Revealing the Trillion-Dollar Impact of Open Source Software: A Pioneering Global Study

“The value of a non-pecuniary (free) product is inherently difficult to assess”

Key figures and highlights from a recent HBS Working Paper:

• Supply-side value (cost to recreate the most widely used open source software once): $4.15 billion.
• Demand-side value (replacement value for each firm that uses the software): $8.8 trillion.
• Firms would need to spend 3.5 times more on software than they currently do if open source software (OSS) did not exist.
• The top six programming languages in the sample comprise 84% of the demand-side value of OSS.
• 96% of the demand-side value is created by only 5% of OSS developers.

OSS: A Vital Public Good with Unmeasured Economic Value

Open source software (OSS) has become a driving force behind the digital transformation revolutionizing industries and the global economy. With its publicly available source code, collaborative development, and free distribution, OSS is ubiquitous, found in nearly all codebases and forming a significant portion of commercial software.

• OSS is a vital public good that underpins much of modern technology and the economy. However, its non-monetary nature and lack of centralized tracking make it difficult to quantify its value, leading to its omission from economic metrics. Despite its pervasiveness and the inclusion of cutting-edge technologies in fields such as artificial intelligence, quantum computing, big data, and analytics, measuring the impact of OSS has proven to be a complex task.

Traditional economic metrics, which rely on multiplying price (p) by quantity sold (q), are not directly applicable to OSS due to its unique characteristics. In the realm of OSS, the price is generally zero, as the source code is freely accessible. Furthermore, the quantity is unknown due to the limited restrictions on copying and reusing the code.

- Companies can download OSS from public code repositories, make numerous internal copies, and share it with suppliers or customers, rendering public download data insufficient for accurately estimating the quantity.

Pioneering Study Combines Novel Datasets to Estimate the Economic Value of OSS

Previous studies have attempted to estimate the supply-side costs of recreating this software, but a lack of data has hindered efforts to quantify the much larger demand-side (usage) value generated by OSS. Recent studies have made significant strides in addressing the measurement challenges associated with OSS, but they have fallen short of capturing both the breadth and depth of OSS usage.

• To address this challenge, a pioneering study and working paper from HBS leverages newly collected data from multiple sources to provide estimates for both p and q, aiming to shed light on the fundamental question: What is the value of open source software?

The study uses unique global data from two complementary primary sources that capture OSS usage by millions of firms worldwide to comprehensively understand the economic and social value of widely used OSS.

(i) The "Census II of Free and Open Source Software – Application Libraries" dataset, a collaboration with multiple software composition analysis (SCA) firms, aggregates data from various SCAs, creating a comprehensive dataset of OSS usage at numerous firms based on millions of data points.

(ii) The “BuiltWith” dataset includes scans of nearly nine million websites to identify the underlying technology deployed, including OSS libraries. This is the first study focusing specifically on OSS usage using BuiltWith data.

The Census II dataset focuses on OSS built into the software a company sells, while the BuiltWith dataset focuses on OSS integrated into a company's website, reducing the chances of double-counting observation

Assessing the $8.8 Trillion Global Value of Widely Used OSS

The study focuses on assessing the global value of widely used open-source software (OSS) and reveals a demand-side value of $8.8 trillion. The value varies based on programmer wages in different countries and shows significant heterogeneity across programming languages and code purpose.

• The top 6 programming languages (C, including C# and C++, Java, JavaScript, Python, Typescript, and Go) generate 84% of the demand-side value.
• The research also highlights the uneven distribution of value contributions by programmers, with 5% of programmers (i.e., 3000) generating 95% of the demand-side value. These programmers contribute to a few widely used projects and engage in more projects than their counterparts.

The study uses the labor replacement value method and the Constructive Cost Model II (COCOMO II) to estimate the person-hours required to recreate OSS packages from scratch. Global wage data from Salary Expert is used to determine labor costs.

The supply-side value of recreating all widely used OSS ranges from $1.22 billion to $6.22 billion, while the demand-side value, considering actual OSS usage, is much larger, ranging from $2.59 trillion to $13.18 trillion.

The authors acknowledge that the data used is comprehensive but incomplete, as operating systems are not included, suggesting that the true value of OSS is likely underestimated.

Immense Value and Far-Reaching Impact of OSS

The study makes four important contributions to the understanding of the value of OSS:

1. It provides a comprehensive estimate of OSS value by considering both the cost to create OSS (supply-side) and its usage (demand-side), minimizing measurement errors, and building upon previous research.
2. It offers insights into the "productivity paradox," highlighting the significant cost-savings and productivity enhancement created by OSS.
3. The findings help practitioners make informed decisions about investing in and contributing to the OSS ecosystem.
4. The study has policy implications, emphasizing the need for supporting and investing in the OSS ecosystem to foster innovation and economic growth.

In conclusion, the study emphasizes the importance of OSS as a global public good. Like other public goods, OSS can be used by anyone without reducing its availability to others. However, unlike many public goods, OSS also allows for contributions from anyone, creating a cycle of continuous improvement. The paper suggests that society should support OSS creation and maintenance more, given its significant role in sustaining the digital economy.

Source & Credit: Harvard Business School (HBS) Working Paper, No. 24-038