I want to emphasize what I think is the core idea of creating software declared as free and open source:
You should pay people for implementing the features you like and fix the bugs that you suffer from - you should pay for effective work - and not for ??? (maybe doing something new and innovative, doing nothing, doing something else, ...).
This is like planting a tree - you pay somebody for planting it and then you let it be on it's own.
Yes, there is a certain amount of money needed to provide the infrastructure that allows you to offer the appropriate software downloads and some amount of money needed for media (for your working data and backups as well as for the case, someone desires a CD). An option is to put that sum into the amount you are charging for your work or into the amount you charge for support contracts.
But anyway, the Open Source way is just another business model. Nowadays most companies providing software free and open source do earn their money (in addition to charging for the work) selling support or for additional (non-free) features. I see this as a form of software leasing. You pay a certain amount for support which you expect to need more in the beginning. When the product is well established and you don't want or need to invest more you stop buying support but you still have the product.
Another different model is the complete rental of software as a service. - Well there are also people that go fine with that.
With the ordinary licensing model you were used to pay for the existing thing, but the company can/could plan better and in general you have many people contributing with the license fees to a common pot of money that is - or could be - used for bug-fixing and new innovative enhancements. What today many people have a problem with is that they can't be sure what happens with their money because there is no contract that says how the money from license fees has to be invested/used. And I think this is one main reason for the run to open source. Another reason is the higher dependency from the other company because companies don't have the source code and in case the vendor goes bankrupt they can't do the maintenance on their own. - However there are also companies who sell the source code in addition to the normal license fee.
The lack of open source software is that people have to get well organized if you want to have - let's say 50 people contributing each with a small amount of money for implementing a larger feature that all 50 would like to have. But the advantage is that if you got organized you have a better influence on the product as everybody gets implemented what he/she pays for. And: With the open source strategy you usually get a bigger community with some implementing features themselves for their (and maybe also your) need. The amount of developers working on the product is simply higher.
So for you as customer or vendor - check what model fits best for you - if you trust the vendor (in being innovative in the future) and he also sells you the source code (open source is not necessarily free) their is either nothing bad with that model.
Related posts: The Open Source movement, The Open Source idea, The license keys, IT projects cost explosion, The small software vendors, The community.