Ryan Tool Econ 191A/B - Crawford 1 Economics of Open Source

Transcription

Ryan Tool
Econ 191A/B - Crawford
Economics of Open Source:
The Motives and Methods Behind the Free Software that is
Challenging Market Leaders
By Ryan Tool
June 3, 2005
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Introduction
It is difficult to open a newspaper today without finding an article on open
source software. The success of Linux and the recent proliferation of Mozilla
have vaulted open source software out of its geeky niche and into the
mainstream. Many leading applications now have competing open source
equivalents. Microsoft’s Internet Information Server competes with Apache in the
webserver market. Internet Explorer contends with Mozilla, which has decreased
Internet Explorer’s market share lead in recent months. Adobe’s Photoshop bred
GIMP, which isn’t as fully featured but handles most photo editing tasks for a
price of $0 compared to Photoshop’s $650 price tag.
Open source software (OSS) is starting to be known as a viable
alternative to traditional commercial software. OSS is being used in almost all
fields. You have probably used it yourself without even knowing it. If you are a
student at UCSD and you use campus email, then you have most likely used
UCSD’s web email application, SquirrelMail, which is an open source project.
Most large scale commercial applications cost thousands of dollars, but
SquirrelMail is a program that is used at numerous universities and businesses in
the United States and is available for anybody to use absolutely free. Anyone
can download the SquirrelMail software, use it at home, and enjoy the same
robust, technically sound application that is being used by large corporations.
The fact that this level of application is being built and distributed completely free
demands investigation.
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How can software developed from donated time compete with commercial
products developed by teams of salaried employees motivated by profits? What
makes open source software different from closed software? Is one type of
software preferred to another? Does closed software stifle innovation? This
paper aims to answer these questions and examine the economic theories
behind the success of the open source movement.
We will use consumer theory to analyze the motives behind open source
project participation. We will develop a utility model for open source
programmers and compare this model with a typical individual to ascertain the
differences between the two. Using this model we will gain insight into the
motives behind open source development, both altruistic and selfish. We will
examine the process of creating an application from inception to distribution in
both the open source distributed framework and the closed clustered framework.
Then these two methods of product creation will be analyzed using current
microeconomic models to determine the welfare gained or lost to society as a
whole by the different production technologies. We will look at some real world
examples of open source projects and compare them to their commercial
counterparts to determine what makes open source applications successful.
Finally we will use these models to analyze current software trends and make
some predictions about the future of software development.
This paper aspires to explain the current surge of open source software
through economic analysis and to provide insight to the recent success of the
open source movement. While working toward these goals, this paper will
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answer the how’s and why’s of open source software through standard economic
models.
Part I - Background
My introduction to open source software occurred in the mid-nineties when
Linux was starting to gain momentum. The idea of OSS was intriguing, a free
operating system developed by a group of disjoint programmers simply because
they wanted a robust UNIX-like operating system designed to their specifications
for their needs. Operating systems are composed of hundreds of thousands of
lines of programming code; they are huge, complex programs. Designing an
operating system from scratch is like deciding to build your own car from scratch
because you cannot find one on the market that suits your needs. Furthermore,
if one goes through all the trouble to design and build something so complex and
time consuming, you wouldn’t expect them to give it away. On basic intuition,
“Thousands of volunteers are unlikely to come together and collaborate on a
complex project they give away for free, which can beat some of the largest,
riches businesses at their own game.” (Weber)
The idea of a business not motivated by profits is a foreign concept to
most businessmen. A commercial firm measures success by their profits and
growth. Open source firms are typically not motivated by profits and are
measured by a different set of standards. Most OSS firms are non-profits,
existing primarily for legal and organizational reasons. If they have any financial
backing at all it is from donations, not investment capital. Open source projects
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are typically run on a shoestring budget with most of the development hours
being donated. These firms exist not to make money, but to make software.
Their user base, not their bottom line, is the measure of their success.
Many debates concerning open source software stem from the idea of
intellectual property. On one side of the fence you have views that, “patents and
other forms of intellectual property law are the bane of the free universe, […]
actually evil and should be struck down as soon as possible” (Torvalds). In
contrast, the “advocates of intellectual property believe, ‘the whole world
economy is driven by intellectual property’” (Torvalds). This paper will examine
the idea of intellectual property through the minds of the open source developers
to find the differences in ideology that drives them to offer their software
creations free of charge to the public for use, distribution, and modification. We
will use these ideas about intellectual property to understand the motives and
methods behind open source software licenses.
Part II – Defining Open Source
Open source is a broad term that can be used to describe many types of
projects. It would be very difficult to debate the merits of open source without a
clear definition of OSS. In this paper we will use the Open Source Initiative’s
(OSI) definition of open source, which stipulates that open source software must
comply with the following criteria:
1) Free Distribution - By constraining the license to require free
redistribution, we eliminate the temptation to throw away many long-
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term gains in order to make a few short-term sales dollars. If we didn't
do this, there would be lots of pressure for cooperators to defect.
2) Source Code – The program must include source code. We require
access to un-obfuscated source code because you can't evolve
programs without modifying them. Since our purpose is to make
evolution easy, we require that modification be made easy.
3) Derived Works - The license must allow modifications and derived
works, and must allow them to be distributed under the same terms as
the license of the original software.
4) Integrity of Author’s Source Code - Encouraging lots of improvement is
a good thing, but users have a right to know who is responsible for the
software they are using. Authors and maintainers have reciprocal right
to know what they're being asked to support and protect their
reputations.
5) No Discrimination Against Persons or Groups - The license must not
discriminate against any person or group of persons.
6) No Discrimination Against Fields of Endeavor - The major intention of
this clause is to prohibit license traps that prevent open source from
being used commercially. We want commercial users to join our
community, not feel excluded from it.
