The Private Value of Open-Source Innovation

Abstract

We investigate open-source innovation by public firms and the private value it generates for these firms. Unlike patents, which grant inventors exclusive rights to their inventions, open-source innovations can be used by anyone. Nevertheless, using an extensive dataset of public-firm activity on GitHub, we find that firms with open-source projects represent 68% of the U.S. stock market across 86% of industries. We estimate the private value of all projects in our sample to be nearly $25 billion, with the average project generating $842,000. We find that projects with fully permissive licenses are generally less valuable and firms facing higher competition tend to generate less private value from their projects. We also find that complementarity with commercial products is not a primary driver of private value. Finally, open-source value significantly predicts firm growth in terms of sales, profits, employment, and patenting. These results contribute to our understanding of the private value generated by innovation in the absence of excludability.

Keywords: Open Source, Innovation, Firm growth, Valuation

JEL Classification: G14, G30, L21, O36