The Linux operating system is popular in nations like Brazil

Tim O'Reilly: Proprietary software grew up, starting really in the 1980s, as an alternative and that became the dominant model with the rise of companies like Microsoft and Oracle and the like.

But then a set of people said, we like it the way it was where we just gave our stuff away. So you had a bit of revolt against the commercialisation of software which started with Richard Stallman and the Free Software Foundation which was founded in 1984.

He was a fairly radical guy who has the idea that all software should be free as a moral issue. But there are a lot of other people who just gave their software away because that was the practical way to get it out there in the world. They just wanted to get other people using their software.

Go Digital's Bill Thompson: There was a difference between the ideology of free software, like Richard Stallman, and open source, which is more permissive generally?

Tim: That's right. What happened was over time this more pragmatic group was a large threat. A lot of the visibility was being given to the ideological people and in 1997 there was a bit of popular open source programming language called Perl created by a guy named Larry Wall. I started a conference on Perl when I realised that Perl was one of my most popular books.

A lot of the websites built through the 1990s used Perl. The first webmaster of Sun Microsystems coined a wonderful phrase. He said Perl is the duck tape of the internet - it's this language that people would write all these scripts that make things just work.

Libre vs gratis

After I did this conference I realised that many of my bestselling books had this similar characteristic - they were about these programs that were written by individual programmers, distributed for free. And I thought I had to get all these guys together - they don't all know each other.

We had a meeting which at the time we called the Freeware Summit - this is in early 1998 - and at that time we'd started discussing the fact that this term free software had a pejorative connotation. Linus Torvalds, the creator of Linux said, I didn't realise that in English free has two meanings - it has libre and gratis - that's very confusing.

Bill: People like it gratis, definitely.

Tim: That's right. Linus is from Finland and so he didn't quite understand the nuances. We started discussing the fact that the name was possibly a problem and then Eric Raymond, who was a guy who's done a lot of thinking about this software movement said, well I was in a meeting recently, we were talking about this same problem and we came up with this new term, open source - what do you guys think about it?

Virtually every real breakthrough in technology had a bubble which burst, left a lot of people broke who'd invested in it but also left the infrastructure for this next golden age effectively Tim O'Reilly Where is the web heading? Send us your views

We actually had a vote and various people were pushing for other terms but we ended up just saying that we were going to vote on something and we were all going to agree to use it. And we went out and had a press conference that evening and said, here's this movement and it's called open source.

The real characteristic of open source is really part of a broader social movement even than just software. Yes, you have this rigid definition that says, OK if you have software that is licensed under these terms it can be called open source, but you also have related activities such Wikipedia.

Bill: This is the free online encyclopaedia that anyone can contribute to so you can go to the Wikipedia website and if you see a mistake you can fix it or if you know more about a subject you can add.

Tim: That's right so a lot of the ideas of open source are really, I think, in a way fundamental to the internet era.

Bill: It's a kind of philosophy to an extent.

Tim: I have this thesis that geeks, if you like - programmers and early adopters of all stripes - actually show us a lot about the future. These are people who are comfortable with technology and they're often the first to plumb its depths and push it to its edges and they can tell you a lot about the shape of the future.

On the edge

So, for example, take wi-fi. You guys go out there and there's wi-fi in Starbucks. Well, when wi-fi was introduced, it was introduced as a local area network technology. But we knew almost immediately that it was going to be more than that because all the geeks we knew were up on their rooftops making homebrew antennas. So the geeks sort of predicted that you'd eventually be able to get it in Starbucks or McDonald's because they wanted it there.

Bill: Is something similar happening in say some voice-over internet for telephony where people are making phone calls over the net. Do you see the same thing happening there?

Tim: Absolutely. The geeks are out there on the front edge. But coming back to this idea of open source - this idea that when you put people together with the internet they start doing things in different ways and the geeks, if you like, discovered pretty early that one of the great ways that you can use the internet was you give your stuff away and it gets the word out and that was sort of the beginning of what we now call viral marketing.

Photo-sharing sites liked Flickr are examples of the participatory web

They also discovered that when you give your stuff away, you can actually get a coalition of people to help you with it and so you were able to build new forms of social organisation around projects that people care about.

And so open source is really the thin end of the wedge of something that science fiction writer, Corry Doctorow calls the "ad-hocracy" - people just getting together to do stuff and make things happen.

Bill: But nobody would argue with the philosophy of something like open source if it means effectively, things for free - everyone is very happy about that. But if open source is such a wonderful idea why is it that a single company has managed to dominate software and the software market with products and a product that people have to pay for that has made one individual the richest man in the world?

Tim: I think there are a couple of things. I believe that the human motive to share is very powerful. The human motive to profit is also very powerful and I think that the profit motive and the sharing motive are not exclusive. Bill Gates, while he was extracting value from software, was also doing a huge amount to make computer hardware cheap and ubiquitous.

And in some ways you can look at, I think, an alternation of periods of commoditisation and then consolidation of value and a new layer. A Harvard business school professor, Clayton Christensen calls it the law of conservation of attractive profit.

For example, in the computer industry, IBM was a monopoly, even stronger than Microsoft is today, making enormous amounts of money. Then they made a big mistake. They introduced this commodity PC. They didn't realise how successful it would be and that took all the value out of hardware. And what Microsoft realised was that the value didn't go away, it got driven to this new layer of software.

And what I think is happening today is that open source is commodifying the software industry in the same way that the IBM PC commoditised computer hardware and now where is the value going? It's not going away either. And this is one of the ironies. Virtually every talk I give I say, how many of you used Linux, and depending on the audience, I'll get a scattering of hands or a lot of hands. And then I ask them well how many of you use Google and they all raise their hands.

And I say, well what are you missing? I say, what you're missing is that when I asked you that question, what software do you use, you think of what is sitting on the computer in front of you. But what's actually happened is that Linux and other free software has become the flesh of this new system out there, the internet, and all the applications that are on top of the internet are effectively Linux applications.

Bill: So when you go onto Google, Linux is behind that?

Tim: Yes, that's right. Linux is behind Google.

Bill: But, with respect, does anyone really care?

Tim: Let me put it this way - the people who understand these kinds of dynamics in the industry become very rich because, just like Bill Gates became really rich, exploiting what IBM failed to understand, namely the software was going to become very valuable. Sergey Brin and Larry Page now have become very rich. And people like, Pierre Omidyar who founded eBay, and Jeff Bezos who founded Amazon, have become very rich realising that this new commodity software infrastructure allowed them to build these enormous new services that were incredibly valuable on top of that free software infrastructure.

In part two of the interview to be published on Wednesday, Tim O'Reilly explains the impact of Web 2.0.