The Economic Case for Open Source Foundations

Abstract

An open source foun­da­tion is a group of peo­ple and com­pa­nies that has come together to jointly develop com­mu­nity open source soft­ware. Exam­ples include the Apache Soft­ware Foun­da­tion, the Eclipse Foun­da­tion, and the Gnome Foundation.

There are many rea­sons why soft­ware devel­op­ment firms join and sup­port a foun­da­tion. One com­mon eco­nomic moti­va­tion is to save costs in the devel­op­ment of the soft­ware by spread­ing them over the par­tic­i­pat­ing par­ties. How­ever, this is just the begin­ning. Beyond shar­ing costs, par­tic­i­pat­ing firms can increase their rev­enue through the pro­vi­sion and increased sale of com­ple­men­tary prod­ucts. Also, by estab­lish­ing a suc­cess­ful open source plat­form, soft­ware firms can com­pete more effec­tively across tech­nol­ogy stacks and thereby increase their address­able mar­ket. Not to be neglected, com­mu­nity open source soft­ware is a com­mon good, cre­at­ing increased gen­eral wel­fare and hence good­will for the involved companies.

1. Open Source Foundations

The Linux oper­at­ing sys­tem and the Apache web­server are pop­u­lar exam­ples of open source projects that are in wide­spread indus­try use. They started out as vol­un­teer projects with­out any com­mer­cial back­ing. When the indus­trial sig­nif­i­cance of these projects became appar­ent dur­ing the 1990s, inter­ested soft­ware devel­op­ers and firms decided to put the future of the soft­ware on more solid ground by cre­at­ing non­profit organizations.

Such an orga­ni­za­tion, com­monly called a foun­da­tion, serves as the stew­ard of the projects under its respon­si­bil­ity. It pro­vides finan­cial back­ing and legal cer­tainty, mak­ing the sur­vival of the soft­ware less depen­dent on the indi­vid­u­als who ini­tially started it. There are many vari­ants of foun­da­tions like trade asso­ci­a­tions and con­sor­tia. Each of them has its own match­ing legal struc­ture, depend­ing on the spe­cific goals of the founders. This arti­cle uses the term foun­da­tion to denote all of them.

The foun­da­tion rep­re­sents the com­mu­nity of devel­op­ers, which is also why the soft­ware is called com­mu­nity open source[1][2].

Com­mu­nity open source is dif­fer­ent from single-vendor open source, which is open source soft­ware that is being devel­oped by a sin­gle firm. Firms behind single-vendor com­mer­cial open source expect direct rev­enue from sell­ing the soft­ware and ser­vices for it [3]. This is typ­i­cally not the case with com­mu­nally owned open source, as com­pe­ti­tion is likely to keep rev­enues down.

How­ever, there are sev­eral eco­nomic rea­sons why soft­ware firms join and sup­port foun­da­tions to develop com­mu­nity open source: Some mem­bers expect cost sav­ings for prod­ucts built on the com­mu­nity open source soft­ware, oth­ers expect increased rev­enue and sales from com­ple­men­tary prod­ucts, and yet oth­ers want to grow their address­able market. Continue reading.