A new Harvard Business School study reveals open-source software represents enormous economic value. Without it, companies would spend 3.5 times more on software, with just 5% of developers generating 96% of the total value.
Open-source software (OSS) — programs with publicly accessible code that are often developed collaboratively — now forms the foundation of the digital economy. According to a recent Harvard Business School study, OSS appears in 96 percent of all codebases, with some commercial software consisting of up to 99.9 percent freely available OSS components.
But how much is this digital commons actually worth? A new study provides the first comprehensive answers to this question.
The challenge of measuring value
Economists face a fundamental problem when evaluating OSS: since the price is typically zero and usage frequency is difficult to measure, value can't be calculated using the classic "price times quantity" formula.
The researchers used two complementary datasets to capture both internal and external OSS use in companies. The first dataset, "Census II of Free and Open Source Software," documents OSS code that flows into company products. The second dataset from "BuiltWith" identifies OSS code that consumers interact with directly through company websites.
From this, they calculated two values: supply value (what it would cost to rewrite all widely used OSS packages once) and demand value (what it would cost if every company using OSS had to develop it themselves).
According to their calculations, the supply value amounts to $4.15 billion. The demand value, however, dwarfs this at an estimated $8.8 trillion — more than 2,000 times higher. For comparison, global software spending in 2020 totaled around $3.4 trillion. Without OSS, companies would need to spend 3.5 times more on software.
Extreme inequality in value creation
Particularly noteworthy is how value creation concentrates among few developers. The study shows that just 5 percent of developers — about 3,000 people — are responsible for more than 93 percent of the supply value and 96 percent of the demand value.
"The uneven value that is generated by few programmers is not just due to a few highly valuable repositories but by the contributions of this handful of contributors to a substantial number of repositories," the researchers explain.
OSS thus represents one of the most successful and influential modern examples of the centuries-old economic concept of "the commons" (public good). Similar to shared grazing land in agriculture, the availability of OSS code that doesn't need to be rewritten each time is crucial for the modern economy.
The study warns, however, about a "tragedy of the commons" if this digital public resource becomes overused but underfunded. Measuring the value of OSS is therefore critical for the future health of the digital economy.
Implications for businesses and policy
The study doesn't capture the entire OSS market and omits important categories like operating systems, likely underestimating the actual value.
Given these figures, the authors argue that companies using OSS shouldn't just "free ride" but should contribute to the creation and maintenance of OSS. Political decision-makers should also consider more societal support for this critical resource.
"Our results show the substantial value that OSS contributes to the economy despite this value generally showing up as zero via direct measurement since prices equal zero and quantity is difficult to measure using public data alone," the researchers conclude.
