South-Western College Publishing - Economics  

Policy Debate: Can open-source software survive?


 

Issues and Background

Extracting money from users of a program by restricting their use of it is destructive because the restrictions reduce the amount and the ways that the program can be used. This reduces the amount of wealth that humanity derives from the program.
~Richard Stallman, "The GNU Manifesto"
Of course, potential investors have every right to be skeptical of open-source-oriented business plans. And those who echo Linus Torvald's joking "world domination" call to arms may do themselves more harm than good through their unbridled optimism. Open source is no panacea, and it is has some very obvious shortcomings. Most open-source software, for instance, is written by hackers aching to "scratch their itch" - to solve some particular problem unique to their own circumstances. It is far from clear that itch-scratching will lead to user-friendly interfaces that can match the sophistication of Microsoft Windows or the Macintosh OS. Will an open-source project produce an interactive help system useful to computer illiterates? No one really knows.
~Andrew Leonard, "Open Season", Wired, May 1999
In the early years of computing, a substantial portion of software code was freely distributed by software developers. By the 1980s, however, most software was distributed using a proprietary model in which the companies selling the software maintained exclusive ownership of the software code. In most situations, software purchasers received licenses allowing them to use the software, but the users rarely received copies of the software code. In recent years, however, a growing amount of software is produced under open-source software licenses that allow programs to be freely copied, modified, and redistributed.

The open-source software movement began, to a large extent, with the free software movement of the early 1980s. The GNU project, begun by Richard Stallman in 1983, was an early large-scale (and successful) attempt to provide a free alternative to the Unix operating system. (GNU stands for "GNU's not Unix" -- those with programming experience will notice the recursive nature of the definition.) A critical step in the development of a free alternative to Unix was provided in 1991 with the development of Linus Torvald's development of the Linux kernel, a free alternative to the Unix kernel (the heart of the operating system). Most microcomputer-based Unix distributions involve combinations of the Linux kernel with Unix components from the GNU project. The Red Hat, Debian, and Slackware Linux distributions are all derived from this open-source project.

The phenomenally rapid growth of the Internet in recent years has been achieved, in large part, by an extensive reliance on open-source software. Apache, an open-source software project, is the most commonly used web server. Most e-mail on the Internet is ultimately sent by Sendmail, another open-source software project. Communications across the Internet rely on the Domain Name System provided by BIND, still another open-source software project. In a relatively bold experiment, the development of Netscape has been shifted to the Mozilla open-source software project.

Advocates of open-source software argue that software innovations represent a public good since the marginal cost of allowing another person to use the software is zero once the software is created. In such a situation, license fees reduce the benefit received by society since some users will not acquire the software. Those who believe that a proprietary model is more efficient argue that there is too little incentive for individuals to devote efforts to successful innovation under an open-source arrangement. While voluntary monetary contributions from users under a shareware license system may provide some income to programmers, advocates of the proprietary model suggest that the free-rider problem will result in too low a level of innovative software development.

Those who advocate an open-source model argue that developments in object-oriented programming have substantially lowered the minimum efficient scale associated with software creation. This reduction, combined with the lower cost of information exchange resulting from the growth of the Internet, makes it possible to engage in software development projects that involve a large number of independent developers. It is argued that this makes it possible for projects to exploit gains from specialization and division of labor that could not be realized by even the largest software companies. Open-source software supporters also argue that software bugs are more likely to be detected and corrected when everyone has free access to preliminary (beta) versions of the software and all programmers can freely examine the source code for programming flaws.

Proponents note that most software projects consist of a large number of tasks. Many of these tasks must be executed in many other programs. Open-source software makes it possible to reuse software code in different projects. Under a proprietary software system, this code must be rewritten by many programmers working in different companies. A monopoly software company that produces an extensive mix of application and operating system software would have substantially lower development costs in such an environment. (This argument may partly explain Microsoft's dominance in the market for PC application and operating system software.)

Proprietary software companies argue that they have more incentive to deliver quality products and to successfully innovate. They claim that commercial software developers have an incentive to release only high quality software in order to maintain the reputation of their brand name. It is suggested that for-profit companies have much more incentive to respond to customer concerns and complaints than those who develop open-source software as a hobby.

Proprietary software companies also note that open-source software projects are always at risk of "forking," the development of alternative (and incompatible) versions of an open-source software package. This phenomena presented some problems in the early years of Unix when software companies created their own incompatible variations of the Unix operating system for mainframe computers, minicomputers, and workstations. Advocates of open-source software note that there is generally only one individual or organization who controls the "official" release of any software project. When other programmers provide substantial improvements in software, these are generally incorporated into the official release fairly quickly. Open-source advocates note that the "forking" problem in Unix was the result of proprietary software companies developing their own extensions and variations to the original Unix operating system.