7) Distribution of License - The rights attached to the program must apply
to all to whom the program is redistributed without the need for
execution of an additional license by those parties.
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8) License Must Not Be Specific to a Product - The rights attached to the
program must not depend on the program's being part of a particular
software distribution.
9) License Must Not Restrict Other Software – The license must not place
restrictions on other software that is distributed along with the licensed
software. For example, the license must not insist that all other
programs distributed on the same medium must be open-source
software.
10) License Must be Technology Neutral – No provision of the license may
be predicated on any individual technology or style of interface.
Open Source Initiative (OSI) is a non-profit corporation dedicated to managing
and promoting the open source definition. We have chosen their definition
because it is the de facto standard for many open source projects.
There are a number of open source copyright licenses in use today. “The
fundamental purpose of open source licensing is to deny anybody the right to
exclusively exploit a work.” (St. Laurent) The OSI definition encompasses many
of the popular licenses for open source projects, such as the GPL, BSD, and
Apache licenses. The main difference of these licenses is whether or not they
protect derived works. Some licenses allow derivations based on the code to be
sold while other licenses protect the open source code base requiring all derived
works use the same license as the original open source application.
Within these defined guidelines, why would a company make a product
which is free by definition? Is it possible to make money off of a product you give
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away? Yes. There are a few different business models that have been
successful for open source companies. The most common business model is
based on support.
In the support-based model companies give their OSS away for free to
anyone, and then they make money by selling support services, similar to a
warranty from a car dealership (if the car were free). These support services
range from teaching users how to use the software to configuring the most
complex servers. Mandrake is great example of a support-based OSS company.
They offer their operating system online for download absolutely free of charge,
but they also offer packages for sale. These packages range in price and can
include manuals, CDs, DVDs, phone support, web support, membership to online
user forums, additional integrated software, and many other benefits. Another
company that uses this model is SUSE, a subsidiary of Novell. They offer their
Linux operating system free of charge while selling packages with additional
benefits similar to those offered by Mandrake. In fact, most OSS operating
systems use this model.
As a side note, both of these companies’ operating systems are versions
of the Linux operating system. The kernel (analogous to a human brain or a
building blueprint) for Linux is another open source project. This Linux kernel
serves as the base or core set of code for all of these different versions of the
Linux operating system that are being sold commercially. The different versions
of Linux are great examples of the forking principle (described below). This is
also an example of one open source project being incorporated into another
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open source project. This type of behavior is allowed and even encouraged
under the OSS license.
Another popular business model for OSS is based on offering free
consumer versions and charging for commercial versions. The idea behind this
model allows individuals to use the software for free for personal use, but
requires businesses to pay for slightly different versions of the same software.
Redhat is a good example of this type of business model. They offer a free
desktop version of their operating system, known as the Fedora project, which is
offered without support, and they sell a more robust, fully supported version as
an enterprise (corporate) operating system. This allows them to use the
consumer version as a testing ground for new features. It also allows individuals
to try their product before dishing out money for the fully supported commercial
versions. This model is very similar to the model of offering scaled-down or
limited versions for free and charging for more fully featured versions.
An interesting byproduct of open source software development is forking,
where the software splits into two different pieces of software each based off the
original. Forking happens when two key developers have opposing ideas
concerning the direction of the project. This is different from a commercial
software firm, where a decision would be made and one idea would make it into
the product while the other idea was dropped. In an OSS project, if the inner
circle of developers cannot come to an agreement, they split up and the project
diverges into two new projects. One project typically retains the original name
and idea and the other project mutates into something new. This may seem
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counterproductive, but it is actually quite the opposite. These two similar pieces
of software are now released into the wild to compete for users. While a
corporation may try to manipulate consumers into using a specific product, open
source developers will let users decide which product will be adopted. If users
adopt both products then the two open source projects from the fork will continue
to flourish. However, if users clearly favor one product over the other, typically
that project will flourish and development efforts will recombine around the
stronger project.
A great example of forking can be seen in the various Linux distributions.
There are many different varieties or flavors of Linux, each with their own special
attributes. One group of developers thought security should be their main
concern, while another group of developer thought ease of use and installations
should be the key feature. Both of these Linux variants have been successful,
establishing very different user bases. The security focused Linux is typically
used for web servers and the user-friendly focused Linux is typically used for
desktops. Without forking, the core Linux project would have chosen one of
these paths and the other one would not exist or a compromise would have been
made and the product would not excel at either task. Similarly, when useless
features are forked into new software projects, those projects are rejected in the
competitive market and developers are able to quickly determine what features
are necessary or desired.
It is easy to understand why some of these open source projects get
started, but difficult to explain why they don’t turn commercial once they’ve
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become popular or why they continue to flourish against competing commercial
products. By understanding the motives behind the developers and the open
source firms we might be able determine why some of these software products
are so successful and why the number of open source projects continues to
grow.
Part III – Model of an Open Source Software Developer
What makes an individual want to contribute their time and skills to an
open source project? Weber finds the determinants of OSS contribution to be:
art and beauty, job as vocation, joint enemy, ego boosting, reputation, and
identity and belief systems. There have been a handful of studies to ascertain
the motives of open source contributors (Lakhani and v. Hippel, Haruvy and Wu,
Lerner and Tirole). While the leading determinant of contribution differs among
theses studies, the set of determinants is similar throughout. We find the
common reasons for a developer to donate time to an open source project are:
altruism, future earning potential, future employment, personal enjoyment, hobby,
recognition, politics, and cult status. These motives are similar to findings in
previous research and are explained in more detail.
