Cisco is the biggest network equipment company on the planet. They sell lots of the equipment that powers the Internet, and many of these boxes are called routers, which act as traffic lights for Internet data. Routers route, to coin a phrase. The boxes, often not very big, sit quietly in closets and data centers all over the world and look at every single data packet passing through the box and decide where to send it.
From a certain distance, Cisco looks like an equipment manufacturer, but in fact, their primary product is the software that makes those boxes work. Routers have a specialized network operating system, and much of Cisco's income is derived from maintenance contracts that provide for upgrades, not to the equipment, but to the software installed in the equipment.
Open source routers have been around for a while; a cheap PC is used as the hardware platform. But the open source router software has typically been limited in utility and has required careful management. Lots of IT managers prefer the predictability and support that Cisco provides to trusting the company network to a loosely organized group of volunteer programmers.
But a new business, called Vyatta, has decided to take on Cisco by using open source router software. How do they plan to make money? By providing the same level of service and support Cisco does. But their R&D costs will be much lower because of the open source software they are using. It's a new business model, and it's where most software will head over the next decade.
In many cases, it simply does not make sense to spend money duplicating a piece of software to create a competitive product when in fact most customers are more interested in the service and support side. We will see more and more software companies providing outstanding service and support of free software.