Code for Free, Worth Trillions: The Unsung Value of Open Source

Key facts from the working paper "The Value of Open Source Software" [^PDF, 42 pages] by Manuel Hoffmann, Frank Nagle, and Yanuo Zhou (Working Paper 24-038, January 1, 2024):

The paper aims to measure the economic and social value of open source software (OSS), a global public good critical to the modern economy but challenging to quantify due to its free nature and lack of centralized usage tracking.

Despite its value, OSS generally shows up as zero in direct economic measurement since prices equal zero and quantity is hard to track. This paradox highlights a flaw in traditional economics, making the paper’s valuation effort a wake-up call.

OSS is one of the most successful and impactful modern examples of 'the commons,' at risk of underinvestment without proper valuation. Framing OSS as a digital "commons" ties it to historical economic concepts, emphasizing the need to protect it from a "tragedy of the commons."

It uses two complementary datasets: Census II (inward-facing OSS usage in firm products) and BuiltWith (outward-facing OSS usage on websites) to estimate supply-side value (cost to recreate widely-used OSS once) and demand-side value (cost for each firm to recreate OSS if it didn’t exist). It applies the COCOMO II model to calculate labor replacement costs based on lines of code, using global wage data.

Key Findings:

  1. Firms would need to spend 3.5 times more on software (from $3.4 trillion to $12.2 trillion in 2020) without OSS. 
  2. The top six languages (e.g., Go, JavaScript, Java, Python, C (including C# and C++) and Typescript) considered in the sample account for 84% of demand-side value. Go leads with $803 million (supply-side) and over four times the demand-side value of JavaScript, the next highest language. It shows how specific languages drive OSS value, with Go’s surprising dominance reflecting its growing importance.
  3. 5% of OSS developers create 96% of the demand-side value and over 93% of the supply-side value.
  4. OSS disproportionately benefits tech-heavy, service-oriented industries.

Data Sources:

  1. Census II: Tracks OSS in firm products (2.7 million usage observations, 261.7 million lines of code).
  2. BuiltWith: Scans 8.8 million websites for OSS usage (142,794 usage instances, 82 million lines of code).
  3. GHTorrent: Analyzes GitHub activity to assess developer contributions.

The paper provides the most comprehensive estimate of OSS value by combining supply and demand perspectives. It highlights OSS’s role in productivity, intangible capital, firm strategy, and policy, emphasizing the need for support to maintain the OSS ecosystem.

Limitations:

  • Excludes some OSS categories (e.g., operating systems), likely underestimating total value.
  • Focuses on widely-used OSS, not the long tail of unused projects, refining prior broader estimates.

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