Unlocking Trillions: The True Value of Open Source Software

In an era where software shapes nearly every aspect of our economy, understanding the true value of Open Source Software (OSS) has never been more critical. A recent study by Harvard Business School and the University of Toronto provides groundbreaking insights into how profoundly OSS impacts the global economy, highlighting both its enormous economic footprint and the hidden risks of undervaluing this digital commons.

Why Measuring OSS Value Matters

Open Source Software is software whose source code is publicly accessible and modifiable, distributed freely, and collaboratively maintained. From servers running the internet to machine learning algorithms powering next-gen technologies, OSS is foundational—yet its economic value remains vastly underappreciated due to its “free” nature. Traditional economic measures typically multiply price by quantity sold, but with OSS, price is zero, and quantity used is notoriously hard to track.

Addressing this gap, researchers Manuel Hoffmann, Frank Nagle, and Yanuo Zhou conducted the most comprehensive study to date, measuring the true economic impact of OSS from both the supply side (cost to recreate it) and the demand side (value derived from usage).

What the Numbers Reveal

Using detailed global data from millions of firms, the study presents two striking findings:

• Supply-side value: To recreate all widely-used OSS from scratch would cost approximately $4.15 billion globally.
• Demand-side value: If OSS disappeared and companies had to individually recreate all the OSS they rely on internally, the cost would skyrocket to approximately $8.8 trillion—highlighting an astronomical difference between cost of creation and the actual value derived from widespread use.

To put this in perspective, without OSS, global software expenditures would more than triple, imposing enormous financial burdens on enterprises worldwide.

Concentrated Value Creation

Surprisingly, the research reveals that 96% of OSS value comes from just 5% of developers. A small community of elite programmers is effectively propping up digital infrastructure used globally. This highlights both an extraordinary efficiency and a critical vulnerability: what happens if these developers stop contributing?

OSS Across Industries and Languages

The study delves deeper, illustrating how value creation varies by industry and programming languages:

• The languages Go, JavaScript, and Java lead in generating the highest OSS value.
• Industries such as Professional, Scientific, and Technical Services, along with Retail Trade and Administrative Services, are the biggest beneficiaries of OSS, each saving tens of billions of dollars annually.

Implications for Business and Policy

For Businesses:

• Investment in OSS is strategic: Firms should not just consume but actively contribute to OSS, mitigating the risk of digital infrastructure collapse.
• Efficiency in spending: Leveraging OSS significantly reduces software costs, enhancing productivity and freeing up budgets for innovation.

For Policymakers:

• OSS as critical infrastructure: Recognition of OSS as a foundational digital commons necessitates supportive policies and investments to sustain its health and security.
• Support core contributors: Policies fostering incentives or direct support for OSS creators can prevent burnout and ensure sustainable contributions.

OSS and Licenseware: Aligned Missions

For Alex and Licenseware, these insights directly align with the mission to democratize software management through modular, on-demand solutions. Recognizing the inherent economic and social value of OSS validates the Licenseware approach: providing flexible, integrated solutions that empower users without locking them into costly proprietary ecosystems. It underscores the strategic importance of open integration capabilities and collaborative ecosystems like those fostered by Licenseware.

Looking Ahead: Protecting the Digital Commons

The research highlights a stark reality: OSS is a cornerstone of modern productivity and innovation, yet its value remains largely invisible in economic metrics. Businesses, investors, and policymakers alike must recalibrate how we view, support, and nurture the OSS ecosystem.

In sum, OSS is not just a technical choice—it’s an economic imperative. Ignoring its importance risks undermining the very fabric of the digital economy. Embracing and protecting OSS ensures continued innovation, economic efficiency, and technological progress for all.

---

Reference: Hoffmann, M., Nagle, F., & Zhou, Y. (2024). The Value of Open Source Software. Working Paper 24-038, Harvard Business School & University of Toronto.