Questioning “The Value of Open Source Software”
Harvard Business School (HBS) recently published a working paper titled, “The Value of Open Source Software,” authored by postdoc Manuel Hoffmann, assistant professor Frank Nagle, and grad student Yanuo Zhou. The Linux Foundation sponsored the research, which builds on the Census II project.
Here is Frank’s tl;dr:
If OSS didn’t exist, companies would spend 3.5 times more on software than they currently do. More precisely, our results show a cost of $4.15 billion if society had to replace these packages once (e.g., OSS still exists, but all of the most widely used packages were deleted and had to be rewritten), but a cost of $8.8 trillion if each company that uses these packages had to rewrite every package it uses (e.g., if OSS didn’t exist at all).
Okay, so that’s three headline results:
If OSS didn’t exist, companies would spend 3.5 times more on software than they currently do.
It would cost $4.15 billion to rebuild all the OSS that currently existed at the end of 2020 (when the snapshot behind Census II was taken, if I have it right).
It would cost $8.8 trillion if each company separately rebuilt all the OSS it was using at the end of 2020.
The first result is derived from the third. The working paper estimates that actual software spending was $3.4 trillion in 2020, and 3.4 + 8.8 = 12.2 trillion, which is 3.5x the 3.4 actual (page 18). The third result is derived from the second, multiplying an estimate of the cost to rebuild each piece of OSS software by an estimate of the number of companies using each piece (p. 13). So the flow of the argument is, given an end-of-2020 snapshot:
It would cost $4.15 billion to rebuild all OSS.
It would cost $8.8 trillion in aggregate for each company to rebuild all of the OSS they use.
Companies spent $3.4 trillion for all software they use, besides what they got for free from OSS.
Therefore, if OSS didn’t exist, companies would have to have spent 3.5 times more on software than they in fact did.
Now, I did find some interesting things in this working paper. The first step in the argument (i.e., the second headline result) seems fine as far as it goes, as it is based on COCOMO II, which seems pretty well-established (though I’m sure it is messy under the hood). I learned some basic economics language (stock and flow variables). I learned about GHTorrent and BuiltWith. The appendix on the goods market analysis of the value of Open Source seems helpful. The data on the number of programmers responsible for producing the bulk of OSS (p. 20) is quite intriguing. I’m going to have to revisit my assumption in my previous post that “[t]he sustainable Open Source community taken as a whole will be roughly the same size” as a big tech company, i.e., 10,000 to 100,000 engineers. It seems likely to be off by an order of magnitude. I aim to do that in a future post.
That said, I do not accept headline result 1 (“companies would spend 3.5 times more”), because I think result 3 (“it would cost $8.8 trillion”) is irrelevant.
A Critical Flaw?
Step 2 in the argument seems critically flawed to me. If so, result 3 is misleading, and result 1 is false. The options for acquiring software are buy, borrow, or build. Borrow means OSS. If we take that off the table, companies still have two options: buy or build. The build option is what the $8.8 trillion estimates. The working paper calls this the “labor market valuation approach.”
The thought experiment is that we live in a world where OSS does not exist and has to be recreated at each firm that uses a given piece of OSS. (p. 12, emphasis added)
This is the main methodology in the working paper, and the source of the “3.5x” headline result.
But what about the buy option? Surely if OSS ceased to exist, companies would step in to fill the gap. The authors do explore this option. They call it the “goods market valuation approach.”
With the goods market approach, the thought experiment is still that we live in a world where OSS does not exist, but it has to be recreated via one firm that then charges a price for a good that is currently free. (p. 38, emphasis added)
This seems to me a much more fruitful comparison than the labor market approach, because it is much closer to what we would expect to actually happen in an alternate timeline without OSS.
Compared to the result of the labor market approach, $8.8 trillion, the result of the goods market approach is four orders of magnitude lower, at $177 million (p. 37). If I’m reading it right, using this for step 2 (result 3) weakens the argument to the point of failure, and result 1 essentially disappears: 3.4 + 0.000177 = $3.400177 trillion. If so, companies would spend 1.00005 times more on software than they currently do, if OSS didn’t exist.
The working paper includes the goods market approach in an appendix, and does not report the result in its abstract. I propose either making a better case for using the labor market approach, or revising the working paper to make the goods market approach primary (either drop the labor market approach or move it to an appendix). As it stands, the use of the labor market approach over the goods market approach as the primary methodology of this research seems to me to render results 1 and 3 valueless.
Also, What’s Up with Golang?
Something else that jumped out at me in the working paper is the decision to include Go:
Looking at the GitHub data referenced, Golang is not even in the top 10.
I don’t find in the working paper that there is a direct connection between the headline results and the choice of languages to include for the deeper analyses as in Figure 1. Neither do I find any links to open data behind the working paper so I can investigate for myself.
Years ago, I likewise attempted to estimate the value of Open Source software, which I’ve since used to inform my attempts to tackle the Open Source sustainability crisis. Estimates like this are always a messy business, involving lots of assumptions and hand-waving. Still, they are vital to understanding the nature and scope of the crisis. We need good work in this area.
I do not accept the primary result of the “Value of Open Source Software” working paper, that companies would spend 3.5 times more on software if OSS didn’t exist. Based on my reading, companies would spend almost nothing more if OSS didn’t exist. This challenges my own estimates as well. I look forward to wrestling with the implications in a future post.