Incentives: Neither Left nor Right but Center

Copyright, 2001 ©

Marshall W. Van AlstyneSchool of Information

Incentives to develop software

U.S.

U.K.

Germany

JapanFrance

Italy

BrazilKoreaRussiaChina0

10

20

30

40

50

0.2 0.4 0.6 0.8 1

Piracy Rate

Sof

twar

e R

even

ue

per

capi

ta ($

)

Source: Software & Information Industry Association

Competition from OSS is Valuable• Open Mozilla

model easy for 3rd party dvprs to upgrade

• Innovation in IE stopped with IE 4 “Auto-image resizing: It’s a feature not a bug, really.”

Source: Salon 9/10 2002 “Mozilla Rising” Farhad Manjoo

What do we protect?

Look & Feel Copyright Function Patent

OSS Classification

Type Free Redist UnlimitedUse

Src.Avail.

Src.Mod.

PublicCheckIn

Viral

Commercial

Trial SW x

Shareware x x

Royalty Free Bin. x x x

Royalty Free Lib. x x x x

Open Src (BSD) x x x x x

Open Src (Apache) x x x x x x

Open Src (Linux/GNU) x x x x x x x

Source: Vinod Valloppillil / The Halloween Document

Most licenses are corner solutions

• Let [0,1] be the measure of openness.

• Let t[0,1] be the time to release derivative works.

tt

GPL

BSDProprietary

Copyflex

100

1

Pric

e

QuantityPr

ice

Quantity

Market One(Acrobat Reader)

Market Two(Acrobat Distiller)

Initially, there are profits to be made in both markets.

q1 q2

p1 p2

Consider profits in two markets

Pric

e

Pric

e

Market One(Acrobat Reader)

Market Two(Acrobat Distiller)

Initially, there are profits to be made in both markets.

But subsidizing market one with a free good canincrease demand and profits in market twomore than the loss in market one.

Quantity Quantityq1 q2

p1

p2

Consider profits in two markets

http://papers.ssrn.com/paper.taf?abstract_id=249585