�ݺ�ߣ

The Economic value of
Free/Libre Open
Source Software

Carlo Daffara
European Working Group on Libre Software
CloudWeavers

SfsConf 2012

The Economic value of
Free/Libre Open
Source Software
(for Europe)

Carlo Daffara
European Working Group on Libre Software
Conecta Research
SfsConf 2012

“The GPL effectively prevents profit-
making firms from using any of the
code since all derivative products must also be
distributed under the GPL license” (Evans, D.,
in “Government policy toward open source
software”, R.W.Hahn, editor, AEI-Brookings
JCRS)

SfsConf 2012

“[..] the aim of free software is not to enable a
healthy business on software but rather to
make it even impossible to make any
income on software as a commercial
produc t.” (Thomas Lutz, Microsoft
representative at Tunis WSIS, 2005)

SfsConf 2012

“O��-��ǳܰ�� software is deliberately
developed outside of market mechanisms... the
nonmarket coordination mechanism fails to
contribute to the creation of value in
development, as opposed to the commercial
software market. [It] does not generate profit,
income, jobs or taxes … In the end, the
developed software cannot be used to
generate profit.” (Kooths S., Lagenfurth M.
“Open Source-Software: An Economic
Assessment” University of Muenster, Muenster
Institute for Computational Economics)
SfsConf 2012

“[Open Source] ... suppresses quality
competition between OS firms and restricts
their output much as an agreement to suppress
competition on quality would. .. We find that
the first-best solution in our model is to tax
OS firms and grant tax breaks to
[proprietar y sw] firms .” (Engelhardt,
Maurer, 2010 Goldman School of Public
Policy)

SfsConf 2012

“Rail travel at high speed is not
possible because passengers, unable to
breathe, would die of asphyxia.” Dr. Dionysus
Lardner (1793-1859), Professor of Natural
Philosophy and Astronomy at University
College, London.

“Heavier-than-air flying machines are
impossible.” Lord Kelvin (1824-1907), ca.
1895, British mathematician and physicist

SfsConf 2012

Measuring value is complex. A bad way of
doing it: “...First we listed the major open
source products. Then we looked at the
commercial equivalents. Next we looked at the
average cost of both the open source products
and the commercial products, giving us a net
commercial cost. We then multiplied the net
cost of the commercial product by our open
source shipping estimates.” (Jim Johnson,
Standish group)

SfsConf 2012

Some groups measured the total revenues of
FLOSS firms; so Pierre Audoin Consultants
found a total market of 8B€ in 2008.
Unfortunately, HP alone made 2.5B$ in Linux-
related consulting in 2003, while IBM made
4.5B$ in OSS-related revenues in 2005 (as an
example, the OSS PBX market alone is 1.2B$
alone.)
In fact, the majority of FLOSS-related
revenues are not made by FLOSS companies at
all.
And the software market is not that easy to
define as well.
SfsConf 2012

This provides us with an overall IT spending estimate
for Europe: 492B€

approximately 24% is hardware

software and services market: 374B€

software market alone: 244B€

SfsConf 2012

How much FLOSS is inside the average
codebase?

SfsConf 2012

How much FLOSS is inside the average
codebase?
● On average, 30% of implemented
functionalities is based on reused OSS code
(Sojer M., Henkel J. “Code reuse in Open
Source Software Development”)
● Gartner reported that among the surveyed
customers, 26% of the code deployed was
Open Source
● The Koders survey in 2010 found that 44% of

all code was Open Source

SfsConf 2012

● Black Duck analysis of large code projects
(avg. 700MB of code): 22% is FLOSS, up to
80% of new development is avoided through
FLOSS
● “sampling continues to find that between 30%

and 70% of code submitted is .. in the form of
OSS components and commercial libraries”
(Veracode, “State of Software Security Report
volume 3”, 2011)
● Sampling shows that FLOSS use increases
with time → average usage for last 5 years:
35%

SfsConf 2012

What value does FLOSS reuse brings in?
(Abts, Boehm, Bailey Clark “Empirical
observations on COTS software integration
effort based on the initial COCOTS calibration
database”)

