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Maureen McKelvey INTRODUCTION The purpose of this chapter1 is to ask, when and why does freeware software gain enough momentum to challenge dominant commercial software? Software development is not seen as a unique phenomenon but instead as an early leader case for identifying trends in knowledge-intensive sectors. Software is examined because it has a high degree of knowledge-intensity in its development and sometimes in its use. Users may play significant roles as developers. Moreover, what is interesting about software development is that over time, there are alternative ways of creating novelty and creating economic value. Freeware, shareware, open source software, and so on compete with commercial, packaged software for users. These different ways sometimes develop in parallel but at other times, they converge or branch off. For this reason, software development appears to be a very interesting case of evolutionary competition which is highly relevant to theoretical developments in evolutionary economics (Metcalfe, 1997). McKelvey (forthcoming 2000) develops three ideal business models. Further review of the theoretical argument can be found there, as well as in McKelvey (forthcoming). The three models were developed based on software examples, but they are argued to be relevant for other knowledge-intensive sectors. The three models are: 1. Firm-based control of knowledge and of the economic returns. This would be a firm selling software as a standardized, closed, mass market product at a given time, albeit a product whose boundaries may expand over time into new uses and services. Software is a product, requiring strategies...