Why you should develop code that your competitors can freely use

Using free open source software (OSS) has been proven to deliver productivity gains for most organisations. Now, new research suggests that there is even more to be gained by "giving back" and actively contributing to the software's development.

So says Frank Nagle, assistant professor of strategy at the University of Southern California's Marshall School of Business, whose research, 'Open Source Software and Firm Productivity', was the first to measure the impact of free OSS on productivity.

He found that the impact on productivity from using free OSS was always positive or neutral but never negative. His analysis indicated that every 1% increase in the use of free OSS can result in an additional $100 000 in profit.

Nagle has now conducted follow-up research, 'Learning by Contributing: Gaining Competitive Advantage through Contributing to Crowdsourced Public Goods'. It compares the benefits experienced by businesses that simply use OSS without contributing to its development and those that do, despite knowing that these developments could benefit their competitors.

The research set out to understand the rationale behind the business decisions to engage in a seemingly irrational behaviour - paying employees to contribute to the creation of OSS that their competitors can freely use.

However, the difference between actively contributing and simply using it - what Nagel refers to as 'freeriding' - could be considerable.

Based on empirical data gleaned from users of Linux - the most widely used open source project - he calculates that, for a non-contributing business, a 1% increase in the use of OSS leads to an increase of value-added productivity (not necessarily profit) of around $436 410.

On the other hand, contributing businesses that also increase their OSS use by 1% can expect a $872 820 increase in value-added productivity - double that of their 'freeriding' counterparts.

The study argues that organisations learn through contributing because they receive feedback from more experienced users. This helps them capture more productive value from using the software, which aligns with the well-documented benefits of learning by contributing.

In addition, the study found that organisations that contributed more to OSS actually gained more from their use of OSS than those that contributed less, and that coding contributions were more valuable than editorial contributions (comments on the software), thus supporting the notion that real benefits are derived from learning.

The study concludes that by paying employees to contribute to free, crowdsourced goods like OSS that their competitors can use, businesses can increase their ability to capture value from using these goods in a manner that allows them to more effectively compete with those competitors.