Paul Graham describes himself as "an essayist, programmer, and programming language designer". It's no coincidence that he puts "essayist" first, since it's probably how most people now know him, and he certainly is one of the finest programmer-investor-writers around.
He's just produced another of those gems, and it's well-worth reading:
When I went to work for Yahoo after they bought our startup in 1998, it felt like the center of the world. It was supposed to be the next big thing. It was supposed to be what Google turned out to be.
What went wrong? The problems that hosed Yahoo go back a long time, practically to the beginning of the company. They were already very visible when I got there in 1998. Yahoo had two problems Google didn't: easy money, and ambivalence about being a technology company.
As this indicates, there are two main points to the essay. The first, about Yahoo's flawed business model is summed up memorably by Graham thus:
By 1998, Yahoo was the beneficiary of a de facto pyramid scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in.
The other point is about a more profound problem with the company:
One of the weirdest things about Yahoo when I went to work there was the way they insisted on calling themselves a "media company."
One reason was the way they made money: by selling ads. In 1995 it was hard to imagine a technology company making money that way. Technology companies made money by selling their software to users. Media companies sold ads. So they must be a media company.
Another big factor was the fear of Microsoft. If anyone at Yahoo considered the idea that they should be a technology company, the next thought would have been that Microsoft would crush them.
As a consequence:
They preferred good programmers to bad ones, but they didn't have the kind of single-minded, almost obnoxiously elitist focus on hiring the smartest people that the big winners have had.
In technology, once you have bad programmers, you're doomed.
Graham goes further to make an important point:
In the software business, you can't afford not to have a hacker-centric culture.
So which companies need to have a hacker-centric culture? Which companies are "in the software business" in this respect? As Yahoo discovered, the area covered by this rule is bigger than most people realize. The answer is: any company that needs to have good software.
There's an important corollary here. Hackers, by their very nature, like playing with code, and the easiest/best/most satisfying way to do that is to play with open source code, and to share it with other hackers for feedback and kudos. As a result, many of the best hackers tend to be found either in the free software community, or at least aligned with many of its ideas.
Graham's argument about the centrality of hackers to any company that needs good software therefore implies that free software is something that should be deployed at least internally – not just because of its own, evident virtues, but because it will help to keep those crucial hackers happy, and to attract more of the same. It's an approach that is certainly much cheaper than trying to bribe them to stay despite the unhackerish software they are forced to use.