The True Value of Open Source Software: Trillions in Economic Impact

Open source software (OSS) has become indispensable to the modern economy, forming the foundation of countless technologies we use daily. But how do we measure the economic value of something that's freely available? A groundbreaking study by researchers Manuel Hoffmann, Frank Nagle, and Yanuo Zhou offers unprecedented insights into this question.

The Challenge of Valuing Free Resources

Traditional economic valuation relies on a simple formula: price × quantity. For open source software, both values are problematic—the price is zero, and tracking usage is nearly impossible due to the unrestricted nature of OSS distribution. Previous research has attempted to address these measurement issues, but typically focused either on breadth (estimating supply-side costs of a wide range of OSS) or depth (measuring the value of one specific type of OSS). This new research manages to do both.

Using novel datasets that capture OSS usage across millions of companies worldwide, the researchers developed a comprehensive approach to measuring both the supply-side value (cost to create) and demand-side value (cost to replace if companies had to develop the software themselves).

Following the Code

The study leverages two complementary datasets to capture different aspects of OSS usage:

1. The Census II of Free and Open Source Software—which identifies OSS embedded within products that companies create
2. BuiltWith data—which identifies OSS used in company websites that customers interact with directly

Together, these datasets provide visibility into both internal and customer-facing OSS usage across thousands of companies. The researchers used the COCOMO II model to estimate the labor costs required to recreate OSS packages, applying global programmer wage data to calculate realistic replacement costs.

Unexpected Scale and Concentration

The research reveals several important insights about the value and creation of open source software:

The supply-side value of widely-used OSS (cost to recreate it once) ranges from $1.22 billion to $6.22 billion, depending on programmer wages in different regions. Using a global average wage yields a value of $4.15 billion.

However, the demand-side value (if each company had to recreate the OSS they use) is orders of magnitude larger: between $2.59 trillion and $13.18 trillion, with a global average of $8.8 trillion.

When combined with estimates of what companies currently spend on software ($3.4 trillion), this suggests firms would need to spend 3.5 times more on software if OSS didn't exist—a staggering economic impact.

Programming Languages and Industry Impact

The study found substantial heterogeneity in the value of OSS across programming languages. For supply-side value, Go, JavaScript, and Java led the pack, while on the demand side, Go was worth over four times the value of the next language (JavaScript).

Different industries also derive varying benefits from OSS. "Professional, Scientific, and Technical Services" received the highest value at around $43 billion, followed by "Retail Trade" and "Administrative Support" sectors (approximately $36 billion and $35 billion respectively).

Perhaps the most striking finding is the extreme concentration of value creation within the OSS ecosystem. The research shows that just 5% of developers (approximately 3,000 individuals) generate over 93% of the supply-side value and 96% of the demand-side value.

This finding significantly exceeds the often-cited "80/20 rule," where 80% of contributions are expected to come from 20% of participants. Instead, the data points to a "95/5 rule" in OSS value creation.

Industries benefiting most from OSS: Professional Services ($43B), Retail Trade ($36B), and Administrative Services ($35B). Traditional non-service sectors like Mining, Utilities, and Agriculture derive less value.

Implications and Recommendations

This research has profound implications for different stakeholders:

For companies: The massive economic value derived from OSS usage suggests that contributing to OSS maintenance and development represents a smart investment, not just charity. The cost of maintaining OSS is a fraction of what companies would pay if they had to develop everything from scratch.

For policymakers: Recent efforts to secure the OSS ecosystem, while important, don't go far enough. Supporting the creation of new OSS and directing resources toward the relatively small community of high-impact developers could yield significant economic returns.

For developers: The extreme concentration of value creation suggests opportunities to increase impact by focusing on widely-used projects, while also highlighting the outsized economic contribution of top OSS developers.

Companies should increase contributions to OSS maintenance rather than just free-riding. Policymakers should support OSS creation, not just security. The small community of high-impact developers deserves targeted support.

The Digital Commons

Open source software represents a modern example of "the commons"—a shared resource that benefits everyone. This study demonstrates that OSS creates trillions of dollars in value that would otherwise require massive additional expenditure.

While the supply-side value of widely-used OSS is estimated at $4.15 billion, the demand-side usage value reaches $8.8 trillion. This differential highlights the extraordinary economic leverage created by the OSS model, where code written once can benefit thousands of companies without additional cost.

As our digital economy grows increasingly dependent on this foundation, ensuring its health, maintenance, and continued development becomes not just a technical concern but an economic imperative.