Transfersummit2011

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The slides for my presentation at TransferSummit 2011 Oxford. An overview of economic benefits of Open Source for the European economy.

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Transfersummit2011

  1. 1. The Economic value of Open Source Software Carlo Daffara European Working Group on Libre SoftwareTransferSummit 2011 - Oxford Conecta Research
  2. 2. The Economic value of Open Source Software (for Europe) Carlo Daffara European Working Group on Libre SoftwareTransferSummit 2011 - Oxford Conecta Research
  3. 3. “GPL poses a threat to the intellectualproperty of any organization making use of it.It fundamentally undermines theindependent commercial softwaresec tor because it effectively makes itimpossible to distribute software on a basiswhere recipients pay for the product ratherthan just the cost of distribution. ... In effect, itputs at risk the continued vitality of theindependent software sector.” (Craig Mundie,Microsoft, talk at NY University, 2001)The economic value of Open Source Software
  4. 4. “[..] the aim of free software is not to enable ahealthy business on software but rather tomake it even impossible to make anyincome on software as a commercialproduc t.” (Thomas Lutz, Microsoftrepresentative at Tunis WSIS)The economic value of Open Source Software
  5. 5. “It is quite possible that the open sourcemovement will ultimately result in acollapse of the indus tr y , and that wouldnot be a good thing.“ (Gene Quinn, patentattorney)The economic value of Open Source Software
  6. 6. “[OSS supporters] ... they need to accept theground rules that most of us live in a capitalistsociety, we have the right to raise and providefor a family, and that until we all wake up in aFOSS developer’s paradise, we have to live andwork inside of that context. I’d love to hearhow a proprietary-free software world couldwork.” (James Turner, OReilly radar)The economic value of Open Source Software
  7. 7. “(SBU) If the law passes in current form, theprovisions for mandatory use of OSS will have graverepercussions ... By nature, OSS requires codesharing, and could pose security concerns forimportant BRV institutions, such as PDVSA,EDELCA (the electric company), or CADIVI (theForeign Exchange Control Authority). Though OSSsoftware has only a one-time license fee -- andtherefore seems more cost-effective -- critics claimthe system can be less-user friendly and requiresfrequent technical support (which can often becostlier than licensing). According to Microsoft, nogovernment in the world has successfully used Linuxfor large operations”. Wikileaks, 06CARACAS1778The economic value of Open Source Software
  8. 8. “The GPL effectively prevents profit-makingfirms from using any of the code since allderivative products must also be distributedunder the GPL license” (Evans, D., in“Government policy toward open sourcesoftware”, R.W.Hahn, editor, AEI-BrookingsJCRS)The economic value of Open Source Software
  9. 9. “Open-source software is deliberatelydeveloped outside of market mechanisms... thenonmarket coordination mechanism fails tocontribute to the creation of value indevelopment, as opposed to the commercialsoftware market. [It] does not generate profit,income, jobs or taxes … In the end, thedeveloped software cannot be used togenerate profit.” (Kooths S., Lagenfurth M.“Open Source-Software: An EconomicAssessment” University of Muenster, MuensterInstitute for Computational Economics)The economic value of Open Source Software
  10. 10. “[Open Source] ... suppresses qualitycompetition between OS firms and restrictstheir output much as an agreement to suppresscompetition on quality would. .. We find thatthe first-best solution in our model is to taxOS firms and grant tax breaks to[proprietar y sw] firms .” (Engelhardt,Maurer, 2010 Goldman School of PublicPolicy)The economic value of Open Source Software
  11. 11. “Rail travel at high speed is notpossible because passengers, unable tobreathe, would die of asphyxia.” Dr. DionysusLardner (1793-1859), Professor of NaturalPhilosophy and Astronomy at UniversityCollege, London.“Heavier-than-air flying machines areimpossible.” Lord Kelvin (1824-1907), ca.1895, British mathematician and physicistThe economic value of Open Source Software
  12. 12. “A study carried out between January andJune 2010 shows that despite the desiredaffirmative action for open source products, inalmos t half (47.5%) of the tendersthere is s till a preference for closedsource vendors or products. Thispreference inevitably results in not givingvendors of FLOSS a fair chance to win the bid.(Mathieu Paapst, Center for Law and IT,University of Groningen, the Netherlands)The economic value of Open Source Software
