An%20Economic%20Perspective%20on%20Software%20Licenses%20

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An Economic Perspective on Software Licenses
Incentives in Open Source Software

• Kasper Edwards
• Department of Manufacturing Engineering and
  Management
• Technical University of Denmark

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Outline

• Point of Departure
• Properties of Software
• Three Licenses
• Two Types of Agents
• Roles and Desired Use-Products
• A Model

3
Point of Departure

• Motivation
• Why is open source software being developed?
• Raymond
• Geeks bearing gifts
• Ego, social status and reputation
• Lerner Tirole
• Leadership
• Reputation effects and spillover
• Problems
• Explained incentives for individuals - not
  mechanisms and dynamics
• Too much emphasis on social status

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Point of Departure

• Interest
• The development process
• Economics
• There is special dynamic within the development
  process
• Hypothesis
• Properties of software Type of agent gt A
  certain behaviour (incentives and mechanisms)
• Goal
• To develop a model of software development and
  consumption

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Properties of Software

• Two properties
• Technical properties
• License properties
• Technical Properties
• Software can be reproduced without loss of
  quality
• The cost of copying is non-prohibitive
• The cost distribution is non-prohibitive
• License Properties
• The license set boundaries for possible behaviour
  
• Focus on the economic issues rather than the
  political

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Three Licenses

• Three extremes
• Microsoft EULA
• GNU GPL
• BSD
• Microsoft End User License Agreement
• The licensee may use in the intended way
• The licensee may sell the program once
• The license may NOT copy, distribute, modify, use
  on more than one computer etc. etc.
• It the program eats your data the program may be
  refunded
• - - - A capitalists dream come true

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Three Licenses

• GNU General Public License (GPL)
• The Licensee may copy, distribute and modify
• Source code for modifications distributed must be
  available
• Distributed copies carry same license
• The viral effect
• - - - Protect the users
• BSD License
• The Licensee may copy, distribute and modify
• Modifications and derived works may be
  distributed as closed source
• - - - The liberal alternative

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Two Types of Agents

• Firms
• Command resources
• Pay salaries
• Profit maximizing
• Individuals
• Only command personal time
• Also driven by leisure
• Utility maximizing

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Roles and Desired Use-Products

• Two Roles
• Developers
• User-developers
• Use-Products
• An agents particular use of a combination of
  features in a program

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A Model Microsoft EULA License
Private use
Agents who use
U-U assistance
Maintainer
User- developer
Program is developed
Distribute
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Dynamics Microsoft EULA License

• Basic market situation
• Profit incentive for developing
• Main dynamic is outside the model
• Competition between maintainers
• User-maintainer
• Feedback if desired use-product is not present
• User-to-user assistance
• Cost effective way of obtaining information
• Infoproviders derive a personal benefit i.e.
  reputation effect

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A Model GPL License
Private use
Keep modifications
Agents who use
U-U assistance
Maintainer
User- developer
Program is developed
Modify the program
Distribute
Discuss modifications
Agents who modify
Distribute modifications
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Dynamics GPL License

• Why GPL?
• Personal beliefs
• Evolutionary perspective In beginning profit
  prospects are low
• Why Make modifications?
• Desired use-product missing
• Maintenance costs
• Maintaining a separate patch is costly
• Lack of information
• User-developers cannot know if other
  user-developer are creating a similar use-product
• The cost of being too late
• No reputation effect
• Maintenance costs

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A Model BSD License
Private use
Keep modifications
Agents who use
U-U assistance
Maintainer
User- developer
Program is developed
Modify the program
Closed source distribution
Distribute
Discuss modifications
Agents who modify
Distribute modifications
15
A Model BSD License
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Dynamics BSD License

• Identical to GPL
• But
• Firms have a greater incentive to adopt BSD
• Greater chance that modifications are kept
  private
• Free riding becomes a significant problem
• Effect limited at this level of focus
• Standards and compatibility issues are missing

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Conclusion

• A model based in economics
• Seems to offer a reasonable explanation for the
  phenomenon
• The license shapes possible behaviour
• The three licenses exemplify different types of
  behavior
• Licenses not only restrict behavior but also
  create incentives
• Limitations
• Project as object of analysis
• Consequences from standards and compatibility not
  included
• Obvious implications for policy
• P-makers must consider which license is best for
  the economy

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The End
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Incentives and Costs

• Incentives for individuals
• Ego LOOK What I have created!
• Peer reputation
• Signaling effects may spill into the real world
• A desired use-product can be obtained at little
  cost
• Incentives for firms
• A desired use-product can be obtained at little
  cost
• Homemade modifications
• Possible to create services without maintaining
  the software
• Costs
• Time (adoption, programming, integration, etc.)
• Firms Wages
• Individuals Opportunity cost

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Dynamics

• Uncertainty
• Difficult to predict development path gt Lowered
  free riding
• The Keep Private Penalty
• Keep private gt High maintenance costs
• Always a work in progress
• Low initial commercial value gt license lock-in
  (GPL)
• The cost of being too late
• Development becomes a sunk cost
• Risk of the Keep Private penalty
• Aggregated benefit
• One agents small contribution result in large
  aggregated benefits

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Does the Model Hold Up?

• Henrik
• Individual, limited spare time
• High opportunity cost
• The modification was a one time investment
• Paul
• Consultant, working for a firm
• Obvious incentive for keeping private
• Small firm, Paul charged extra for keeping
  private
• No in-house programmers no wish for extra
  maintenance
• Number 1 to market the new product more important

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The Model
Private use
Keep modifications
Agents who use
U-U assistance
Maintainer
User- developer
Program is developed
Modify the program
Closed source distribution
Distribute
Discuss modifications
Agents who modify
Distribute modifications
BSD License
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Two examples of OSS development

• Henrik Need feature
• Programmer and Linux enthusiast
• Interested in kernel development
• Had to use windows for work
• Linux was unable to read Windows file system
• Gordon had a patch, which he maintained ?
• The patch was troublesome to obtain ?
• In frustration Henrik decides to fix the patch
  for integration
• The patch is integrated and future versions of
  Linux can now read Windows file system

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Two examples of OSS development

• Poul Paid modifications
• FreeBSD core developer, consulent
• Small American ISP wanted to market a new
  product
• The product Individual hosting
• Each customer was to obtain full control
• The ISP already used FreeBSD, however
  functionality was needed
• Poul was hired for the job
• To prices 1) Private 2) Open source
• Added benefit General increase in FreeBSD
  security