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 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.”

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