This paper approaches its motivating questions from the perspectives of microeconomics and competitive strategy.
The microeconomics of open-source software must concern itself with examinations of the supply and demand for such
products, and how this supply and demand interact in the marketplace. These market structure questions regarding
the number of competitors and the nature of competition in the software industry naturally spill over into a discussion
of prescriptive strategy for competition.
The economic supply of open-source software has been studied directly by Rishab Aiyer Ghosh [3,4] and has been
indirectly addressed by Eric Raymond [5]. Supply revolves around the relationship between the market price of a product
or service and the willingness of developers to bring it to market. Of course, open-source software has no market price.
That such a product exists puzzles the hell out of economists; any open-source contributor is an irrational person in the
minds of traditional economists, at least in the minds of those who don't peer too deeply into the open-source phenomenon.
The typical economist cringes upon hearing the words, "gift economy" used to describe the way in which hackers donate their
energy to the development of open-source. Economists have a near religious level of belief in utility theory, which
basically says that people choose to do those things that make them happy ("maximize their utility" in econ-speak).
Economists have a very hard time understanding why anyone would give anything away; this blindness may contribute to the lack of attention that the corporate world paid to the
open-source movement in its early days. Ghosh solves the paradox of the supply of open-source, reminding us that the
concept of utility includes all things that matter to a person, including reputation, recognition and the possibility of
future remuneration. He points out that open-source developers are recognized in the hacker community, that their
reputation grows there with increasing levels of contribution, and that this recognition and reputation may one day
create an opportunity for the contributing hacker to make an upward career move. Raymond addresses the same topic.
Economics is the study of the movement of scarce goods and services; in an interview, Raymond was asked,
"So the scarcity that you looked for was the scarcity of attention and reward?" His reply was, "That's exactly correct".
These arguments should be sufficient to dismiss the standard objection to gift economies in the economic literature:
that there is an incentive to receive but not give, and that since each person has such an incentive a gift economy should
collapse. But there is a subtle question not yet raised. It is, "What are the necessary conditions for an open-source
gift economy to form?" Raymond [1] addresses this question from one perspective and claims that the qualifications of the
project leader and the state of the project at the time the source is released to the public are critical issues. But is
there more? Is the nature of the project and the composition of the intended user community material in this analysis?
The economic demand for open-source vs. closed-source software is has been presumed to be a closed issue.
Open-source has been touted as better software for free. But there are many open issues on the demand side of the
equation. First and foremost, is a product produced in an open-source environment always better? An even more interesting
question is: is an open-source product always better for each customer segment in the marketplace? These questions also
deserve some attention.
From the perspective of competitive strategy, this paper follows in the tradition of Porter
[6] and Ghemawat
[7]
who described the fundamentals of competitive strategy and sustainable competitive strategy. Clemons and Weber's
[8]
analysis of competitive strategy and market micro-segmentation in information-intensive environments also inspires this
paper.