  13. 13. ● The vendor must employ MS certified employees.● Asking for an operating system to be used together with the Microsoft Campus Agreement.● If your bid is open source you should give extra guarantees concerning the stability of the open source community.● Not allowing “zero-price” licenses.● Demanding that offered applications must be certified by Microsoft, are Oracle 10 compliant and using the official Microsoft style guide as much as possible. The economic value of Open Source Software
  14. 14. Measuring value is complex. A bad way ofdoing it: “First we listed the major open sourceproducts. Then we looked at the commercialequivalents. Next we looked at the average costof both the open source products and thecommercial products, giving us a netcommercial cost. We then multiplied the netcost of the commercial product by our opensource shipping estimates.” (Jim Johnson,Standish group)The economic value of Open Source Software
  15. 15. Some groups measured the total revenues ofOSS firms; so Pierre Audoin Consultants founda total market of 7B€ in 2008. Unfortunately,HP alone made 2.5B$ in Linux-relatedconsulting in 2003, while IBM made 4.5B$ inOSS-related revenues in 2005.In fact, the majority of OSS-related revenuesare not made by OSS companies at all.And the software market is not that easy todefine as well.The economic value of Open Source Software
  16. 16. The economic value of Open Source Software
  17. 17. The economic value of Open Source Software
  18. 18. This provides us with an overall IT spending estimatefor Europe: 492B€approximately 24% is hardwaresoftware and services market: 374B€software market: 244B€The economic value of Open Source Software
  19. 19. The economic value of Open Source Software
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  22. 22. The economic value of Open Source Software
  23. 23. Total OSS package adoption value: 41B€The economic value of Open Source Software
  24. 24. The economic value of Open Source Software
  25. 25. The economic value of Open Source Software
  26. 26. The economic value of Open Source Software
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  30. 30. The economic value of Open Source Software
  31. 31. How much Open Source is inside the average codebase?The economic value of Open Source Software
  32. 32. ● Black Duck analysis of large code projects (avg. 700MB of code): 22% is OSS, up to 80% of new development is avoided through OSS● On average, 30% of implemented functionalities is based on reused OSS code (Sojer M., Henkel J. “Code reuse in Open Source Software Development”)● “sampling continues to find that between 30% and 70% of code submitted is .. in the form of OSS components and commercial libraries” (Veracode, “State of Software Security Report volume 3”, 2011) The economic value of Open Source Software
  33. 33. The economic value of Open Source Software
  34. 34. 35% of code created in the last 5 yearsThe economic value of Open Source Software
  35. 35. What value does OSS reuse brings in?(Abts, Boehm, Bailey Clark “Empiricalobservations on COTS software integrationeffort based on the initial COCOTS calibrationdatabase”)The economic value of Open Source Software
  36. 36. Total OSS source adoption value: 41B€The economic value of Open Source Software
  37. 37. “Figures suppor t the idea that FOSSsolu tions are more innovative thanproprietar y ones: indeed, in all the threedimensions, experts’ evaluations are higher forFOSS than for proprietary software. … FOSSsoftware not only show different levels ofinnovativity, but, as far as, new to the worldproducts are concerned, they are also shapedby different innovation processes: radicalinnovation in the FOSS vs. incrementalinnovation in proprietary field.” (Rossi,Lorenzi, “Innovativeness of Free/Open Sourcesolutions”)The economic value of Open Source Software
  38. 38. "The growing rate, or the number of functionsadded, was greater in the open source projectsthan in the closed source projects. Thisindicates that the OSS approach may be ableto provide more features over time than byusing the closed source approach. (Paulson,Succi, Eberlein “An Empirical Study of OpenSource and Closed Source SoftwareProducts”)The economic value of Open Source Software
  39. 39. (Mohagheghi, Conradi, Killi and Schwarz “AnEmpirical Study of Software Reuse vs. Defect-Density and Stability”)The economic value of Open Source Software
  40. 40. "Findings indicate that community Open Sourceapplications show a slower growth ofmaintenance effort over time.” (Capra,Francalanci, Merlo “The Economics ofCommunity Open Source Software Projects:An Empirical Analysis of MaintenanceEffort”)“The fourth law of software evolution,implying constant incremental effort, might beviolated (Koch “Evolution of Open SourceSoftware Systems – A Large-ScaleInvestigation”)The economic value of Open Source Software
