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 Replies to “Three Areas of Open Source Economics”

  1. 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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