Today I read an article on Slashdot about a software maker concerned that open source software was causing a “race to zero” (as in the price of software). His problem was that his company produced a piece of software worth $5K one year and, because open source developers were creating the same tools and giving it away, the next year the software was worth $0. This occurrence is becoming more and more common as open source software grows. But what does it mean?

Many pundits predicted long ago that software would some day become free across the board – this included operating systems. Where developers would make their money is — can you guess? –support. This, of course, may be the case in the enterprise where people need answers fast. But for the individual user, it’s not necessarily a viable revenue stream.

So without a lustrous support contract to lean upon, how would companies make budget? If they are giving away their bread and butter, or some one else is giving away a replica of their bread and butter for free; what do they do?

I do not pretend to have all of the answers. I do have one (that answer will come later). But I can say this: Software is going to eventually go the open route. We already have the underpinnings of this laid out for us. We have free browsers, e-mail clients, and office suites for every platform. This forms the foundation of computer usage. And every day a new open source solution for a previously closed-source issue pops up. Take for example OpenChange. OpenChange is an open source replacement for the Exchange Server. And this past week it was announced that Microsoft and Novell are about to release the beta version of Moonlight (the Linux version of Silverlight).

What this all makes me believe is that eventually all software will be free – at least the foundations of software. So you might be able to snag a copy of the Exchange Server software for only the price of bandwidth and a writable disk. But say you need an extra feature or a plugin to handle a particular service? That’s where companies stand to make money – it’s what the retail industry calls “upselling”.

Upselling is one of those areas that the software market never really understood because they were too busy just trying to sell what they had. But the open source community could stand to really remake the software industry by following this model. Red Hat and Novell have already started, in a way, this model. Red Hat helps to develop Fedora to release to the community for free. This helps to gain both interest and favor of those possible enterprise customers. They try Fedora but long for extra, enterprise-level features. Those same customers realize they can get this with Red Hat Enterprise-level operating systems. Extra features! Upselling. Give away your base for free to establish a demand. Once the demand has been established, offer add-on features for a price.

Look at what Codeweavers has done. They played off of the Linux community’ need for games and for Microsoft Office. To that end they create a software that will allow Linux users to enjoy the two things they wanted the most: Games and Office. They had them. And now Crossover Games supports over 5,000 titles. But Codeweavers is one-upping everyone. They have a program in place where users can get free copies of their software in return for spreading the word, monitoring forums, and helping to make their code better. Not only does this fill the users’ need for software, it fills the business need for bug testing and PR. Smart move.

I think that user-space software, ultimately, is going to be free across the board. Where companies are going to continue making money is in games. Yes, games. Games drive the market now, and they will continue to drive the market. Game design is that which pushes the hardware industry to continue making better and faster hardware. And people will always pay for games (even if they have to pay for another layer of software in order to play those same games on their operating system.)

But I do believe firmly that software will go the open source route. So, in a sense, open source software is killing the developers’ ability to make money on their base code. But it doesn’t have to kill their ability to make money altogether. Like the market, developers just have to be very flexible and discover newer revenue streams to attach to their product.