Ultimately, the success or failure of open-source software development will be determined in the market.

 

Primary Resources and Data

  • GNU General Public License
    http://www.gnu.org/copyleft/gpl.html
    The GNU General Public License contained on this page is one of the most popular open-source license agreements.

  • Artistic License
    http://language.perl.com/misc/Artistic.html
    The Artistic License in an alternative open-source license arrangement. A statement of this license appears on this page.

  • Debian Free Software Guidelines
    http://www.debian.org/social_contract.html
    This page contains Debian's software license agreement. This license agreement was used as the basis for the definition of open-source software.

  • Free Software Foundation, "GNU's Not Unix!"
    http://www.fsf.org
    This is the web site of the Free Software Foundation, the organization that oversees the GNU Project.

  • Free Software (Open Source)
    http://www.free-soft.org
    This is the home page of an organization dedicated to the creation of open-source software. This web site contains links to an extensive collection of Internet resources that contain information on open-source software.

  • Linux Online!
    http://www.Linux.org
    The Linux Online! web site provides an extensive collection of information and web links related to the open-source Linux operating system.

  • Bernard Lang, "Freeware Licensing"
    http://pauillac.inria.fr/~lang/hotlist/free/licence/
    Bernard Lang provides an extensive collection of links to Internet resources that deal with alternative freeware licensing arrangements (including the most common open-source software licenses).

  • Bruce Perens, "The Open Source Definition"
    http://perens.com/Articles/OSD.html
    Bruce Perens, the Treasurer of the Open Source Initiative, provides a careful discussion of the definition of open-source software and the advantages and disadvantages of the major open-source license arrangements.

  • OpenSource.org
    http://www.opensource.org/
    The Open Source Initiative was organized in early 1998 in response to Netscape's announcement that it would release the source code for Navigator. The term "open source" was adopted as an alternative to the earlier "free software" label in an attempt to make greater inroads into the business community. This organization's web site provides extensive information about the history and evolution of the free software/open-source initiative. It also provides a collection of arguments supporting the use of open-source software. The FAQ document at this site provides useful information on open-source software development.

  • GNU Project home page
    http://www.gnu.org/
    The GNU project home page contains extensive information about the history of open-source software development. It also contains an extensive collection of links to web pages that provide information on open-source software.

  • Netcraft Web Server Survey
    http://www.netcraft.com/survey/
    The Netcraft Web Server survey provides time-series data on the market shares of the major web server software packages. The open source Apache web server currently has a commanding lead in this market.

  • The Apache Software Foundation
    http://www.apache.org
    The home page of the Apache Software Foundation provides extensive information on the open-source Apache web server package. It is the most popular web server on the Internet.

  • Sendmail.org
    http://www.sendmail.org
    Sendmail is an open-source software package that handles most of the e-mail sent over the Internet. The Sendmail Consortium provides the open-source version of sendmail. This consortium receives programming and financial support from Sendmail, Inc., a company that provides sendmail support and commercial versions of sendmail (and related software).

  • ISC Bind
    http://www.isc.org/products/BIND/
    Berkeley Internet Name Domain (BIND) is an open-source software package that provides most of the Domain Name System (DNS) resolution on the Internet. This software makes it possible for user-friendly URLs (such as "http://www.yahoo.com") to be converted into the Internet addresses at which the web sites reside (Yahoo's current Internet address is 216.32.74.54). The Internet Software Consortium (ISC) provides BIND at no cost under an open source software arrangement, but charges for support contracts.

  • Gnome
    http://www.gnome.org/
    The GNU Network Object Model Environment (GNOME) is an open-source graphical user interface and collection of software applications for the Linux operating system. It provides an environment that is similar in style to that provided by the Microsoft Windows operating system.

  • Perl Mongers
    http://www.perl.org
    The Perl Mongers web site contains information about Perl, an open-source programming language that is widely used in Internet applications.

  • BSD Unix
    http://www.bsd.org
    The BSD Unix operating system is an open-source system originally developed at Berkeley. This page contains information about, and links to, the home pages of several variants of this operating system.

  • Mozilla Project
    http://www.mozilla.org
    The Mozilla project, sponsored by Netscape, is the open-source development program for new releases of the Netscape Navigator browser. This web site contains information on the status of the development project and downloadable nightly and milestone builds of the browser.

