Open source funding
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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.
| Who | How They Provide Resources | What They Gain |
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| Independent Developers | Provide development time. |
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| Commercial companies |
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| Venture Capital Companies |
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| Governments/Public Authorities | Provide funding. |
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| Private users | Provide funds either directly to developers or through sites such as:
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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
- The Business and Economics of Linux and Open Source by Martin Fink (http://www.amazon.com/exec/obidos/tg/detail/-/0130476773/102-6466373-0496156)
- MIT paper repository (http://opensource.mit.edu)
- Open reSource: a wiki on the Open Source market, commercial participants, trends, analysis, news and more. (http://sterneco.editme.com)