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"Free software" also known as "Open source"
Free software is really only free in the sense of freedom to use, freedom to copy and freedom to modify. You might also be able to use it without paying for it and not break any laws. It is however expensive to develop and maintain. The costs associated with free software creation mean that it has a very high value, into the tens of billions of dollars.
So if "Free Software" is so expensive then:
1) How can you use it for no cost?
Well this is due to the ethics and morals of the people who created free software in the first place. In order to give you the freedom to use software as "you" as opposed to the manufacturer sees fit they are prepared to generally just give it away.
2) Who pays these developers, surely they can't live on air.
Actually some do, they're called students, but a large number of developers are sponsored by various people and organisations with an interest in seeing Free software flourish. This ranges from private individuals who pay to get a modification done to large corporations supporting things like samba file sharing development. Of course there are people who sell Linux commercially such as Redhat and IBM who also contribute back in both cash and kind.
Think of it this way, in the days of color film you would pay for your film, then pay for your processing. You would then "own" the photographs you took forever. No one ever would or could query your ownership. Not so with digital pictures. You might take for granted that you still have these rights today but do you? You take your photograph on a digital camera, download your images from a camera in an image format that someone holds a patent on and controls the licensing for and save your pictures to a hard-drive that runs a operating system that you only have a license to use under certain conditions. You no longer "own" access to your photographs. If the licensing conditions for the operating system or image codec change you might only have a distant memory of your precious photos.
People might think it does not matter that a software vendor owns the right to the containers that your documents are in but it is possible, and it has certainly happened in the past that when someone has gone to open an old document written in a proprietary format they have found things have moved on and their current tools are incapable of opening their carefully archived documents. As our IT systems and computers store more and more of our vital information it is becoming more and more important to understand the right or lack of rights that users have to access their own data or to use programs to access that data.
3) Who uses free software?
The reality is most people do, often they don't recognise it. But if you have ever used Google then you have used free software. The list of companies that use free software is extensive, of the top 100 companies the shorter list would be who does not use it. Free software is also use in many devices we take for granted today like GPS receivers and mobile phones. The manufactures of these devices don't use it because as it costs them less they can always pass that on, they use it because of performance and reliability
Remember the term free software does not mean free as in no purchase price, it means free as in liberty - free to use as you like. Most people are not aware just how restrictive the terms of their existing software user agreements are, and by how by ticking on the "I agree box" they have given up most of their rights including rights to their own data.
4) How can small to medium enterprise take advantage of free software.
Everyone can take advantage of free software - it is the only model that allows the enterprise to control its own documents and information for the future. Because of the open nature of free software, products have developed that are often superior to their proprietary counterparts. Using free software for computers as part of the IT mix for small/medium enterprise business is a sound decision because the total cost of ownership is lowered and reliability greatly improved.
Statement from Microsoft's Corporate Vice President S. Somasegar
Open source has been an incredible force for developing strong ecosystems around software platforms. We've seen over and over again how open source, both for our own technologies and other technologies throughout the industry, can bring together a rich, collaborative developer base across companies and individuals to build amazing ecosystems. The ability to build on others and learn from each other is an immensely powerful phenomenon and helps everybody in the process - both software developers and ultimately end users of the software that we build. Open source engagement has to be a two-way street, both contributing and consuming for it to be a healthy and vibrant effort.