  • The Open Science Project
    http://openscience.org/
    The Open Science Project is an attempt to encourage the development of open source scientific software. It contains links to sources of information about the development of such projects, sorted by academic discipline (there are not many projects listed at this time).

  • Working group on Libre Software, "Free Software / Open Source: Information Society Opportunities for Europe?"
    http://eu.conecta.it/paper/paper.html
    This document contains a discussion of the advantages and disadvantages of open-source software. It also provides a description of alternative economic models of open-source software development.

 

Different Perspectives in the Debate

  • Eric S. Raymond, "The Cathedral and the Bazaar"
    http://www.firstmonday.dk/issues/issue3_3/raymond/
    In this online document, Eric S. Raymond discusses the advantages of open-source software development over proprietary development systems. He uses an analogy in which the traditional software development model can be represented by a cathedral while a bazaar serves as a representation for open-source development. The "cathedral" approach involves one individual or a small team of individuals developing a software project through careful planning and coordination. The bazaar style of development relies on many independent users who work independently. Raymond uses the development of the "Fetchmail" program as an example of the successful application of this development process.

  • Netscape, Press Release on the Release of Navigator Source Code
    http://www.netscape.com/newsref/pr/newsrelease558.html
    This January 22, 1998 press release contains the official announcement that Netscape would provide a public release of the source code for its Navigator web browser.

  • O'Reilly, "Open Source"
    http://opensource.oreilly.com/
    This website, provided by the O'Reilly International publishing company, contains links to a wide variety of online resources related to open-source software.

  • Nikolai Bezroukov, "Open Source Software Development as a Special Type of Academic Research (Critique of Vulgar Raymondism)"
    http://www.firstmonday.dk/issues/issue4_10/bezroukov/
    In this online document, Nikolai Bezroukov provides a critical review of the arguments used by Eric S. Raymond in "The Cathedral and the Bazaar." Bezroukov discusses a variety of practical problems associated with implementing open-source software development.

  • Josh Lerner and Jean Tirole, "The Simple Economics of Open Source"
    http://www.people.hbs.edu/jlerner/simple.pdf
    In this online working paper, Josh Lerner and Jean Tirole investigate economic explanations of the open-source software development model. They observe that several open-source software projects have been the dominant software packages in their product categories. Lerner and Tirole also note that open-source software projects have been the recipient of large capital investments by major corporations in recent years. This paper provides a detailed discussion of three open-source software projects: Apache, Perl, and Sendmail. Lerner and Tirole suggest that open-source programmers are motivated by two closely related incentives: career concern and ego gratification. (The Adobe acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Frank Hecker, "Setting Up Shop: The Business of Open-Source Software"
    http://www.hecker.org/writings/setting-up-shop.html
    Frank Hecker provides a detailed discussion of the advantages of open-source software in this online article. As part of his discussion, he describes the alternative license arrangements and methods of revenue generation for companies involved in creating and distributing open-source software. He provides examples of firms that are currently pursuing successful and profitable strategies of providing open-source software and related services.

  • Gerald P. Dwyer, Jr., "The Economics of Open Source and Free Software"
    http://www.dwyerecon.com/pdf/opensource.pdf
    Gerald P. Dwyer, Jr., an economist at the Federal Reserve Bank of Atlanta, attempts to explain why people work on open-source software. He notes that most modern software can be written in small pieces. Dwyer argues that there are significant diseconomies associated with writing an individual program. He suggests that, in the presence of transaction costs and network effects, it is efficient for programmers to write small portions of the code for software projects and distribute their work to others (as long as others do so as well). Coordination of such projects is usually undertaken by the initial developer of the software. The pecuniary return for such coordination is received in the form of the higher income that results from the reputational effect of their development efforts. (The Adobe acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

  • Rishab Aiyer Ghosh, "Cooking pot markets: an economic model for the trade in free goods and services on the Internet
    http://www.dxm.org/tcok/cookingpot/
    Rishab Aiyer Ghosh argues that there are tangible market dynamics in the open-source software market. He suggests that the Internet is "an implicit barter economy with asymmetric transactions." The primary commodity traded on the Internet is information. Ghosh argues that developers of open-source software contribute their expertise in a manner similar to those who post information on newsgroups or create web pages. Individuals provide postings on newsgroups, create web pages, and write software partly because of the positive effect such contributions have on their reputations. A reputation for writing high quality open-source software often provides enhanced employment opportunities for software developers. Ghosh also notes that many individuals work on open-source software development because they enjoy the process of writing programs that are useful to others.