SfsConf 2012

35% of code reuse provide a reduction in
actual costs of 31%: 75B€/year

SfsConf 2012

“Figures suppor t the idea that FOSS
solu tions are more innovative than
proprietar y ones: indeed, in all the three
dimensions, experts’ evaluations are higher for
FOSS than for proprietary software. … FOSS
software not only show different levels of
innovativity, but, as far as, new to the world
products are concerned, they are also shaped
by different innovation processes: radical
innovation in the FOSS vs. incremental
innovation in proprietary field.” (Rossi,
Lorenzi, “Innovativeness of Free/Open Source
solutions”)
SfsConf 2012

"The growing rate, or the number of functions
added, was greater in the open source projects
than in the closed source projects. This
indicates that the OSS approach may be able
to provide more features over time than by
using the closed source approach. (Paulson,
Succi, Eberlein “An Empirical Study of Open
Source and Closed Source Software
Products”)

SfsConf 2012

"Findings indicate that community Open Source
applications show a slower growth of
maintenance effort over time.” (Capra,
Francalanci, Merlo “The Economics of
Community Open Source Software Projects:
An Empirical Analysis of Maintenance
Effort”)

“The fourth law of software evolution,
implying constant incremental effort, might be
violated (Koch “Evolution of Open Source
Software Systems – A Large-Scale
Investigation”)
SfsConf 2012

(Mohagheghi, Conradi, Killi and Schwarz “An
Empirical Study of Software Reuse vs. Defect-
Density and Stability”)
SfsConf 2012

Project failure data:
● Jones :“the cancellation rate for applications

in the 10,000 function point size range is
about 31%. The average cost for these
cancelled projects is about $35,000,000”
● Standish group, 2009: 24% of projects are

canceled before deployment
● Sauer & Cuthbertson, in an Oxford university

survey of 2003: 10%
● Dynamic Markets Limited: 25%+ of all
software and services projects are canceled
before completion

SfsConf 2012

Project success data:
Size People Time success rate

< 750K$ 6 6 55%

750K to 1.5M 12 9 33%

1.5M to 3M 25 12 25%

3 to 6 40 18 15%

6 to 10 250+ 24+ 8%

>10M 500+ 36+ 0%

SfsConf 2012

By reducing effort, staffing and duration the
35% code reuse introduces a reduction on
these parameters of 10% → a reduction in the
failure rate of 2% → 4.9B€/year

SfsConf 2012

“While IBM initially contributed software that was
valued at 40M$, external contributors to the project
created software representing a value of roughly
1.7B$ over the examined period.” (Spaeth,
Stuermer, von Krogh “Enabling knowledge creation
through outsiders: towards a push model of open
innovation”)

SfsConf 2012

● OSS maintenance effort is substantially lower
than the average (Capra E., Francalanci C.,
Merlo F., “The Economics of Community Open
Source Software Projects: An Empirical
Analysis of Maintenance Effort”)
● Using a model by Jones and Bonsignour,
traditional code does have a cost of 2000$ per
function point, while code shared or developed
using best practices costs 1200$ per FP
● the shared code in a reused OSS project
introduces an additional reduction in
maintenance and dev. effort of 14%

SfsConf 2012

14% reduction in maintenance and
development costs → 34B€/year

SfsConf 2012

Deshpande, Riehle “The Total Growth of Open Source”
SfsConf 2012

Source: Dirk Riehle, “The open source big bang”

SfsConf 2012

Total value of OSS reuse per year: 114B€

SfsConf 2012

● What is the second order effect?
● We know that most of these savings are
reinvested:

SfsConf 2012

● “The principal results from this econometric
analysis are: 1) the measured output
contribution of computerization in the short-
run are approximately equal to computer
capital costs, 2) the measured long-run
contributions of computerization are
significantly above computer capital costs (a
factor of five or more in point estimates), and
3) that the estimated contributions steadily
increase as we move from short to long
differences. (“Computing productivity: firm-level
evidence”, Erik Brynjolfsson, Lorin M. Hitt; Review of
Economics and Statistics, November, 2003 )

