Licensing and Competition for Services in Open Source Software

Open source software is becoming increasingly prominent, and the economic structure of open-source development is changing. In recent years, firms motivated by revenues from software services markets have become the primary contributors to open-source development. In this paper we study the role of...

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Bibliographic Details
Published in:Information systems research 2013-12, Vol.24 (4), p.1068-1086
Main Authors: August, Terrence, Shin, Hyoduk, Tunca, Tunay I.
Format: Article
Language:English
Subjects:
Analysis
Competition
Computer software
Consumer economics
Consumer equilibrium
Cost efficiency
Economic aspects
Economic models
Financial investments
Impact analysis
Information storage and retrieval systems
Information systems
Licensed products
Licensing
Market equilibrium
Open competition
Open source licensing
Open source software
Product development
Public software
Software engineering
Software quality
Studies
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Summary:Open source software is becoming increasingly prominent, and the economic structure of open-source development is changing. In recent years, firms motivated by revenues from software services markets have become the primary contributors to open-source development. In this paper we study the role of services in open source software development and explore the choice between open source and proprietary software. Specifically, our economic model jointly analyzes the investment and pricing decisions of the originators of software and of subsequent open-source contributors. We find that if a contributor is efficient in software development, the originator should adopt an open-source strategy, allowing the contributor to offer higher total quality and capture the higher end of the market while the originator focuses on providing software services to lower end consumers. Conversely, if the contributor is not efficient in development, the originator should adopt a proprietary software development strategy, gaining revenue from software sales and squeezing the contributor out of the services market. In certain cases an increase in originator development efficiency can result in increased contributor profits. Finally, we find that, somewhat counterintuitively, an increase in contributor development efficiency can reduce overall social welfare.
ISSN:1047-7047
1526-5536
DOI:10.1287/isre.2013.0486