I made some comments to Scribe over here : http://describe.blogspot.com/2008/01/kde-40-unexciting.html
I think there's a lot to be said for the point that having an existing model to work from is very useful (ie. almost essential) when you're working in a loosely co-ordinated way.
How can a bunch of people with little formal connection or responsibility to each other, or written specification, come up with a complex piece of software? Well, one way is if they can all point at the same thing and say "we want one of those". (Eg. Unix, C-library, browser, editor etc.)
Eric Raymond long ago tried to dispel the myth that open source couldn't do real innovation by pointing at Perl. (Which has never had an equivalent in the proprietary world) How convincing that is, I'm not sure. Programming languages look good candidates for free-software innovation; OTOH most of the ideas of the big free languages are borrowed from research of 30 or 40 years ago. (Hence Ruby, Python are not substantially more innovative than Lisp and Smalltalk)
I believe that there is innovation in the free software community, but almost by definition, the innovative projects are not those which are going to attract a lot of people to them. (If it's too innovative it probably isn't the solution to a lot of people's problems, nor is it likely to be very understandable. In fact true innovation probably isn't recognisable as innovation - just some weird shit.)
Group decision making (of which peer-production is an example) is always going to tend towards the mean.
Actually, I guess the most fertile soil for free-software innovation has been where there's a common, widely recognised problem which proprietary software companies nevertheless failed to address well : for example light-weight, easy to use, web-frameworks. Perhaps PHP and Rails are the biggest examples of free innovations that have been gone mainstream.
However, there are almost no equivalent widely recognised but under-served problems on the desktop (who cares about the desktop these days?) So anyone working in free software in that area has nothing to do except try to copy Windows and Mac. (Which are themselves not doing much innovation in this area.)
The next exciting place is the coming "DeviceSwarm" but that's going to be composed of problems largely defined by the new hardware devices themselves. That creates a different dynamic, even though I confidently expect hackers to be hooking their Wiimotes and Nonchucks up with their Arduinos and Chumbies, Roombas and Livescribes etc. it won't have the same flavour as the competition between proprietory and free software. Most software will be free-as-in-beer, tethered to online-services (either paid by advertising or subscription)
There'll probably be lots of free-as-in-speech software too, but most of its value will still come from the network it connects to (often proprietary unless P2P), and backed by utility data-storage from Amazon, Google, Sun and Microsoft.
Hmmm ... maybe that P2P angle is the real frontier to be pushing now ...
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