One reason to contribute to an open source project is the obvious avenue
to personal gain, like future employment or future earning potential. In this
regard, working on an OSS project is like the unpaid internship you take in
college; you put in the time without pay to make connections and build your
resume for future gains. You gain valuable experience and learn to solve
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complex problems you might not find in a classroom-learning environment. This
could explain the reason students or recent college graduates contribute their
time, but it does not explain why veteran programmers work on these projects.
With this thought in mind one might assume only rookie programmers work on
OSS projects, but this is clearly not the case.
The contributions from experienced programmers must be explained by
other reasons. They could contribute because they love to program and working
on an OSS project is a hobby for them. Solving a complex coding problem is like
scratching their person itch. Some individuals like to solve crosswords or
puzzles in their spare time, while computer-savvy programmers gain the same
enjoyment from solving problems in computer code.
They might contribute because they have political motivations that are
aligned with the open source project. One such political motivation could be a
dislike for large corporations, which would impel them to support a smaller,
grassroots project like some open source applications. Another political
motivation could be their views on intellectual property. As creators of
information (their programs) they might feel that information should be free for
everyone, and with such a disposition they would be inclined to develop and
promote open source projects. In this respect they act much like academic
researchers, publishing their work for anyone to digest and build upon in hopes
of solving a bigger problem or developing better software.
Altruism is another reason to donate time to an open source project.
Developing OSS is the computer geek equivalent of giving blood; it is a selfless
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act that is done solely for the benefit of the computing community as a whole.
Open source software is a true public good: it is non-rival and non-excludable.
(Johnson) Almost all software is non-rival in that it is not consumed during use,
so one individual using it does not stop another individual from using it. It is nonexcludable by design as non-excludability is part of the OSI definition of open
source software and built into the licensing of all open source projects. Any time
spent contributing to an open source project could be considered altruistic
because open source software is a public good by definition.
Developers could contribute to open source projects for less altruistic
motives, such as self-esteem or prestige. The title of open source developer can
be an important one. Being a developer on one of the larger OSS projects is
very impressive within the development community. This causes some open
source projects to have a sort of cult status. Key positions (the decision making
positions at the top of the hierarchy) in important OSS projects are scarce,
causing them to become more desirable. Being a key developer on a successful
open source project is like going to an Ivy league school, there is a certain honor
or appreciation associated with the experience.
Using the aforementioned reasons as the basis for a developer to
contribute to an OSS project, we can start to develop a utility model for an open
source developer, but first it is important to distinguish the differences between a
computer programmer and the average individual. The average salary for
developers is significantly higher than the national average, so developers are
able to afford ‘average’ consumption with money to spare. The annual average
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salary for a software engineer is $78,025 while the national average income is
only $36,520. (US Bureau of Labor Statistics) The fact that developers have
higher salaries implies they have more income to spend on additional goods or
luxury goods. Contributing to an open source project can be thought of as
another good, which developers are able to afford due to their healthy salaries.
With higher salaries these developers may be able to work less and still
afford the same levels of consumption as the average individual. In other words,
these developers are able to work fewer hours to supply a necessary level of
income to satisfy their needed utility through consumption and spend the extra
time working on OSS projects in pursuit of additional utility.1 They may choose to
spend less of their time working for income and spend the time saved seeking
utility from other sources. Interpretation of these ideas leads to the hypothesis
that developers may have excess time or excess income that can be used on
other utility generating endeavors, like open source projects.
Computer programmers tend to exhibit different personalities that attract
them to the career of software development. These programmers are
predominately male, introverted, and comfortable with a one on one relationship
with their computer. Furthermore, participation in an open source project is like a
cult. These developers may form a subgroup of the typical computer
At a salary of $40,000 per year with a 40-hour workweek, I cannot afford to
work any less as my necessary utility requires about $40,000 for consumption.
However, at a salary of $80,000 per year with a 40-hour workweek, I could
choose to work 30 hours a week for a salary of $60,000, which would yield more
than enough income to obtain my necessary utility through consumption and
leave me with extra income and time to be used for other utility generating
activities.
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programmer. Many OSS developers pride themselves on the projects to which
they contribute. Within computing circles, being a member on a successful open
source project is like being a movie star. It’s important to understand the way
these developers think to understand their attractions to open source and model
their behavior within the common models for consumer utility.
To model utility of open source developers we use current consumer
theory. At the core of consumer theory we have the principle that consumers
maximize their utility or happiness. This utility function is subject to a budget
constrain, typically income. Another way to think of the budget constraint is to
use time as the constraint instead of income. A consumer can exchange all their
time for income, which would be just like leaving the budget constraint in terms of
income and spending that income to generate utility, or they can decide to spend
a portion of their time for money and a portion of their time for added utility.
Open source developers are different from typical consumers; they are
able to achieve maximum consumption utility without exhausting their income. In
terms of the time budget constraint, this means OSS developers will not
exchange all their time for money. They will instead maximize the amount of
utility they can derive from money and consumption based utility, and then they
will use the remainder of their time chasing additional utility. This additional utility
can be obtained from open source projects. The list of previously mentioned
gains from open source contribution only strengthens the idea that developers
would want to contribute some of their time to such a project. In terms of the
strictly monetary budget constraint, open source developers have a much higher
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budget constraint than the average consumer. This could allow them to afford
additional goods or luxury goods. Within this framework, open source projects
could be considered an additional good or luxury good. In either case a
developer would gain utility by spending a portion of their excess income on open
source projects.
So far we have only considered the supply side of open source to
determine the motivations behind the developers, but we can also look at the
demand for open source software. (Prasad) With the success and widespread
use of some open source projects it is easy to see there is a strong demand for
the software. From a developer’s perspective there may be additional demand.
Many open source developers work as software developers for commercial
corporations and many of these corporations use open source software for their
business needs. For example, 70% of all webservers use Apache, an open
source webserver application. (Netcraft) The chance that an OSS contributor
also works on open source code at his day job is fairly high.
