Open Source is all about the Network.
I had a call with an equity analyst yesterday discussing why open source is different. One leader in the open source industry tried to convince him that open source changes the dynamics of software distribution, but I do not believe distribution is fundamentally different for open source vs. proprietary products. There are lots of examples of "free for use" proprietary products that are distributed via the Internet. VMware player is a great example.
The big difference with open source, in my opinion, is the value created by the freedoms of "modification, use, and distribution," which are collectively greater in value than the simple freedom of "use." Freedom to modify means more users will use the product because they can adapt it to their needs. Freedom to distribute means more users will offer the product as part of their value, creating yet again more users. These open source freedoms have the potential to create market share faster than any free use scenerio for a proprietary product. Increasing market share leads to network effects, which are the real secret to success in the software industry.
Network effects in the software industry are well documented, and open source provides the best mechanism today for a small company to "break out" by creating network effects quickly and cheaply.