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companies that depend on Open Source software for revenues have a built-in cap on how much they can make.

That isn't true. Even for a pure software play like Red Hat, there is no 'cap' on the revenues they might earn by selling services and support. Red Hat itself is still struggling, but the world is full of service and support companies, from IBM's Global Services Division to Accenture, and many of them are highly profitable and quite large. It is certainly no cakewalk to start one of these things and grow it, but there is nothing in principle that prevents a firm from making money doing this. The selling, or even reselling, of software license fees is a tiny component of revenues for these big support firms... it is just not true that removing license fees from the equation makes their business model impossible to execute.

if a company came along and said, "OK, we want to compete with Dell, and our competitive advantage is going to be our use of Open Source. We'll spend the money to jazz up Open Source stuff to really make a difference."

That in fact happened. The company was called VA Linux. I joined you in wondering what kind of sustainable advantage they could have, and predicted an early demise for them... which in fact happened. (I think the shell is still running around as a services company, but it's a shadow of what it was). However... the venture capitalists did buy in, and the company did enjoy a brief period of success, during which time it went public and a bunch of people got rich. I hate it when that happens, but I also recognize that the players at that table got rich, and I didn't participate. If people insist on being Greater Fools, perhaps it is our duty to take their money.

the very nature of Open Source prevents gaining competitive advantage with it.

But only in software development. It is still possible to gain competitive advantage by building nifty things around it. If IBM can slough off a big part of its operating system development expense on some willing volunteers, this leaves it more resources to build things like silicon-on-copper processors, and figuring out how to make little tiny transistors out of carbon nanotubes. IBM does not lose competitive advantage by embracing open source software, it gains a cost advantage. It can now show up on its customers' doorsteps with faster, cooler-running machines that cost less money to make. It has in fact been doing this, and cleaning Sun's clock with the results.

But HP also sells high end servers. If they run the same OS as everyone else, what competitive advantage does that give them? None.

That is not an argument against open source. That is an argument in favor of every hardware vendor having their own proprietary operating system. Been there, done that, the market was brutal in punishing vendors who tried to stay with that. You might as well just stuff that argument back into the box, because that's where we came from, and no one is going back.

I don't know why HP fired this guy. Maybe he's a loose cannon who says things that embarrass the company. They have Windows customers too, and they don't need an employee who publicly insults them. If he did that, he had to go. That's still worth points in a linux shop though, and their competitors will still use it on them. It would have been smarter to appoint him Country Manager of Albania and let him leave on his own, quietly.

That isn't true. Even for a pure software play like Red Hat, there is no 'cap' on the revenues they might earn by selling services and support. Red Hat itself is still struggling...

I rest my case. They are the Open Source poster child, and they can't seem to make money from it.

However... the venture capitalists did buy in, and the company did enjoy a brief period of success, during which time it went public and a bunch of people got rich.

Yes, venture capitalists did try out Open Source companies at one time. The lessons have been learned, and I don't think they'll be going back to that segment, for the reasons I outlined earlier. They understand better now what the limits are on growth for Open Source-based companies.

As far as services go, venture capitalists have a bias against service companies, and there's a very good reason why. If the service is based on having people perform it (as almost all consulting is, for example), then there is a built-in limit on how fast a company can grow. Namely, how fast can they find and train qualified people. Product-based companies are much less subject to that limit, so venture capitalists prefer them. That's not to say venture capitalists never fund service companies (they obviously do in some special cases), but that such companies are much less likely to be interesting to VCs.

One last point about Red Hat just to get it off my chest. I used to be neutral about them (and all the rest of the Linux distros). Now I actively detest Red Hat. The reason is that they ran whining to the government of California trying to get a law passed to restrict their competition. Anybody who does that automatically sucks in my book.

I don't know why HP fired this guy. Maybe he's a loose cannon who says things that embarrass the company.

I met Bruce a year ago at Linux World in Tokyo. "Loose cannon" is an accurate description, but I sure wish I could have (what used to be) his job.

That isn't true. Even for a pure software play like Red Hat, there is no 'cap' on the revenues they might earn by selling services and support. Red Hat itself is still struggling, but the world is full of service and support companies, from IBM's Global Services Division to Accenture, and many of them are highly profitable and quite large.

Service-related companies don't have the potential for profitability that software companies do. They are highly labor-intensive; whereas, once software is developed, it continues to generate profits. VA Linux failed miserably to exploit a service-based revenue model. And the only reason that IBM continues to trudge along is that it sees services as an adjunct to selling hardware -- services aren't an end unto themselves.

However... the venture capitalists did buy in, and the company did enjoy a brief period of success, during which time it went public and a bunch of people got rich...

Which proves at least one thing: That there are some extraordinarily stupid human beings on this planet.

It is still possible to gain competitive advantage by building nifty things around it. If IBM can slough off a big part of its operating system development expense on some willing volunteers, this leaves it more resources to build things like silicon-on-copper processors, and figuring out how to make little tiny transistors out of carbon nanotubes.

True. And that's precisely what Sun is trying to do now. They want free labor to replace Solaris on cheap boxes. But I doubt that it will work because they don't have nearly the economy of scale that Intel and AMD provide.

That is not an argument against open source. That is an argument in favor of every hardware vendor having their own proprietary operating system.

Yes. And as long as that high-end box combined with that proprietary advantage provide enough value (and reasonable compatibility), people will continue to buy it.