Transaction Cost
Economics in Software
Ecosystems
Wilco van Duinkerken - Utrecht University
wilco@sparkboxx.com - June 19th 2009

Did you ever ask
yourself one of the
following questions?

Should I write a
software component
myself or buy/use it
from somebody else?

I’m using an open
source component,
when do I start
contributing?

What are the “hidden”
costs of using external
components?

How can I limit the
costs and risks of using
external components?

How to govern the
relationships with my
component providers?
m-w: gov·ern (ˈgə-vərn) :
a) to control, direct, or strongly influence the actions
and conduct of
b) to exert a determining or guiding influence in or
over <income must govern expenditure>
c) to hold in check : restrain

Transaction Cost Economics
• Initiated by Coase, 1937
• Defined by Williamson, 1971 and going strong
• Researched in the fields of a.o. Human Assets,
Procurement, Oil & Gas, Electricity, Music Industry
and Outsourcing
• Little empirical research of TCE in IT
• No proof (yet) of TCE in the product
software industry

The Basics
• You can do/ produce something internally
(yourself) or buy it from the market
• One can buy “from the market” using different
governance modes
• The governance modes differ in the amount of
control, flexibility and costs

Governance modes
• Markets • Alliance
• Hierarchies • Joint Venture
• Short term contract • Master Service Agreement
(Raamwerkovereenkomst)
• Long term contract
• SaaS (webservice)
• Service Level Agreements
• Partial Ownership (buy
• Open Source License shares)
• Open Source Contribution

The governance modes
differ in the amount of
control, flexibility and
costs

A governance mode is
chosen based on
transaction costs

Transaction Costs
• Are determined by three factors
• Asset Specificity: How specific (and
important) is the product or service you
are buying.
• Recurrence: How often does the
transaction occur.
• Uncertainty: Internal, external and
behavioral uncertainty.

Governance mode determination
by transaction costs
Asset Specificity
Low High
Low Neo-classical Contract (Collaborating)
Uncer-
tainty
Classical Contract
(non-collaborating) internal
High Relational contract
governance
occasional recurrent
Recurrence
Hierarchy Coordination
Market Coordination

I want to answer the
question:
• Can Transaction Cost Economics be applied
to explain the governance structure of
relationships between buyers and suppliers
of software components in Software
Ecosystems?

I would like to:
1. Have a group discussion about:
What are transaction costs of
software components?
2. Have individual interviews on:
How do you choose which
component to use? and How to
govern the relationship with the
supplier of this component?

Planning
• Group Discussion:
• when: The first week of July (date to be set)
• where: Utrecht University (Beleidslab)
• how long will it take me? ± 90 minutes
• Individual interviews:
• when: Somewhere in July
• where: Anywhere
• how long will it take me? ± 60 minutes

Can I Participate in
Both the group and
Individual sessions?
Yes, you can :-)

What’s in it for me?
1. You will receive a print and/or electronic
version of my thesis.
2. You will gain some insight in your company
relations and possible ways of improving
these relations.
3. I’m willing to give a presentation about the
subject at your company when my thesis is
finished.

Want to participate?
• Please contact me:
• E-mail: wilco@sparkboxx.com
• Twitter: @sparkboxx
• LinkedIn: http://www.linkedin.com/in/
wilcovd

More sources
• Download my thesis so far
• View a summary of my thesis research at
http://prezi.com/90808/