For example, Yahoo! uses FreeBSD for its servers, so they must employ a
number of developers and engineers to maintain these servers. These
developers are paid to support and maintain the company servers which run
FreeBSD. They can look to the FreeBSD community for help with difficult
implementations and they typically give back to the community when they make
improvements to the software. There are a number of companies using open
source projects for their business needs which creates a demand for open
source software. This corporate demand for OSS translates to developers being
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paid to develop and contribute to open source projects. If the added utility from
developing OSS is not enough motivation to contribute to a project, there are a
number of developers that earn a living by using and supporting open source
projects, which benefits the open source community as a whole.
Some companies promote open source efforts by offering prizes for
specific open source solutions to computing problems they may have. This
allows the company to obtain a product it needs for a fraction of the cost it might
take to develop the product in house all while paying developers to create a
product that will be given back to the community as soon as it is completed.
Computer Associates (CA) recently employed this method with great success.
CA wanted a product that would migrate existing databases to their database
format, so they offered a $1 million challenge to the open source community,
“The Challenge was designed to leverage the global talent pool of the open
source community, while providing substantial financial compensation.”
(Computer Associates) The Challenge was a huge success, yielding a couple
open source projects that successfully migrate data to CA’s database format.
From these examples we can see there is demand for open source applications,
which will lead to more open source applications being developed.
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Part IV – Model of an Open Source Firm
There are over 100,000 registered open source projects and over
1,000,000 registered users at sourceforge.net, the world’s largest open source
software development website which provides free services for open source
projects. (Sourceforge) The majority of the projects listed on sourceforge.net are
very small consisting of only a few developers, but some of the larger projects
have hundreds or even thousands of contributing developers. For this paper we
will only consider open source firms with more than 10 developers.
Open source firm size is determined by popularity or usefulness of the
project. A project with a large user base, such as Apache, will generate a much
larger developer base and be larger in size. Widely used projects are more
prestigious for developers. Predictably, developers will choose not to contribute
to a project they view is headed towards a dead end. Developers want to be
members on successful and useful projects, so firm size will be correlated with
the usefulness and popularity of the project.
An open source firm is not much of a firm in the traditional sense. An OSS
firm is typically a collection of developers that come together, intellectually not
physically, to create a specific piece of software. The firms are not seeking
profits; they exist only to promote the growth of the software. The goals of the
firms are just a reflection of the goals of the developers. Every developer has a
stake in the firm because their name is associated with the project, so the firm’s
motivation is determined by the individual motivations of the developers.
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The bottom line of an open source firm is not found on an income
statement. The general goal of these firms is to produce a viable product. The
specific goals of these firms can vary greatly from creating a super secure
operating system to designing an easy to use application. Open source firms are
not driven by profits, so they measure success in different ways. For some
projects, creating a working piece of software is success. Larger or more
ambitious firms measure success by market share or user base. Market share is
measured as the proportion of industry use within a software category such as
web browsers or operating systems. User base is the total number of users
currently using the software. Some of the larger OSS projects measure success
by gains in market share while other projects measure success by the size of
their user base. For example, Mozilla’s Firefox reached a milestone last month
when it surpassed 50 million downloads. (Mozilla)
The development model for open source projects is very different from
that of their commercial equivalents. Commercial software is developed in
companies with a team of programmers all working for a single manager. This
team works together to develop software to the specifications of the project
manager who makes all the top-level decisions. On a large project there can be
layers of managers and teams, but it almost always comes down to one leader
making the key decisions and delegating the programming tasks to teams of
developers. These developers work on a project from 6 months up to 3 years
before releasing it. After the product is released the development team fixes
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bugs and solves problems as users find them, so major updates occur at about
the same frequency as the initial release.
In an open source project hundreds or possibly thousands of users
develop parts of the code and submit it for review. Updates are made quickly
and new versions of the software are released very quickly, sometimes daily.
This causes the software to evolve very quickly. This rapid evolution is one of
the key advantages open source has over closed commercial software.
(Raymond) Problems with OSS are usually discovered and corrected much
more quickly because the user base that is testing the product is larger and more
diverse (in knowledge and hardware configuration) than the product test group at
a commercial firm.
Commercial products are tested in house to work out bugs and then they
are released. Bugs that are not caught in the initial testing phase are reported by
users and corrected by developers for subsequent releases. The users that
report the bugs are your typical computer users, so they often cannot explain in
detail the true nature of the problem or bug.
On the other hand, open source projects are tested in the wild; you might
say they are released prematurely and full of bugs. When a new version or
update is completed it is immediately available for download and use by
thousands of users. The number of users to quickly adopt the new software is
advantageous because as Linus Torvalds once said, “with enough eyeballs all
bugs are shallow.” (Raymond) The developers of OSS are typically the first
batch of users that test the software in their own environments, thus they are the
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ones reporting bugs to the development team, of which they are a part. Since
developers are reporting the bugs, they are able to explicitly describe the
problem, which leads to a faster solution by the other developers. With a larger
user base, open source projects can be tested across many different hardware
and software configurations which allows the software to evolve quickly. Another
advantage to the rapid release model is that bugs are fixed quickly; one
developer sometimes fixes bugs before another discovers them. This is different
from the commercial method where a bug might be discovered and fixed, but the
software is not updated until the next commercial release.
Open source firms are organized differently than their commercial
equivalents. Developers at open source firms are not liable to investors; they are
liable only to each other. The hierarchy of open source firms is generally
streamlined for efficiency and productivity; it is not convoluted with board
members, C-level positions, or any of the other structural hierarchies found in
commercial firms. The structure of larger open source firms has evolved to
include necessary leadership yet still be efficient. We will examine three
successful open source projects and the structural models they use to define
their hierarchy.