  • John M. Gallaugher and Yu-Ming Wang, "Network Effects and the Impact of Free Goods: An Analysis of the Web Server Market"
    http://www2.bc.edu/~gallaugh/research/ijec99/ijec99.html
    John M. Gallaugher and Yu-Ming Wang investigate whether network externalities exist in the web server market. Network externalities occur if a product becomes more valuable when more people use it. Word processing and spreadsheet software, for example, might be expected to become more valuable when there are many other people who can read the files that are created with the software. These authors find evidence of network externalities in the market for Windows web servers, but no evidence of network externalities in the Unix web server market.

  • Philip E. Varner, "The Economics of open-source software"
    http://www.cs.virginia.edu/~pev5b/econ_oss/
    Philip E. Varner examines the economic issues surrounding open-source software. He presents statistics illustrating the remarkable success of several open-source software packages. Varner argues that open-source software may be profitable for companies that:
    • sell software support services,
    • use open-source software as a loss leader that attracts customers to their for-profit products,
    • encourage users to develop open-source software drivers for the company's hardware products, and
    • sell accessories (such as texts, t-shirts, etc.).

  • Scott Berinato, "MS Exec: What Linux Threat"
    http://linuxtoday.com/news_story.php3?ltsn=1999-03-04-006-06-PS
    In this March 3, 1999 article, Scott Berinato interviews Ed Muth, a Microsoft executive, concerning the threat of competition from Linux. Muth argues that Linux is more costly to consumers than Windows since there is less integration among programs and between the operating system and system software. He argues that Linux will not be successful with businesses or the general public unless a large base of high quality off-the-shelf software becomes available to users. (The full article is no longer available, but this excerpt captures the main points.)

  • John Kirch, "Microsoft Windows NT Server 4.0 versus UNIX"
    http://www.lege.com/unix-nt/
    In this November 10, 1998 article, John Kirch compares the performance of Windows NT Server 4.0 and a variety of UNIX operating systems. He notes that most of the pressure to use Windows NT comes from management and not from those who are familiar with operating system performance. Kirch provides several examples of the increased flexibility, stability, and higher performance of UNIX systems over Windows NT.

  • Richard Stallman, "The GNU Manifesto"
    http://www.gnu.org/gnu/manifesto.html
    The GNU Manifesto describes the aims of the GNU project. In this manifesto, Stallman states the advantages of free software. He argues (without using these economic terms) that software innovation is a public good since the marginal cost of allowing another person to use the software is zero once it has been created. Stallman argues that proprietary software limits the social benefits that society receives. He suggests that shareware software arrangements, contract software development, or government finance (possibly funded through a "software tax") of software development projects could help maintain incentives for individuals to work as software developers. Stallman notes that under proprietary software systems, there is a large amount of wasteful duplication of system programming effort.

  • Robert Young, "How Red Hat Stumbled Across a New Economic Model and Helped Improve an Industry"
    http://www.press.umich.edu/jep/04-03/young.html
    Robert Young, Red Hat co-founder, discusses the business strategy of the Red Hat Software company. He argues that open soft software provides a competitive advantage for Red Hat since it is "stable, flexible, and highly customizable." Young notes that many people are willing to pay moderately high prices for the "official" Red Hat release when they could download it for free over the Internet or buy inexpensive copies of the CD. He points out that this is quite similar to the market for Evian bottled water in which people pay quite a bit for water that is not substantially different than freely available tap water.

  • Juancarlo Anez, "The lesson of Agincourt"
    http://community.borland.com/article/print/0,1772,10499,00.html
    Juancarlo Anez provides an analogy between the current position of open-source software and the October 25, 1415 battle at Agincourt. In this battle, substantially outnumbered British troops defeated French troops on French soil. This victory occurred because rainy weather provided an advantage to the more mobile British over the heavily armored French. Approximately 25 French soldiers were killed for every British casualty. Anez argues that detractors of open-source software misunderstand the modern software "battleground." He claims that the current "Internetworked world is fundamentally different from that on which the current software giants built their empires."

  • Juancarlo Anez, "Programmers or entrepreneurs?"
    http://community.borland.com/article/print/0,1772,10550,00.html
    Juancarlo Anez discusses the revenue and profit possibilities for developers on open-source software.

