Open Source Development with a Commercial Complementary Product or Service
Abstract: We
examine optimal control decisions regarding pricing, network size and hiring
strategy in the context of open source software development. Opening the source
code to a software product often implies that consumers would not pay for the
software product itself. However, revenues may be generated from complementary
products. A software firm may be willing to open the source code to
its software if it stands to build a network for its complementary products. The
rapid network growth is doubly crucial in open source development, where the
users of the firm's products are also contributors of code that translates to
future quality improvements. To determine whether or not to open the source, a
software firm must jointly optimize prices for its various products while
simultaneously managing its product quality, network size, and employment
strategy. Whether or not potential gains in product quality, network size, and
labor savings are sufficient to justify opening the source code depends on
product and demand characteristics of both the software and the complementary
product as well as on the cost and productivity of in-house developers relative
to open source contributors. This paper investigates these crucial elements to
allow firms to reach the optimal decision in
choosing between the open and closed source models.