The first model is a pyramid hierarchy. The Linux kernel is an example of
an open source project that is organized by the pyramid hierarchy. In the
pyramid hierarchy model, there is usually one sole creator who makes the final
decisions and sits atop the pyramid. Directly below him there may be a few
powerful developers who manage large portions of the source code and help
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influence the overall direction of the project. Below them there will be a larger
group of individuals who are each responsible for specific systems within the
software. The next group would be developers that contribute little snippets of
code that make up parts of the different systems within the software. This model
is similar to commercial firms with a top down management style.
The next model is a concentric circles model. FreeBSD uses the
concentric circles model. In this model there is a core group that makes
important decisions regarding the direction of the software and major changes or
updates. Below this group lies the next circle of committers who are responsible
for small changes and corrections to the software. The final circle is composed
of developers who submit code to the project but are not allowed to make any
changes directly to the software. (FreeBSD)
Another model relies on a meritocracy, or govern of merit. Apache uses
this model, electing members only after they have shown excellent and sustained
contributions to the project. The meritocracy has different roles building in
importance: user, developer, committer, PMC (Project Management Committee)
member, and finally ASF (Apache Software Foundation) member. (Apache)
Being an Apache Software Foundation Member is a very prestigious position.
These are just a few examples of the various hierarchies that have come
about through the creation of open source software. It is important to mention
that each of these three products was developed by members from very different
geographies, so these decision-making hierarchies not only successfully manage
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very complex software projects, they also span countries to allow management of
a very distributed group.
Some open source projects compete directly with commercial firms, but do
they face the same costs as a commercial firm? How do open source firms deal
with the costs of creating and distributing a product? To evaluate how OSS firms
cut costs, it is important to understand the costs that a commercial software firm
faces. A typical commercial software firm is motivated by profits. Profits are
defined as revenues minus costs. After the code has been written, the cost of
producing and distributing software is very low. CDs or DVDs can be made for
pennies and packaging costs little more. When developing a commercial
software product the largest portion of costs are commonly development costs
and marketing costs. These development costs are used to pay programmers
salaries and cover general support costs. Support costs can be thought of as all
the general business costs that are not developer salaries, like rent, supplies,
and management salaries.
The very first copy of a new software program is very expensive to make,
but once it is made, replication is easy. With an automobile, the cost of physical
inputs is a large and absorbs a significant portion of the price, but with software
the only physical input is the media the software is distributed on. Due to the
cheap cost of media, the marginal cost of producing software is practically zero.
The average cost of software is constantly decreasing as more software is
produced, which makes this a decreasing cost industry.
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When a commercial firm sets the price of its new software product, it tries
to set the price in such a way that the revenues from sales will cover their total
costs. With an OSS project there is no revenue, so unless someone is willing to
“lose” money, there must also be no costs. How are OSS projects run with zero
costs?
Open source software projects are capable of operating with little or no
costs. This is possible by a number of different reasons. This first and most
obvious is due to developers donating their time. Developers have higher than
normal average salaries, so paying a team of developers can get expensive very
quickly. Even the most trivial computer programs take hours to write, test, and
then fix, so having volunteer developers is crucial to the success of an open
source project.
Another big reason open source projects can escape costs is the growth
of a recent invention known as the internet. The internet is one of the most
influential contributors to the advancement of open source development. The
internet is the single biggest factor that allows the decision-making hierarchies of
open source projects to function across varied geographies. The internet has
allowed some employees to telecommute, or work from home over their phone
lines via computer connection to their office. Students and contributors to open
source projects have also discovered the benefits of telecommuting. Instead of
connecting with a corporate office from home, OSS developers are capable of
connecting with each other over the internet. These developers no longer need
an office or boardroom to hold meetings or make decisions. This lack of
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confinement to a physical office allows users from very different geographical
areas to work together on a single project. This produces two benefits: the
overhead cost of rent is reduced to zero, and transportation costs of human
capital are also zero. Furthermore, the ability for developers to work whenever
and wherever they choose may increase their actual output when compared to
commercial developers being confined to spend eight hours each day in a
cubical.
Another cost a typical commercial firm faces is the cost of equipment.
Current computers are needed to run current software, so a software
programmer must use, or at least have access to current computers.
Commercial firms provide their employees with an office and a computer to work
on. This is not the case for an open source firm. OSS firms rely on developers
working from home on their own equipment. Software developers are typically
tech savvy people, so we can assume they will have a computer at home.
Furthermore, having your own computer is a necessary condition for being an
open source developer, so the cost of capital that a commercial software firm
faces is again reduced to zero for an open source firm.
A final cost that should be considered is the cost of distribution. CDs and
packaging may be small parts of software costs, but they are still costs. The
recent proliferation of the internet allows open source firms to offer their software
for free via download over the internet, thus avoiding the common costs of
distribution. Any user can download the current version of the software as a CD
image file and burn that image onto a CD, or install the software directly from the
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Ryan Tool
internet without using any media. The cost of distributing software for an open
source firm is only internet bandwidth, and most open source firms don’t even
pay for that. Open source projects can be hosted for free at sites like
sourceforge.net, which pays for its bandwidth by donations. Also, universities
and corporations sponsor many of the larger open source projects that have
many users and require large amounts of bandwidth. These companies provide
download mirrors so the open source files are actually downloaded from the
universities and corporations themselves, thus using the universities’ “donated”
bandwidth. Hosting a mirror for an open source project is an easy way for a nontechnical company to support that project. It’s also a great way to show gratitude
and promote the growth of the open source project.
The motivations of open source firms are aligned with the focus of each
specific project and with the developers that contribute to the project. Open
source firms are able to operate with minimal costs or no costs with a volunteer
labor force, new methods of product delivery, and innovations in management
and decision-making hierarchies. Many of these cost cutting measures are
available due to technological advances from the internet. The structure of the
development model allows the software to evolve rapidly by finding and fixing
bugs quickly. The benefits of open source software are being realized across
many industries; as the usage of open source software grows, the number and
size of open source firms will continue to grow.