  • Andrew Leonard, "Linux at the bat"
    http://www.salon.com/tech/view/1999/10/04/marc_ewing/index.html
    This October 4, 1999 interview with Red Hat co-founder Marc Ewing provides an interesting discussion of the business model adopted by Red Hat software. Ewing notes that open source development of software makes it possible to gain from the knowledge and experience of the entire software developer community. He suggests that the development of complex software in a proprietary manner limits the gains from specialization. Commercial software developers working on proprietary code often must write code in areas in which they lack expertise. Ewing suggests that this process results in either lengthy software development time (as programmers devote time and effort acquiring expertise) or low quality software products. (Most of these arguments are contained in part 2 of the article.)

  • Mitch Stoltz, "The Case for Government Promotion of Open Source Software"
    http://www.netaction.org/opensrc/oss-whole.html
    This article was written by Stoltz in 1999 while he was a senior at Pomona College. He argues that open-source software, "creates robust, secure software through a process of widespread peer review." He argues that proprietary software is written by a relatively small number of developers who are working under the pressure of deadlines. Stoltz suggests that the users of commercial software become involuntary testers. That is, programming errors tend to be found and corrected much more quickly under open-source software development. Under a proprietary system, very little software code is reused in other applications. Stoltz notes that less duplicated development work would take place under an open-source system. He suggests that open-source software could overcome the tendency toward monopoly that occurs under a proprietary system as a result of network externalities.

  • Redherring.com, "Linux's threat to Microsoft"
    http://www.redherring.com/mag/issue67/news-editor.html
    This Red Herring article suggests that the creation of Linux and other open-source software has kept Microsoft from achieving complete monopoly power. In particular, the existence of Unix and Linux web servers have prevented companies from switching entirely to Microsoft applications and have focused development efforts into developing Internet software that are consistent with Internet, rather than Microsoft, standards.

  • Bert Dempsey, Debra Weiss, Paul Jones, and Jane Greenberg, "A Quantitative Profile of a Community of Open Source Linux Developers"
    http://metalab.unc.edu/osrt/develpro.html
    This online paper provides a quantitative analysis of the contributors of Linux software to one of the major Linux archives. Dempsey, Weiss, Jones, and Greenberg find that there is broad participation in software development, with a disproportionate share provided by European developers. They also find that this software is subject to relatively frequent revisions and updates.

  • James C. Bennett, "The End of Capitalism and the Triumph of the Market Economy"
    http://www.pattern.com/bennettj-endcap.html
    In this excerpt from Network Commonwealth: The Future of Nations in the Internet Era, James C. Bennett suggests that the open-source movement is a sign of the end of the capitalist period. He argues that the manufacture of commodities has been replaced by the production and distribution of information as the predominant economic activity. Bennett observes that falling computer prices have made it possible for programmers to afford their own hardware while the Internet lowered communication costs. He suggests that the Linux model of production differs from any previous production model. Bennett claims that new models are needed to explain these new production and distribution methods.

  • Martin Cracauer's GPL Page
    http://www.cons.org/cracauer/gpl.html
    On this web page, Martin Cracauer, a user of BSD Unix, argues that the GNU General Public License is overly restrictive and serves as a barrier to the development of high quality free software.

  • Ko Kuwabara, "Linux: A Bazaar at the Edge of Chaos"
    http://firstmonday.org/issues/issue5_3/kuwabara/
    Ko Kuwabara provides a detailed discussion of the process by which the Linux system continues its development. The theory of complex adaptive systems is used to explain and describe the process by which Linux develops. This article also provides an interesting insider's view of the Linux kernel development process (derived from e-mail interviews with kernel developers).

  • Andrew Leonard, "Open Season"
    http://www.wired.com/wired/archive/7.05/open_source_pr.html
    Andrew Leonard discusses the possibilities and shortcomings of the open source movement in the May 1999 Wired article. He argues that open-source software development will lower firms' software development costs, but is unlikely to completely supplant proprietary software.

  • Michele Boldrin and David K. Levine, "Perfectly Competitive Innovation"
    http://minneapolisfed.org/research/sr/sr303.pdf
    Michele Boldrin and David K. Levine provide an argument for the abolition of copyright and patent law in this March 2002 Federal Reserve Bank of Minneapolis working paper. They argue that technological innovation will occur without copyright or patent protection as a result of the "first-mover" advantage received by innovators. Boldrin and Levine suggest that competitive markets will be more efficient in encouraging innovation than will monopolies created through copyright and patent law. It is argued that providing the innovator with monopoly control of the uses of an innovation "reduces the incentive for further innovation." This argument can be easily used to make a case for open source software. The Adobe acrobat viewer plugin is required to view this document. You may download this viewer by clicking here

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