The rain forest and the rock garden: the economic impacts of open source software

Abstract

Purpose

The software industry is rapidly being reformed by the collective development of open, common software – open source software (OSS) – sometimes being free at no charge, but always with the source code revealed for changing, testing and improvement. The purpose here is to examine the role and power of software in the economy and review the economic impacts of the trend to OSS on the software industry, largely from a European industrial and social perspective.

Design/methodology/approach

The paper briefly traces the economic significance of the software industry and the dominance in packaged software of the large US publishers, the phenomena of natural monopolies building in software packages, and the need for different industry structure for Europe, as it exhibits a small to medium‐sized enterprise (SME) and system integrator structure. It then examines the balancing affects of OSS. The paper also addresses the role that poor software plays in creating new costs or externalities for its users when it fails, contrasting the robustness of open source in defect repair.

Findings

The paper finds that the way forward in economic terms for Europe may well be to follow and encourage OSS for reasons of creating a strong software industry and for a counterbalance to current monopolistic trends.

Practical implications

The paper's findings emphasise the need for investment, education and encouragement in OSS, by both the public and private sectors, to build a strong knowledge‐based society in Europe.

Originality/value

The paper introduces the ideas of the basic economic mechanisms of volume sales of software as a good, with analysis of the industry impacts of confluence of the network effect coupled with the law of increasing returns with volume to drive monopolistic positions in the proprietary software package industry.

Citation

Forge, S. (2006), "The rain forest and the rock garden: the economic impacts of open source software", info, Vol. 8 No. 3, pp. 12-31. https://doi.org/10.1108/14636690610664633