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Ryan Tool
Part V – Current Trends and Future Predictions
Now we will compare and contrast a few of the prevailing open source
projects with their commercial counterparts to determine the causes of their
success and make predictions concerning the success of future open source
projects. We will examine the following software categories: internet browsers,
desktop operating systems, server operating systems, email servers, and
webservers.
These software categories can be divided into to subcategories: used by
consumers and used by firms. A desktop operating system, Windows for
example, is the program which all home users have installed on their computers.
It can be thought of as the brain of computer software with all other applications
being the appendages. One of those appendages is an internet browser which is
used to surf the web, or browse the internet. Desktop operating systems and
internet browsers are used by both consumers and firms although they are
typically thought of as consumer products.
Server operating systems are used almost exclusively by firms. They are
the software brain which controls the expensive, complex hardware that firms
use for their operations. The additional software or appendages of these server
brains are services that are needed in today’s business world, like email and a
website. A webserver is the software that publishes a company’s website to rest
of the world. An email server is the software the manages a company’s email. It
can be thought of as the software equivalent of a brick and mortar post office.
The webserver and email server software is installed along with server operating
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Ryan Tool
systems, so these three products are used by almost all firms in today’s
technology-influenced business world.
Internet browsers are a good place to start for our comparison. The ability
to browse the internet is a key component of the majority of the computers in use
today. Most all new personal computers sold in the United States have internet
browsers installed on them. The current market leader is Microsoft’s Internet
Explorer (IE). IE is packaged with every version of Microsoft Windows, so it is
the default browser for all Windows users. If Windows users want to use a
different browser they must download and install it themselves. A popular
browser to switch to is Firefox. Firefox grew out of the code base from another
browser which was released to the community as open source in hopes that the
code would be embraced and improved. Firefox is the default browser on most
Linux distributions. IE is the dominant market leader but Firefox has been
gaining popularity in recent months, generating a flood of publicity. “Internet
Explorer is seeing its commanding market share erode a bit, thanks to inroads
from Firefox.” (Sarrel)
US Browser Usage Share
Browser
6/4/04
12/3/04
2/18/05
4/29/05
Internet Explorer
95.48%
91.80%
89.85%
88.86%
Firefox
4.06%
5.69%
*3.53%
Non-Firefox Netscape and
2.83%
2.47%
Mozilla browsers
Other
0.95%
1.25%
1.90%
th
*June 4 figure includes all Netscape and Mozilla bases browsers
(source: WebSideStory)
6.75%
28
2.23%
2.06%
Ryan Tool
While Firefox is a long way from dethroning IE, its current momentum places it in
a position to challenge the Microsoft in the near future. Because Firefox is the
default browser on most Linux distributions, its user base will also grow as the
Linux user base grows, which brings us to our next software category, desktop
operating systems.
Windows XP, the current desktop version of Windows, is the most popular
desktop operating system in use today. Windows currently controls the majority
of consumers desktops with a market share of 94%. (Roush) It is preinstalled on
almost all new computers sold in the United States. At the time of this writing it
retails for $299. (Microsoft)
The underdog in this battle for the consumer’s desktop is Linux. For many
computer users, Linux is typically the first thing that comes to mind when
someone mentions the words, “open source.” There are different versions of
Linux that have been developed for desktop computers and servers. Linux is the
software that brought the idea of open source to the masses; it is free, versatile,
and secure. Linux is the second most popular desktop operating system behind
Windows. (Roush) Linux currently has 3% of the desktop operating system
market and that number is expected to double over the next three years. (IDC)
Open source software still has a lot of ground to make up on commercial desktop
operating systems, namely Windows. Linux is just now getting to the point where
it can be easily installed, a feature that Windows has arguably possessed for a
few years. As open source gains popularity in the server operating system
market, firms should begin to test open source projects on their desktops, which
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Ryan Tool
will increase market share and may give Linux the chance to challenge Windows
for the consumer desktop.
Combining studies for browser market share and desktop operating
system market share we can make some interesting inferences. Windows has
about a 94% of the desktop market, yet it has less than 90% of the internet
browser market. IE is the default browser for Windows and it is the only browser
installed on almost all new Windows desktop systems. The fact that Microsoft’s
browser market share is smaller than their desktop market share shows that
Windows users are switching to other browsers, most notably Firefox. The
switch to an open source browser could be a gateway into other open source
projects.
The server operating system market is where open source starts to
become a viable contender. In a survey of 225 CIO’s conducted by Morgan
Stanley, 29% said they own Linux servers, 25% said they are considering buying
Linux servers, and 46% said they are not considering Linux. (Ricciuti) When
measuring which operating system is used on internet webservers2 you can
count the number of physical servers or the number of domains, which is
different because webservers are capable of running multiple domains on the
same physical computer. When measuring by physical server, Windows Server
is the market leader running on half of all webservers.
2
Webserver operating systems are quoted in many studies because they can be easily
counted, whereas corporate servers that are not used for public services are more difficult
to measure.
