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Open source funding

From Academic Kids

The development of free software requires extensive resources. But where are these resources coming from if the final product is freely available?

The needed resources are provided by people and organizations that in some way profit (though not necessary in monetary terms) from free software.

The following table summarizes some of the funding sources for open source development and their motivations.

WhoHow They Provide Resources What They Gain
Independent Developers Provide development time.
  • Use the final product.
  • Get recognition for their effort and skills. Particularly valuable for young developers to beef up their CVs or for independent consultant to foster their reputation.
  • Get donations either directly or through open source support organizations.
  • Sell documentation (books or online documentation).
Commercial companies
  • Provide development time.
  • Provide infrastructure (bandwidth, source management and web hosting services). For example: SourceForge that hosts tens of thousands of open source projects or IBM that hosts the Eclipse project.
  • Use the software internally.
  • Use the software as a base for commercial products. For example: IBM sells a professional version of Eclipse, Sun sells a professional version of NetBeans.
  • Sell services related to the software (e.g. support, training, documentation, packaging). For example RedHat sells and supports a version of Linux. The Jboss Group (http://jbossgroup.com/index.html) sells training, hosting and development services for JBoss.
  • Sell advertising space on their open source support sites (e.g. SourceForge).
  • Improve their corporate image.
  • Undermine the business model and market share of a competitor who provides a similar product but charges for it.
Venture Capital Companies
  • Provide funding.
  • Provide management advice.
  • Exit and sell their shares with a profit.
  • For example SugarCRM (http://www.sugarcrm.com), Jboss Group (http://jbossgroup.com/index.html) and one of the leading open source database companies MySQL (http://www.mysql.com) have received substantial amounts of venture capital.


Governments/Public Authorities Provide funding.
  • Save money on commercial licenses by using open software.
  • See software as a strategic asset on which they should maintain control.
  • See open source software as a way of creating local skills and jobs.
Private users Provide funds either directly to developers or through sites such as:
  • SourceForge that allows users to donate to specific projects or even specific developers.
  • SPI that funds a set of open source projects
  • Speed-up development of software that they need.
  • Agree with the ideals of free software.
  • Get tax reductions. Donations to open source charities (e.g. SPI) are tax-deductible in some countries.
Contents

Economical Efficiency of the Production of Open Source Software

Is open source software efficiently produced?

It is economically efficient to invest in the production of a certain good up to the point where benefits exceed its cost.

If the costs or the benefits are incorrectly calculated then a non-optimal quantity of the good will be produced.

It is relatively straightforward to calculate benefits and costs of commercial software:

  • The software development companies keep track of their development costs.
  • And, if we assume that users will buy a product if the utility that the product has for them is greater or equal than its price, than the benefits must be greater or equal to the total value of the sales of the product.

In the case of open source software both costs and benefits are much harder to calculate:

  • Development costs are unknown as they are mostly incurred by individual developers whose expenses are not publicly tracked.
  • As end users do not pay for the product there is no easy way of estimating the benefits either.

Both open source and commercial developers, if they are rational, will fund the development of a product only up to the point where their income is greater than their costs.

The income generated by a product acts as a feedback signal that tells the producer how useful its product is and therefore how many resources should be invested in it.

The difference between commercial and open source developers is that commercial producer can get an income by selling the product while for most open source developers the only income is the benefits that they directly derive from using the product itself.

The feedback that an open source developer gets on the benefits of its product is therefore weaker than for a commercial developer.

The benefits of open source software are therefore systematically underestimated.

The consequence is that a less-than-optimal quantity of open source is actually produced, to the detriment of society.

Specialized Markets

There have been some attempts at making the funding, and therefore the production, of open source development more efficient by organizing specialized markets. This idea has not yet met with success.

Markets for Open Source Software (http://www.ms.lt/en/workingopenly/markets.html) is an index of some (failed) attempts.

SourceForge's recently introduced donation system can also be seen as an attempt of building such a market.

Private Organisations Providing Funding for Open Source Development

Omidyar Net (http://www.omidyar.net/)
MacroElite (http://www.macroelite.ca/)

References

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