Another Reason Open Source Is Unbeatable

The post by Tom Evslin is talking about ad networks on blogs, but the insight is general:

Big profits attract lots of competitors. Would-be competitors can point to your profits and easily get funding. Funded competitors can undercut your rates and "steal" your bloggers. Whoops; the circle is now turning in the non-virtuous direction. If you're doing well but running at or close to breakeven, you've made it impossible for anybody to undercut you without running at a deficit which is hard to get funding for – at least in this market. The biggest danger to you is someone who finds a way to substantially cut costs or to deliver a better product. Obviously you've got to be vigilant about that and ought to lose some sleep over these possibilities – but keeping prices down keeps a plague of me-too competitors from cutting off your growth.

This is why it's so hard to compete with free software: it's free, and the profits made around it are much smaller the the price-gouging that proprietary software has traditionally gone for. (Via Jeff Jarvis.)