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Ryan Tool
(Source: Netcraft)
When measuring by domains, Linux edges out Windows Server by a slight
margin. (Wheeler, Zoebelein) Since its conception, Linux has gained
momentum slowly chipping away at Windows server’s lead. Based on current
growth, Linux is in a position to overtake Windows as the dominant server
operating system in the near future. A survey of server operating system market
share in 2005 might show Linux much closer if not ahead of Windows in number
of physical webservers. Linux is in a perpetual cycle: as it improves as a server
31
Ryan Tool
operating system its market share grows and the number of developers using
Linux grows, which in turn improves the product and leads to more growth.3
Another measure of the success of open source server operating systems
are their use in large scale, mission-critical environments. Google, the world’s
largest and highly used search engine uses Linux for its cluster of servers that
handle web searches. (Netcraft) Yahoo! another enormous search engine with
many additional services, uses FreeBSD for all of its webservers. Traffic on the
Yahoo! global network increased to an average of 2.4 billion page views per day
as of March 2004. (Yahoo!) Most websites don’t get 100,000 page views over
their lifetime, but Yahoo! serves billions of pages per day, a mammoth amount of
traffic, all from open source systems. Amazon.com, the world’s largest book
retailer saved millions when it switches its servers from Windows to Linux.
(Shankland, Kane, and Lemos)4
There are also informal, less scientific ways of measuring the popularity of
operating systems, such as the Operating System Sucks-Rules-O-Meter.
(http://srom.zgp.org/) This is a system of operating system quality and approval
based on a periodic AltaVista search for each of several operating systems,
directly followed by "sucks", "rules", or "rocks". The current results have Linux
3
Linux is open source, but not all versions of Linux are free. There are commercial
distributions of Linux that are used for server operating systems. While these
commercial server versions affect our comparisons within our definition of open source,
they are offset by some open source BSD distributions that we are not including in our
comparisons.
4
The American Economic Association, publishers of American Economic Review, The
Journal of Economic Literature, and The Journal of Economic Perspectives, uses
FreeBSD, Apache, and PHP for its website. (Netcraft)
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Ryan Tool
with a net metric of 38,600 and Windows with a net metric of –30,475.
Obviously, these measures can not be used to ascertain which system is more
widely used, but they do show the frequency of search queries on operating
systems with the associated positive and negative terms.
Email is a very important technology that is widely used in all forms of
business. It is hard to imagine a successful company today that does not have
an email address. All of the email that circumnavigates the internet is managed
by email servers. When a user opens their email program or logs onto to their
email web portal, they are connecting to a remote email server. Each of these
email servers runs a server operating system and email server software. There
are three popular choices for email servers: Sendmail, Qmail, and Exchange.
Sendmail is an open source project originally developed by a student at
Berkeley. Qmail and Exchange are both commercial email servers. A survey of
one million random IP addresses found that Sendmail is the market leader with
42% of the market. Microsoft’s Exchange email server was second with an 18%
market share. (Wheeler, Bernstein) So, for a mission critical service such as
email many firms depend on open source.
Another important market segment where open source clearly dominates
is the webserver market. Below is the market share for webservers across all
domains from September 1995 to June 2005.
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Ryan Tool
Market Share for Servers Across all Domains Sept 1995 – June2005
(source: Netcraft http://news.netcraft.com/archives/web_server_survey.html)
Apache became the market leader in 1996 and has gained market share ever
since. Apache is open source and it is freely available to all. Internet Information
Server (IIS) is Microsoft’s webserver with the second largest market share. IIS
was once sold as a stand alone product, but it is now bundled with Windows
Server Editions, so it is available to everyone running a Windows Server product.
Microsoft has spent an enormous amount of time and money to develop a
competent webserver, yet their product still lags behind Apache. The fact that
Apache is robust and completely free makes it a hard product to beat.
There are a number of reasons why open source has been adapted for
use by firms but has yet to become widely used end-users, or consumers. Open
source projects are more likely to develop and flourish in more technical market
34
Ryan Tool
niches. Technical users are likely to test and adapt cutting edge technologies
such as open source. Tech-savvy users will try different solutions to solve their
problems. For example, a web designer or web developer is accustomed to
writing in various web programming languages. Such a designer can “learn” the
language used to build an open source application and tailor it to solve their
specific needs. They can then use the open source software to develop a web
page with code specifically designed to fit their implementation. The more
technical in nature that a specific software category or niche, the more likely it is
to have open source projects. This idea is easily supported by looking at a few
internet technologies that are vital to internet communications and implemented
by very technical engineers.
Whenever a user goes to a specific webpage, they type in the address to
that page in the form “www.somename.com.” Address servers on the internet
then translate this address to the numerical address where the website resides.
This is similar to looking up a person’s name in a telephone directory to find their
phone number. These address servers are called DNS servers (Domain Name
Service) and they run specific software that allows them to perform their jobs.
The program which currently has 70% of the market share is BIND, an open
source project. (Moore)
Some of these websites are static, like a billboard, changing a few times a
year with updates. Other websites are dynamic being recreated with the latest
information every time a user visits the website. The majority of these dynamic
websites are created with a server-side scripting language which pulls data from
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Ryan Tool
a database on the server and creates the webpage at the time of the user
request. The most widely used scripting language with over a quarter of the
market share is PHP, an open source project. (Netcraft, Wheeler)
Many administrators need to connect to computers remotely to configure
or update various services. This is a common task for all IT related support and
administrative staff. The Secure Shell Protocol, or SSH, is widely used to
securely connect to remote computers and control them. The most popular
implementation of SSH with a market share of 67% is OpenSSH, another open
source project. (OpenBSD)
From these examples it is easy to see that technical IT employees trust
and rely on open source software. IT workers trust open source because they
can see the code inside the program which is not possible with closed
commercial software. Also, many of these open source internet technologies
were developed by academic and developer communities as they built and
improved upon the internet.
We can infer that the likelihood that an application will have open source
alternatives is highly correlated with the technical nature of the application. This
is intuitive as technical users will be able to successfully use the software even
though it may be lacking the documentation or ease of use of a comparable
commercial application. The trend of using open source software in more
technical settings is evident with the use of open source in the backbone services
of the internet. This trend is similar in many corporate environments, with
Windows being used on the majority of end-user desktops and a split of open
36
Ryan Tool
and commercial operating systems being used for corporate servers. This could
explain why Linux has 3% of the desktop market and roughly 30% the server
market.
