Open Source, ICT Infrastructure and Firm Performance

Abstract

The rapid diffusion of open source software (OSS), the significant investments observed in OSS projects, and the new inter-firm collaborative possibilities enabled by such OSS projects have generated a substantial literature on the economics of OSS development. However, this literature mainly focusses on the puzzling motivation for individual programmers and companies to produce OSS without systematically analyzing the economic impact of OSS on the economic performance of adopting firms. The question analyzed in this paper is whether the considerable costs incurred in the adoption and incorporation of OSS by the firms using OSS in their daily operations pay off. In particular, this paper analyzes the impact of the adoption of three types of OSS (servers operating systems, PC operating systems and general software applications) on firms' labor productivity (sales per employee) and innovative behavior (R&D intensities and value of introduced product and process innovations). In order to perform this analysis the paper exploits a unique representative sample of the German manufacturing and service sectors (ZEW ICT survey). The results show that the adoption of open source operating systems for servers and general open source software applications has no impact on firm level labor productivity, while the adoption of open source operating systems for PCs impacts labor productivity negatively. This result suggests that the adoption of this type of OSS represents learning costs that affect the output per employee negatively, at least in the short run. Moreover, the results also show that the adoption of open source operating systems for PCs affects the value of process innovations (i.e. the percentage of cost reductions due to the introduction of previous process innovations) positively. This result suggests that the adoption of OSS helps firms to optimize their computationally intensive internal processes. This interpretation is supported by the observed positive correlation between open source operating systems for servers and PCs, and firms' R&D intensities.

Keywords: Open Source, Information and Communication Technologies, R&D Incentives, Innovation, Firm Level Data

JEL Classification: D21, L25, O32