Who benefits from open source?

Fascinating piece from Nick Carr where he refers to a study by Dirk Riehle, a researcher with SAP, on the subject on open source software. Besides the obvious conflict of interest, the piece raises some interesting questions.

A new article in IEEE Computer, “The Economic Motivation of Open Source Software: Stakeholder Perspectives,” sheds some interesting new light on an old question: Is open source software development good or bad for programmers?

The author of the IEEE Computer article, Dirk Riehle, a researcher with SAP, doesn’t look at that question directly. Rather, he examines, in a theoretical way, how open source changes the economics of the IT markets in which programmers participate. He first looks at why big systems integrators and other “solutions” providers, like IBM, have been promoting open source. He argues that these companies, which sell bundles of products and services to their clients, like open source because it allows them to reduce the amount of money they have to pay to software vendors without requiring that they pass along the savings to customers in the form of lower prices. In other words, the software savings turn into additional services profits, which fall to the solutions providers’ bottom lines. Ultimately, that means that open-source software developers are subsidizing the big solution providers at their own expense. Writes Riehle: “If it were up to the system integrators, all software would be free (unless they had a major stake in a particular component). Then, all software license revenue would become services revenue.” (I would think it’s an overstatement to say that all software license revenue turns into services revenue; assuming there’s competition between solutions providers, some of the savings would go to the customers.)

Riehle also looks at the economic effect of open source on software markets themselves. He argues that, by tearing down the barriers to entry in software markets (by obviating the huge up-front investments required to create a proprietary program), open source spurs competition, which in turn reduces prices and erodes the profits of software vendors. Riehle writes: “Customers love this situation because prices are substantially lower than in the closed source situation. System integrators love the situation even more because they can squeeze out proprietary closed source software.” For the programmers themselves, however, much of the savings reaped by customers and added profits taken in by integrators comes out of their own pockets.

Riehle also notes that open source (because of its openness) tends to diffuse knowledge of particular programs among a much broader set of programmers. That will tend to increase competition among the programmers and hence depress their pay: “Technical skills around the open source product are a key part of determining an employee’s value to a [vendor]. Anyone who’s smart enough can develop these skills because the open source software is available to people outside the firm. Hiring and firing becomes easier because there’s a larger labor pool to draw from, and switching costs between employees are lower compared with the closed source situation. Given the natural imbalance between employers and employees, this aspect of open source is likely to increase competition for jobs and drive down salaries.”

Its a very odd conclusion to an interesting analysis…I would have though that as open source software become popular, engineers who work on open source, can develop and sell their skills to a larger market…this makes their skill set more valuable over a longer period of time. Also the fact that open source reduces cost of the software means that more and more people will be willing to pay for people with skills with open source software…In my experience that is indeed what is happening.

Even the large enterprises seemed to have learned a lesson from the excesses of the boom times and seem reluctant to sign huge deals for proprietary software and then pay through the nose for services. In such situation the economic rent is accruing more widely and evenly to the open source engineers.

What do you think?

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