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Monday, October 02, 2006

Free Software Won’t Help Yahoo!

Yahoo! greeted that 23% drop in its stock during the third quarter with a plan to give away the code underlying its e-mail application.

The plan is to have outside programmers build code around Yahoo! mail which has 257 million users, based on the company’s figures.

Several companies provide code in this manner, including Google. The new software built from these big-company code bases are called “mash ups”.

What is hard for the investor to see is what advantage there is to large software firms when they give away code. The answer is that it probably has no value beyond the press release. Free software has been a failure on almost every front. Linux, the free operating system, has made a very small dent in its primary target, the Microsoft OS. For years, forecasters have been saying free Linux would bring down the Microsoft empire. It has not happened. Sun’s Java code base was also offered to outside developers. Not many big Java projects around. And, there was the free audio compression software, Ogg Vorbis, which was to compete with MP3. That was a huge success.

Yahoo!’s shares have dropped like a stone, and the fall in the last quarter is as sharp as almost any in recent memory by such a large cap stock.

Until Yahoo! releases the delayed version of its new search technology and stops coming in at the low end of its forecasts, things are not going to get any better for investors. And, the free software is worth exactly what Yahoo! is charging for it.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies that he writes about.
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