I think what you're pointing out is really important from a broad economic perspective, since it's not always money that motivates us.
But I also think that TFA calling the software economy a "failed" one is technically accurate. One perspective on this that I've been pondering for a long time is the idea of Pareto optimality and the free market hypothesis. The hypothesis is that a free (unregulated) market economy becomes Pareto-optimal. A market segment that becomes sub-optimal is called a "failed" market. I think it's by that definition that the software market fails. Not that it's completely broken, just sub-optimal. Traditionally this defines where a government can step in to impose regulations to, for example, deter monopolies or prohibit cartels.
I am not an economist, and I cannot prove this, but I think that one of the assumptions underlying the free market hypothesis is that any good has a non-zero production cost. In hand-waiving terms, the concept of scarcity underlies economic theory. But a lot of our economy today is in goods that have either zero production costs, or production costs that are dwarfed by development costs. Software is the prime example, but music, movies, news, and more are also examples of this. There are other industries that are in a gray area, like microchip manufacturing, where development costs and capital investments are huge.
Pareto efficiency, as I understand it, can be thought of as a test of whether or not at any snapshot of time a redistribution of goods could theoretically be made in such a way as to make folks, on average, happier. Again I'm hand-waiving, and IANAE, etc. But if software is produced and distributed at nearly zero cost, then by giving more people who want the software, but not badly enough to pay for it, a free copy, or a free site license, we make some people happier without taking away from anyone else. Remember this is a momentary redistribution-thought-experiment, not a sales model. So any kind of commercial software, it seems to me, fails the test for Pareto optimality, and therefore the software market has "failed."
I'm not saying that commercial software is bad or evil or even unhelpful, just that a traditional free market economy does not, can not, regulate the software industry in an efficient way. We can do better. I don't know how, but I'm pretty sure there's significant room for improvement. In a sense, the success of free software (forgive the sloppy term) is a proof of this. I also tend to think of software that's paid for by advertisement revenue (free apps, web sites, all of Google) as another case study of a failed market. But that's a tangent.
I really like the idea of Snowdrift.coop. I like that they take a game theory approach to this problem and have what seems like a reasonable solution. I don't, however, think it solves the problem entirely by recovering an efficient software market. Their primary case study, OpenSSL, is not the kind of software that is by itself innovative or disruptive. It needs to work and work well, but it is a solution to a common and well-known problem. One of the key features of a free market is that it allows and even encourages failure. I don't (yet) see how the Snowdrift.coop concept will similarly encourage experimentation and failure.
To touch back on your point that we are not entirely motivated by money -- Yes of course that's true and it's important to not feel governed by the economy. If our basic needs are met then often we can focus on higher goals and motivations. But I'd still like to see a world where software and other industries like news media can thrive on equal footing with the more traditional industries. As these newer industries continue to grow, I think we need for them to be efficiently regulated.
If I were clever enough, I would like to be able to propose some modification to a market economy that can generalize to industries with zero production costs. I've thought a lot about this in spare moments here and there, but I haven't gotten anywhere. Has anyone else?