Open vs closed source software: The quest for balance

Sebastian v. Engelhardt, Andreas Freytag, Stephen M Maurer, 29 October 2010

Governments are increasingly interested in promoting open source software. Yet policymakers have seldom laid out any clear theoretical or empirical justification for these policies. This column explores recent studies suggesting that open source and proprietary software strengthen each other and should co-exist – too much open source could actually be a bad thing.

Open source software (OSS) like the operating system Linux is marked by free access to shared source code that is developed in a public, collaborative manner. While most of this activity was originally non-commercial, over the past decade companies have been asking themselves whether similar OSS methods can be made to earn a profit. This has led to an explosion of OSS-based business models and investments throughout the information and communications technologies sector (Ghosh et al. 2002, Dahlander and Magnusson 2005, Lerner et al. 2006).

Governments are similarly intrigued and have begun experimenting with various pro-OSS measures including procurement preferences, tax breaks, and grants (Lerner and Tirole 2005, CSIS 2008). At first, the implicit policy assumption seemed to be that OSS was inherently more efficient than proprietary, or “closed source”, software (CSS)1. This argued for almost any policy that promised to increase the amount of OSS. More recently, however, some politicians have begun to argue that society needs a “balance” of CSS and OSS firms (CSIS 2008). But how can policymakers recognise the right “balance”? Pro-OSS interventions make very little sense if there are too many OSS firms already.

The threshold question
The threshold question, of course, is whether governments can influence OSS at all. Ten years ago, most scholars were pessimistic. This was sensible in an era when OSS was driven by non-commercial incentives like altruism, reputation, and signalling. How do you influence a “movement” dominated by college students? (Schmidt and Schnitzer 2003).

Since then, however, things have changed dramatically. Deshpande and Riehle (2008) report that the OSS sector grew from about 500 projects in 2001 to 4,500 in 2007. Furthermore, this growth was dominated by business models in which companies contribute to a shared code base in hopes of increasing consumer demand for some related product (e.g. hardware, software) or service. This for-profit outlook is clearly responsive to government’s traditional tax-and-spend policy levers.

Western governments, then, should have little difficulty influencing OSS development. Governments in the developing world will, as usual, face bigger challenges. von Engelhardt and Freytag (2010) study differences in OSS activities across 70 countries. They find that the main predictors of OSS activity are generalised cultural factors like interpersonal trust, favourable….