The Value of Open Source Software

42 Pages Posted: 16 Jan 2024

See all articles by Manuel Hoffmann

Manuel Hoffmann

Harvard Business School

Frank Nagle

Harvard Business School

Yanuo Zhou

University of Toronto

Date Written: January 1, 2024

Abstract

The value of a non-pecuniary (free) product is inherently difficult to assess. A pervasive example is open source software (OSS), a global public good that plays a vital role in the economy and is foundational for most technology we use today. However, it is difficult to measure the value of OSS due to its non-pecuniary nature and lack of centralized usage tracking. Therefore, OSS remains largely unaccounted for in economic measures. Although prior studies have estimated the supply side costs to recreate this software, a lack of data has hampered estimating the much larger demand-side (usage) value created by OSS. Therefore, to understand the complete economic and social value of widely-used OSS, we leverage unique global data from two complementary sources capturing OSS usage by millions of global firms. We first estimate the supply-side value by calculating the cost to recreate the most widely used OSS once. We then calculate the demand side value based on a replacement value for each firm that uses the software and would need to build it internally if OSS did not exist. We estimate the supply-side value of widely-used OSS is $4.15 billion, but that the demand-side value is much larger at $8.8 trillion. We find that firms would need to spend 3.5 times more on software than they currently do if OSS did not exist. The top six programming languages in our sample comprise 84% of the demand-side value of OSS. Further, 96% of the demand-side value is created by only 5% of OSS developers.

Suggested Citation

Hoffmann, Manuel and Nagle, Frank and Zhou, Yanuo, The Value of Open Source Software (January 1, 2024). Harvard Business School Strategy Unit Working Paper No. 24-038, Available at SSRN: https://ssrn.com/abstract=4693148 or http://dx.doi.org/10.2139/ssrn.4693148

Manuel Hoffmann

Harvard Business School ( email )

Frank Nagle (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Yanuo Zhou

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3,616
Abstract Views
26,036
Rank
6,002
PlumX Metrics