I started using something similar to open source in the first years of my long career. IBM had a user group called SHARE and this group maintained a library of source code that could be used for free. Much of this source code was in Fortran and was used for scientific calculations.

I have used open source software in developing web sites and applications. Even though there are no initial licensing fees on open source software, development and deployment of the system may not be free. For example, if you want to build a major web site with PHP (opens source) instead of ASP.NET (Microsoft Proprietry), you may still want to pay to license Zend development tools and Zend server to make development easier and execution faster. In my experiencewhenever you want to scale up open source software to handle enterprise (very high) volumnes, you will need to license software to help you do that.

I have worked for a proprietary ERP software company that made signifcant parts of the revenue from the initial licensing of the software. Comapnies like Apple, Oracle, IBM, SAP, and Micorsoft still follow this model and have been sucessful. Since it was necessary to install complex software at the client site, there needed to be enough revenue up front to cover the significant cost of getting the software up and running.

Software companies have realized that there is significant money to be made in on-going support, hosting, and consulting and in order to get these revenues, it may be necessary to lower or eliminate initial licensing fees. Apple no longer charges for Operating System upgrades, Oracle makes the MySQL database system available without a license fee

.Groupon has used the open source system Ruby on Rails as the basis for their development. I would guess that they have built their own proprietary software as well.

For any project, I would use whatever was going to work best to solve my problem whether it be open source or proprietary software. I have a bias towards open source because it helps you minimize up-front costs. However, for example, if everyone else in my industry was using Microsoft ASP.NET, I doubt that I would be the first to use PHP or Java..

I wrote a paper on open source while in graduate school. Even though I wrote it in 2004 it mostly still relevant. See this link.