Licensing and Competition for Services in Open Source Software

Terrence August (), Hyoduk Shin () and Tunay I. Tunca ()
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Terrence August: Rady School of Management, University of California, San Diego, La Jolla, California 92093
Hyoduk Shin: Rady School of Management, University of California, San Diego, La Jolla, California 92093
Tunay I. Tunca: Smith School of Business, University of Maryland, College Park, Maryland 20742

Information Systems Research, 2013, vol. 24, issue 4, 1068-1086

Abstract: Open source software is becoming increasingly prominent, and the economic structure of open-source development is changing. In recent years, firms motivated by revenues from software services markets have become the primary contributors to open-source development. In this paper we study the role of services in open source software development and explore the choice between open source and proprietary software. Specifically, our economic model jointly analyzes the investment and pricing decisions of the originators of software and of subsequent open-source contributors.We find that if a contributor is efficient in software development, the originator should adopt an open-source strategy, allowing the contributor to offer higher total quality and capture the higher end of the market while the originator focuses on providing software services to lower end consumers. Conversely, if the contributor is not efficient in development, the originator should adopt a proprietary software development strategy, gaining revenue from software sales and squeezing the contributor out of the services market. In certain cases an increase in originator development efficiency can result in increased contributor profits. Finally, we find that, somewhat counterintuitively, an increase in contributor development efficiency can reduce overall social welfare.

Keywords: analytical modeling; competitive impacts of IS; economics of IS (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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