September 20, 2011

The Economic Incentives of Open-Source Software

Jennifer Vanderhart – September 20, 2011

Why would someone put time and effort into making computer software and then give it away for free? Most of us can probably think of a few reasons, and many of them would apply to any good or service. Today, there are many companies and people who provide access to computer software and receive no money for that access. Examples include freeware and software licensed as open source.

The number of projects that use open-source software has grown exponentially. But to understand how open sourcing developed into a significant business model for providing access to software, we need to explore the relatively recent beginnings of the software industry and the economic nature of software as non-rivalrous and generally non-excludable. The various economic incentives motivating initial and continuing contributions to open-source software, as well as the increasing usage of open-source software options, have allowed for various business models to develop based on what is essentially something that can be obtained for free.

Recent, albeit limited, court decisions, as well as settlements in litigation brought by open-source plaintiffs, have recognized and reinforced certain incentives to contribute to and use open-source software, while the outcome of other cases might have the effect of limiting usage to some extent. Other judicial decisions, while tangential to the actual provision of open-source software, may also affect the provision and licensing of open-source software.

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