The Economic Motivation of Open Source Software (by Dirk Riehle)

When someone begins to learn about the existence of libre software and discovers that nowadays many successful projects are driven by companies, new questions arise: How open source software business can be economically sustainable? Which are the motivations of companies to promote and develop libre software?

A very interesting and clear reference to answer these questions is Dirk Riehle’s article “The Economic Motivation of Open Source Software: Stakeholder Perspective“, published on IEEE Computer Magazine in April 2007 issue.

The article analyzes the advantages that promoting libre software brings to different actors in this business: volunteer developers, system integrator companies (solution providers), software developing companies (software vendors), and paid developers (software vendors employees).

Note: The article uses the term open source software, as it is widely used in economic and business world. Differences between the concepts of libre software and open source software I think are not significant to the objectives of this article so in my post I will use indistinctly the two terms.

Community open source, commercial open source, single vendor open source

Dirk Riehle splits the libre software products in “community open source”  (software copyright is owned by a community or neutral legal entity representing the community) and “commercial open source” (software copyright is owned by a single legal entity, usually a company, willing to obtain direct revenues from the product).

He mentions that “commercial” maybe is not a good term, as products developed entirely by a communities may also create business around them (offering services, implementations, training, consulting…). In later publications he uses the term “single vendor open source software” instead of “commercial open source software”, so I will use that term in my blog post too.

The volunteer developer perspective

For individuals, volunteer developers, participating in libre software projects brings personal gratification, recognition among peers, enjoy of their work, but also economic or financial motivations: their history of contributions to open source projects is a clear documentation of their technical (and social) skills, improving their possibilities in job search.

The system integrator perspective

For system integrators, companies providing hardware, software and services all-in-one solutions to customers, it is interesting to include libre software in their stack, to reduce software costs and use that margin to apply different strategies: enjoy more margin to services profit and maintain their reachable number of customers, provide more or better services at same price and so reach more customers with this better solutions, or reduce total price to reach more customers with lower price solutions. In addition to this, libre software avoids vendor lock-in so system integrators have more freedom to choose software providers and competence lowers software prices for them. For this reason, system integrators may be interesting even more in community libre software.

The software vendor perspective

For software vendors, one could think that they are the ones damaged with the strategy of promoting libre software, but in fact, if one software vendor is not the market leader with his product, liberating it is a very good way to enter the market or break its status quo (other ways are quite difficult). Even if you are the market leader, the threaten of an open source competence is enough to think about liberating your product: it is better to win less that not to win at all. Single vendor open source software gets the benefits of faster adoption, free user feedback, volunteers contributions… Liberating a product is a very good marketing strategy. The vendor opens a new niche for services to its product: first and second level support, implementations, training, certifications… The openness of the code and the availability of the product makes expertise available for anybody so it is easier to find employees to work at the company and labour costs get lower.

The paid developer perspective

For employees, paid developers, working on libre software products (specially for community products) means improvement of non specific firm knowlegde, so if he or she gets fired, it would be easy to find another job. Companies investing in libre software development need committers to boost their preferences in product roadmap, so the committer that is employee is in a good position to negotiate or increase his or her job security. In addition to this, most of the advantages for the individual volunteer contributors apply to paid developers too, specially if they were working in the project before they get the employ, since they carry with them the community respect, recognition and experience.

My comments

I found this article very interesting. Although a bit old, I think it is still up-to-date about explaining how is libre software business world.  I will try to follow Dirk Riehle’s blog and read more articles about economics around free software.

I miss two actors in this ecosystem: Academia, and Public Administrations. They are not just “users” of libre software, I think their influence is important in the dynamics of the market. But this is probably topic for other blogpost…

About larjona

My name is Laura Arjona, I am a libre software user and fan of the free culture. If you want to contact me you can write an email to larjona [at] larjona [dot] net I am @larjona at identi.ca in the Pump.io social network. --- Me llamo Laura Arjona, soy usuaria de software libre y fan de la cultura libre. Si quieres contactar conmigo puedes escribir a larjona [en] larjona [punto] net Soy @larjona en el servidor identi.ca, de la red social Pump.io.
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One Response to The Economic Motivation of Open Source Software (by Dirk Riehle)

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