anti-thesis of these open source examples is Apple which has owned the majority of its’ IP ecosystem from day one.

REFERENCES:
https://a16z.com/category/open-source/
(R1) https://medium.com/@johnmark/why-open-source-failed-6cae5d6a9f6
(R2) https://www.cio.com/article/2944334/why-the-open-source-business-model-is-a-failure.html
https://letstalkbitcoin.com/blog/post/lets-talk-bitcoin-422-the-internet-was-illegal-and-other-early-stories-with-zooko-wilcox
Top Picture: https://en.wikipedia.org/wiki/Tux_(mascot)

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