Three Areas of Open Source Economics

These days, I get involved in a lot of dis­cus­sions about open source eco­nom­ics. Usu­ally, they lead to an invi­ta­tion to present our research and clar­ify “how open source works” to the audi­ence. I’ve found it help­ful to dis­tin­guish these three rather dif­fer­ent areas of open source eco­nom­ics: (1) direct prof­its, (2) pub­lic wel­fare, (3) labor mar­ket. In more detail:

  • Direct prof­its: Single-vendor com­mer­cial open source. Single-vendor open source projects are open source projects dom­i­nated or owned by a sin­gle firm. This firm wants to earn direct rev­enue streams from the project and become or remain prof­itable based on these rev­enues. Thus, this area of open source eco­nom­ics is about grow­ing new soft­ware firms. Exam­ples are MySQL, Sug­ar­CRM, and Jasper­soft. I’ve explained how some of this works in the arti­cle “The Com­mer­cial Open Source Busi­ness Model.”
  • Pub­lic good/welfare: Com­mu­nity open source. Com­mu­nity open source projects are open source projects that are run by a diverse com­mu­nity of stake­hold­ers; unlike single-vendor com­mer­cial open source, there is no sin­gle dom­i­nant owner. Com­mu­nity open source cre­ates pub­lic wel­fare in the form of high-quality soft­ware that peo­ple can use for free and that inno­va­tors can build on. A matur­ing com­mu­nity open source project typ­i­cally joins or cre­ates an open source foun­da­tion to become sus­tain­able. Exam­ples are Linux, Apache, and Gnome. I’ve explained some of the eco­nom­ics behind this in the paper “The Eco­nomic Case for Open Source Foun­da­tions.”
  • Labor mar­ket: A New Engi­neer­ing Career. Finally, open source is hav­ing a pro­found impact on the soft­ware devel­oper labor mar­ket. On the one hand, the increas­ing com­modi­ti­za­tion and ease-of-access to open source soft­ware has made it much eas­ier for a Sri Lankan 15yr-old kid to com­pete with a 40yr-old Ger­man engi­neer. On the other hand, open source offers a new career path that cre­ates higher salaries and more job secu­rity on a global level. While I haven’t pub­lished about this yet, I have a good slide deck at hand to explain “A New Soft­ware Devel­oper Career.”

You may won­der why I have not included, for exam­ple, pro­vid­ing paid-for ser­vices around com­mu­nity open source from the list above. The rea­son is that the eco­nom­ics behind such ser­vice busi­nesses are fairly well under­stood. Thus, they are not par­tic­u­larly inter­est­ing from a research or pub­lic pol­icy per­spec­tive. Sim­i­larly, I’ve dropped a few other phe­nom­ena from the list above because they don’t imply any sig­nif­i­cant change to how we live and work.

We live in excit­ing times with sig­nif­i­cant change and soci­etal impact ahead of us. You can find my writ­ings about this under pub­li­ca­tions as well as the abstracts (some­times with slides) under presentations/current-talks. And of course, you are always wel­come to drop me a ques­tion or com­ment on this blog or to email me about any con­cerns you might have.

3 thoughts on “Three Areas of Open Source Economics

  1. Pingback: uberVU - social comments

  2. Pingback: Links 11/3/2010: Fedora 13 Frenzy, Free Software in City of Athens | Boycott Novell

  3. Austin Gunter

    Thanks for the post, Dirk. Tech Ranch Austin is doing the work of cre­at­ing an open source com­mu­nity of entre­pre­neur­ship in Austin, Texas. Our entre­pre­neurs ben­e­fit from the Pub­lic Good/ Wel­fare step, and then cre­ate things based on the Labor Mar­ket step.

    We take it a step fur­ther and attempt to cre­ate open source dia­logues of exper­tise among entre­pre­neurs, where 5 min­utes of your exper­tise makes my com­pany more valu­able and vice-versa.

    Keep up the good work!


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