Another reason open source flourishes in more technical applications is
total cost of ownership. Every webpage on the internet resides on a server which
runs webserver software. Creating and managing a website is a technical task,
so most companies hire a webmaster to perform these duties. The webmaster
and his salary are both necessary, but the cost of the webserver software is not if
open source alternatives exists. If OSS and commercial software are perfect
substitutes for some tasks, then open source is the clear choice lowering costs
for the company and increasing profits. Open source software may not be a
perfect substitute when it requires more knowledge to implement, but when you
have to hire a webmaster anyway then you have the option to use OSS for your
websites. This is another reason that open source is widely used by firms in
technical settings which require a technical staff, but it is not widely used by
consumers. The savings from using open source over commercial software can
be substantial depending on the size or the firm and the firm’s computer
infrastructure. For example, Amazon.com cut expenses by about 25% and
saved millions when the company switched to a Linux operating system for its
servers. (Shankland, Kane, and Lemos) In Mississippi, public law firms and
counties saved 70% by basing their new jail management system from open
source software instead of using commercial alternatives. (Pickoff-White) The
best part of this story is that they released their new jail management system
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Ryan Tool
back to the community under and open source license. Other agencies can now
use the system and won’t be required to recreate the development efforts or the
development costs.
Open source projects have made their mark in the more technical
segments of computer software and they are just starting to break into the less
technical, end-user segments. What kind of predications can we make about the
future of open source software?
The future of open source software looks promising. A survey by
Information Week found 67% of companies use some open source software
while another 16% expect to use it in 2005. (D’Antoni) If current trends continue,
all firms will adopt OSS for at least one of their computing tasks. As open source
projects continue to prove themselves in technical applications, they will begin to
be used in less technical market segments. Open source software used
successfully on firm’s servers will trickle down to the firm’s desktop operating
systems. Once firms start to adapt open source desktops, those OSS desktop
operating systems will be viewed as stable and they will start to penetrate the
consumer market.
Another big push for open source will come as developing countries begin
to open up to computing technologies and the internet. In many cases, less
developed countries will choose open source projects which are reasonable
substitutes for commercial equivalents due to the decreased cost. This can be
seen in Brazil’s choice to switch 300,000 government computers to Linux.
(Goldmark) Brazil and China have both developed their own Linux distributions,
38
Ryan Tool
signaling that they see open source as viable solution. Developing countries are
not the only one using open source. The US government is beginning to use
open source for many of its computing needs. (Pickoff-White)
Open source software is growing in use. OSS projects are market leaders
in a few software categories and have notable market share in many other
software categories. Open source is widely used by many firms for their server
operating systems and server applications. Open source alternatives exist in
almost all technical natured software categories. OSS has taken a small foothold
in consumer software categories as well. As firms and government agencies
begin to embrace OSS for all of their computing needs, open source will gain
credibility and market share in consumer software categories. All of these
observations add up to one giant prediction: Open source software will play an
eminent role in the future of the information age.
Conclusion
Open source software is a complex public good created from communal
efforts. The existence of open source software creates welfare for society; it is
non-rival and non-excludable. A software developer may contribute to an open
source project for a number of reasons, including: altruism, future earning
potential, future employment, personal enjoyment, hobby, recognition, politics,
and cult status. Software developers earn twice as much income as the average
worker, which allows them additional resources (time and money) to contribute to
open source projects. Each of these motives for contribution permits the
39
Ryan Tool
developer to gain additional utility from his or her contributions. This added utility
ensures that contributions to OSS will be supplied. Furthermore, firms may
solicit open source development for their needs, employing developers to create
and improve open source projects. These firms create demand for open source
developers and open source projects.
Open source firms are different from commercial firms in methods of
development and measures of success. Open source firms are able to operate
with little or no costs due to donated labor and a number of technological
breakthroughs that allow developers to collaborate across geographical regions.
Innovations in decision-making hierarchies have allowed large, complex pieces
of software to be developed by disparate software developers. These changes in
development models from traditional software firms have allowed open source
projects to evolve rapidly and secure a place in today’s technology driven world.
Open source firms measure their success by the viability of their product not by
profits. The goals of an open source firm are generally a reflection of the goals of
the individual developers. This causes the fundamental motivation behind an
open source firm to be quite different from a commercial software firm.
Open source projects have measurable success in technical software
categories. Analyzing current market share across server-based products shows
that open source is competing directly with commercial software. A reduction in
total cost of ownership is one determinant behind this trend. The likelihood that
an open source application exists for a specific task is highly correlated with the
technical nature of the task. The more technical a software category, the more
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Ryan Tool
likely open source alternatives exist and are widely used. Open source software
is just starting to be used in consumer-based software categories. We predict
that as open source continues to flourish in server-based software categories, it
will trickle down into consumer-based software categories. As open source
projects thrive, more developers join the projects adding to their success. This
recursive growth may allow open source software to become a dominant force in
the computer industry.
Open source software has taken the computing industry by surprise,
evolving out of nowhere onto computers everywhere. Some open source
projects have displaced market leaders while other projects struggle to survive.
There will always be arguments whether open source or commercial software
offers the “best” solution, but one thing that can no longer be argued is that open
source software is here to stay.
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Ryan Tool
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Ryan Tool Econ 191A/B - Crawford 1 Economics of Open Source

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52 Pickup - Sun

SPEAR Processors Presentation by Amir Sherman

BCom/BProp Conjoint Degree Planner

Ryan Cabrera

OUR FLAGSHIP EVENT: “OLD SCHOOL SATURDAY”® (known as

Corp Classic 30sec Update

VanBasco`s Karaoke Player