Daniel Lemire's blog

, 3 min read

The financial value of open source software

We all rely daily on free and open source software, whether we know it or not. The entire Internet is held together by open source software. The cheap router that powers you Wifi network at home uses the Linux kernel. Your android phone is based on the Linux kernel. Google servers run Linux. Almost everyone is a Linux user.

For most people, the financial value of this software is an abstract concept. I think that most people assume that open source software must be cheap.

On the contrary, producing quality open source software is tremendously expensive. And the financial investment grows every year.

How much did it cost to write the millions of lines of the Linux kernel? Researchers estimated the cost of the Linux kernel, as of 2010, to 1.2 billion euros. That is how much it would cost of any one company to redo the Linux kernel from scratch.

You might assume that programmers working on the Linux kernel are hopeless nerds who live in their parent’s basement. In fact, most of them are highly qualified engineers earning 6-figure salaries or better. So the financial estimate represents real money. It is not a virtual cost.

Of course, the Linux kernel is a tiny fraction of all the open source software we rely upon. Most open source developers will never contribute to the Linux kernel: it is reserved for a small elite. According to the Linux foundation, the cost of building a standard Linux distribution (in 2008) would have been over $10 billion.

So what is the value of all open source software beyond Linux?

It helps to realize that software is a huge business. In Europe, companies and governments spend over 200 billion euros a year building software. To put this in perspective, the movie industry in the US generates about 10 billion dollars in revenues. In the United States, 1 out of every 200 workers is a software engineer. A very sizeable fraction of all “engineering” today is in software.

Of course, not all of the software is open source. Still, Daffara estimates the financial value of open source software, for Europe alone, to over 100 billion euros a year.

So why don’t we have more open source drug designs, movie content, textbooks, and so on?

The common argument is that nobody will be willing to invest, in say, a new textbook, a new drug or a new show if anyone can copy and redistribute it for free—the investment is too large.

But I think that the real difference is cultural. In the software world, entire businesses grew surrounded by open source software. They learned to thrive with and through open source software. Companies that entirely reject open source are at a competitive disadvantage. The same happened in the fashion industry. Designers assume that other people will copy them. In fact, designers hope others will copy them.

Other industries, like the pharmaceutical or education industry, have internalized the patent and copyright systems. That is why college students have to pay over $100 for a typical textbook whereas they can get an operating system that costed billions to make for free.

I think that if we had had a world where it is fair game to copy and distribute a textbook for free, we would still have textbooks. I think they would still be excellent. I also think that textbook authors would get paid, just like the programmers do.

Would the overall result be better? I do not know but it is fascinating to imagine what such a parallel universe might look like.

Credit: Thanks to Christopher Smith for useful pointers.