SfsConf 2012

With a 3 years investment discount period,
model based on linear growth in efficiency due
to reinvestment → 342B€/year

SfsConf 2012

Revenue per employee rating
(FLOSS firms vs. Industry average)
Computer Equipment 182%
Software consultancy and supply 427%
Services (excl. software cons. and supply) 211%
Manufacturing (excl. computer equip.) 136%
Other 204%
ALL: 221%
Source: MERIT

SfsConf 2012

Revenue ratio: FLOSS firms vs. Industry average
(FLOSS firms vs. Industry average)
Computer Equipment 1115%
Software consultancy and supply 262%
Services (excl. software cons. and supply) 177%
Manufacturing (excl. computer equip.) 4501%
Other 1045%
ALL: 758%
Source: MERIT

SfsConf 2012

Source: Venice International University TEDIS study

SfsConf 2012

DrupalCon 2010, Copenhagen

SfsConf 2012

● Does the increase in efficiency reduces local
revenues for incumbents?
● For commercial products (that is, proprietary

products that embed OSS): the producer
reduces its production costs with no other
impact on the business itself, so it can either
increase its margins or pass some of the
savings to the customer.
● For internally developed products, the savings

are direct, with no other effects on the external
market
● OSS reinvestment are mainly local

SfsConf 2012

With proprietary software, 86% of SW
spending goes outside of Europe-and reduces
local company margins
Ecosystem Revenues compared with MS revenues by partner type
Product- Services- Retail Logistics
Logistics-Oriented
Oriented Oriented Value-Added Partner Partner (e.g., Large
Microsoft Partner (e.g., Large
Partner (e.g., Partner (e.g., (e.g., VAR) Retail Electronics
Account Reseller)
ISV, IHV) SI, Hoster) Store)
$1 $4.09 $2.44 $2.30 $2.70 $2.93
1 24% 40.9% 43.5% 37% 34%
Source: Partner Opportunity in the Microsoft Ecosystem, IDC 2011; analysis by Daffara

SfsConf 2012

● Still missing in the model: “pull” adoption
● More difficult to assess – huge variability in

outcomes
● In desktops, with successful migrations, TCO

reduction ranges from 10% to 25% (typical)
up to 50% (for high-uniformity environments)
● Movement towards web-apps is changing
substantially the economics of moving from/to
a different platform, reducing the transition
cost → requires a move away from “pure
substitution” to “reengineering for the future”

SfsConf 2012

From: "The future of computing: indispensable or unsustainable?"
Royal Academy of Engineering, 2011
SfsConf 2012

● Innovation from end-users:

SfsConf 2012

● Non-code contributions: value deriving from
anything that is not directly compilable
● “[non-code] outside contributions are
signicant. Open Cascade estimates that they
represent about 20 % of the value of the
software. Matra Datavision had to inject
approximately 2M€ per year to continue to
develop its tools. In 2000, the company limited
the costs to 1.2 million.” (Jullien, Clement-
Fontaine, Dalle “New Economic Models, New
Software Industry Economy”)

SfsConf 2012

Thanks!

Carlo Daffara

cdaffara@conecta.it
http://carlodaffara.conecta.it
Twitter: @cdaffara

SfsConf 2012

“A study carried out between January and
June 2010 shows that despite the desired
affirmative action for open source products, in
almos t half (47.5%) of the tenders
there is s till a preference for closed
source vendors or products. This
preference inevitably results in not giving
vendors of FLOSS a fair chance to win the bid.
(Mathieu Paapst, Center for Law and IT,
University of Groningen, the Netherlands)

SfsConf 2012

● The vendor must employ MS certified
employees.
● Asking for an operating system to be used

together with the Microsoft Campus
Agreement.
● If your bid is open source you should give extra

guarantees concerning the stability of the open
source community.
● Not allowing “zero-price” licenses.

● Demanding that offered applications must be

certified by Microsoft, are Oracle 10 compliant
and using the official Microsoft style guide as
much as possible.
SfsConf 2012

�ݺ�ߣ

Economic value of open source

Recommended

More Related Content

Similar to Economic value of open source (20)

More from Carlo Daffara (19)

Economic value of open source