  41. 41. Deshpande, Riehle “The Total Growth of Open Source”The economic value of Open Source Software
  42. 42. Total value of OSS reuse per year: 116B€The economic value of Open Source Software
  43. 43. The economic value of Open Source Software
  44. 44. “While IBM initially contributed software that wasvalued at 40M$, external contributors to the projectcreated software representing a value of roughly1.7B$ over the examined period.” (Spaeth,Stuermer, von Krogh “Enabling knowledge creationthrough outsiders: towards a push model of openinnovation”)The economic value of Open Source Software
  45. 45. The economic value of Open Source Software
  46. 46. The economic value of Open Source Software
  47. 47. “[non-code] outside contributions aresignicant. Open Cascade estimates that theyrepresent about 20 % of the value of thesoftware. Matra Datavision had to injectapproximately 2M€ per year to continue todevelop its tools. In 2000, the company limitedthe costs to 1.2 million.” (Jullien, Clement-Fontaine, Dalle “New Economic Models, NewSoftware Industry Economy”)The economic value of Open Source Software
  48. 48. The economic value of Open Source Software
  49. 49. With proprietary software, 86% of SW spending goes outside of Europe-and reduces local company margins Ecosystem Revenues compared with MS revenues by partner type Product- Services- Retail Logistics Logistics-Oriented Oriented Oriented Value-Added Partner Partner (e.g., LargeMicrosoft Partner (e.g., Large Partner (e.g., Partner (e.g., (e.g., VAR) Retail Electronics Account Reseller) ISV, IHV) SI, Hoster) Store) $1 $4.09 $2.44 $2.30 $2.70 $2.93 1 24% 40.9% 43.5% 37% 34%Source: Partner Opportunity in the Microsoft Ecosystem, IDC 2011; analysis by Daffara The economic value of Open Source Software
  50. 50. If the savings are reinvested in ICT, thecompany gains an advantage in terms ofefficiency is substantially larger than theinvestment value:“the measured long-run contributions ofcomputerization are significantly abovecomputer capital costs - a factor of five ormore in point estimates” (Brynjolfsson, Hitt“Computing productivity: firm-level evidence”)The economic value of Open Source Software
  51. 51. The economic value of Open Source Software
  52. 52. Revenue per employee rating (FLOSS firms vs. Industry average) Computer Equipment 182% Software consultancy and supply 427% Services (excl. software cons. and supply) 211% Manufacturing (excl. computer equip.) 136% Other 204% ALL: 221% Source: MERITThe economic value of Open Source Software
  53. 53. Revenue ratio: FLOSS firms vs. Industry average (FLOSS firms vs. Industry average) Computer Equipment 1115% Software consultancy and supply 262% Services (excl. software cons. and supply) 177% Manufacturing (excl. computer equip.) 4501% Other 1045% ALL: 758% Source: MERITThe economic value of Open Source Software
  54. 54. Source: Venice International University TEDIS studyThe economic value of Open Source Software
  55. 55. So – we know now that OSS is a good thing for Europe and its economy. What can we do to improve things further? A few hints:● Government: dont give out big money in big projects. They end up all in large SIs with limited real impact on OSS.● Try to enforce fair tenders – after all, Government and PAs are one of the largest market in Europe.● Knowledge and tools to increase the reuse percentage The economic value of Open Source Software
  56. 56. The economic value of Open Source Software
  57. 57. Source: Dirk Riehle, “The open source big bang”The economic value of Open Source Software
  58. 58. value appropriated collaborate and redefine champion contribute use Time engineering driven business driven denial single product multiple projects step 1: crossing the chasm between denial and use. It requires knowledge on what is available, countering wrong beliefs and FUD, best practices for adoption and migrationThe economic value of Open Source Software
  59. 59. value step 2: from users to contributors. It requires appropriated Information on legal aspect, how to cooperate and interact with projects, partnering collaborate and redefine champion contribute use Time engineering driven business driven denial single product multiple projectsThe economic value of Open Source Software
  60. 60. value step 3: from contributors to champions. Requires appropriated information on business models, on sustainability, on relative profitability of models and the interaction between licensing and community collaborate and redefine champion contribute use Time engineering driven business driven denial single product multiple projectsThe economic value of Open Source Software
  61. 61. Thanks! Carlo Daffara cdaffara@conecta.ithttp://carlodaffara.conecta.it

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