I countered Savio's assertion with "Scaling a Software Business (open source or otherwise)".
Bernard Golden countered Savio's assertion with "Commercial Open Source - Can It Scale?" where he makes a range of worthwhile points:
"What this strikes me as is a failure to really come to terms with what open source means to IT, and, by extension, the software industry. It is judging open source by the standards of proprietary software business models and finding it lacking, instead of thinking through what business opportunities are made possible by the new mode of software distribution."
"His argument fails to fully comprehend the power of price elasticity, richly explored by Clayton Christensen; simply put, reduced prices don't mean less money is spent on a given item; reduced prices increase the customer base by more than enough to increase total market spend."
"What is important to recognize about all of these open source businesses is that they follow a publishing model and sell subscriptions. And, like all subscription-based businesses, they scale slowly, but are, nevertheless, able to grow to very large scale and can be phenomenally profitable... By contrast, licensed software companies can grow much faster, but tend to have problems later on when it becomes difficult to find new customers to fork over large upfront signing fees."
"The key to successfully scaling a software business (and this is true for both open source and proprietary software businesses) is to generate sufficient leads and to efficiently manage them well enough to create a viable business, defined as sufficiently profitable on a sufficient revenue base. An efficient sales process, applied to the very large lead base made possible by price elasticity, can certainly achieve success on even a 3% close rate."
"We haven't even begun to see the potential for commercial open source (or for that matter, community open source). It will so transform the IT landscape that, in the not-too-distant future, we'll look back on the bit-coercive proprietary software world and marvel that it existed at all - and that it was so small."
Mr. Golden states much more elegantly what many of us OSS vendors have been saying for a while now. And as he points out, the landscape is still changing...which should make the next few years a lot of fun.