Open source software (OSS) underpins much of today’s digital infrastructure, and is prevalent in everything from operating systems to cloud services. Thus, understanding the real economic impact of OSS is essential for fostering sustainable development and guiding strategic investments, especially for policymakers. To highlight the significant, yet often invisible, contributions of OSS on the global economy, this article draws on the insights from a recent HBS working paper, “The Value of Open Source Software,” by authors Manuel Hoffman, a postdoctoral fellow at the Laboratory for Innovation Science at Harvard (LISH), Frank Nagle, an assistant professor at Harvard Business School and a faculty affiliate of the Digital, Data and Design (D^3) Institute at Harvard, and Yanuo Zhou, a doctoral student in Strategic Management at the University of Toronto Rotman School.
Key Insight: The Ubiquity of Open Source Software
“Open source software (OSS) – software whose source code is publicly available for inspection, use, and modification and is often created in a decentralized manner and distributed for free – appears in 96% of codebases.” [1]
OSS is software with publicly available source code, allowing anyone to inspect, use, and modify it. It’s often developed collaboratively and distributed for free, making it a global public good. OSS has become foundational for most technology used today, in everything from smartphones and cars to cutting-edge technology used in AI, quantum computing, big data, and analytics.
Key Insight: Overcoming the Challenges of Assessing OSS Value
“Using newly collected data from multiple sources, the goal of this paper is to provide estimates for both p [price] and q [quantity] and to use those to shine light on the question: What is the value of open source software?” [2]
Measuring the economic value of OSS has been challenging due to its non-pecuniary nature and lack of centralized usage tracking. Hoffman’s study uses two complementary data sources, Census II of Free and Open Source Software1, which tracks OSS embedded in commercial software products, and BuiltWith2, which supplies data on OSS utilized in publicly facing websites, to estimate the supply-side value and demand-side value of OSS.
Hoffman and his team estimate supply-side value at $4.15 billion, arriving at this number by calculating the expense involved in replicating the most commonly utilized OSS once. Demand-side value, rather, is estimated at $8.8 trillion, a value achieved by assigning a replacement value for every firm that uses the OSS and would need to build it internally if it were unavailable.
Key Insight: Concentration of Value Creation
“The top 6 programming languages create 84% of the demand-side value. […] Over 95% percent of the demand-side value is generated by only five percent of programmers.” [3]
The study reveals that OSS value is highly concentrated, with just six programming languages—JavaScript, Java, Go, Typescript, C, and Python—accounting for the vast majority of its demand-side value. Additionally, the research team finds that a small group of developers (5%) contribute disproportionately, not only to a few of the most common products but also to a substantially wider variety of products.
Key Insight: Risk of the Commons
“Understanding the value of OSS is of critical importance not only due to the role it plays in the economy, but also due to it being one of the most successful and impactful modern examples of the centuries old economic concept of “the commons” which run the risk of meeting the fate known as “the tragedy of the commons.” [4]
As they consider the stakes of the research, the authors draw a parallel with the concept of “the tragedy of the commons,” which dates back to Aristotle and describes a situation where individuals acting in their own self-interest deplete a shared resource, even when it is not in their long-term best interest to do so. This concept was further developed by economists like William Forster Lloyd and Garrett Hardin and, ultimately, Elinor Ostrom won the 1993 Nobel Prize in Economics for her research on avoiding the tragedy of the commons. The researchers argue that OSS faces a risk in this vein, as its widespread availability and free nature could lead to overuse and underinvestment.
Why This Matters
OSS is a critical foundation of the digital economy, yet it often goes unsupported. Policymakers should recognize OSS as a global public good that powers a vast majority of codebases and significantly reduces costs for businesses. By understanding the real value of OSS, policymakers can ensure OSS remains secure and innovative, by incentivizing corporate contributions, funding key OSS projects, and promoting public-private partnerships.
Footnotes
[1] Census II of Free and Open Source Software is a collaborative project by the Linux Foundation and the Laboratory for Innovation Science at Harvard (LISH), which focuses on “inward-facing” OSS, meaning the software incorporated into the products that companies develop and sell. This data comes from software composition analysis (SCA) firms that scan companies’ codebases, primarily for licensing compliance purposes. As a byproduct, SCAs track the specific OSS packages used by their clients.
[2] BuiltWith collects data by scanning public websites globally, identifying both proprietary and OSS technologies used. It offers an “outward-facing” perspective on OSS, revealing the software employed in websites that consumers interact with directly.
References
[1] Manuel Hoffmann, Frank Nagle, and Yanuo Zhou, “The Value of Open Source Software”, Harvard Business School Strategy Unit Working Paper No. 24-038 (January 1, 2024): 1-40, 2.
[2] Hoffmann, Nagle, and Zhou, “The Value of Open Source Software”, 2.
[3] Hoffmann, Nagle, and Zhou, “The Value of Open Source Software”, 21.
[4] Hoffmann, Nagle, and Zhou, “The Value of Open Source Software”, 2.
Meet the Authors
Manuel Hoffman is a postdoctoral fellow at the Laboratory for Innovation Science at Harvard (LISH). His research focuses on labor, innovation, and health economics while leveraging experimental, quasi-experimental, and structural methods to answer exciting research questions that can improve individual and social welfare.
Frank Nagle is an Assistant Professor in the Strategy Unit at Harvard Business School, a faculty affiliate of the Digital, Data and Design (D^3) Institute at Harvard, the Managing the Future of Work Project, and LISH. He studies how competitors can collaborate on the creation of core technologies, while still competing on the products and services built on top of them. His research falls into the broader categories of the future of work, the economics of IT, and digital transformation and considers how technology is weakening firm boundaries.
Yanuo Zhou is a doctoral student in Strategic Management at the University of Toronto Rotman School and a research associate at Harvard Business School. His research interests in economics include innovation, labor, economic growth.