Traditional Software Development Models

Traditionally, software projects are the collective work of a hierarchically-organized and well-defined team of developers. The work is distributed amongst a limited number of people (the team), where every developer works mainly on his separate module of the overall project. This corresponds to the high-level abstraction of software design in the industry in general, which minimizes interdependencies between separate components of complex systems. This also enables the common reuse of existing technology to facilitate cumulative innovation[1] (using a tool to build a better tool). On the other hand, this has led to the specialization of entities in specific kinds of software design and a higher modularity of software development within or between firms.

Deriving from the aforesaid, the costs for the initial creation of a multifunctional market-ready software system with a multitude of functionalities become quite high. Software companies invest significant financial resources to bring their own product to market and then just continue to reinvest smaller amounts in order to continue the ongoing revenue stream (new software versions, patches, etc.). This is the reason why the first copy of Windows costed a fortune, and later versions – significantly less. Firms have accordingly adopted certain demand-side strategies in order to compensate for this market specificity. Firstly, software producers seek to build complete systems to meet a broad range of needs, striving to maintain high gross profit margins. They also consolidate different kinds of products in order to capture larger market shares (e.g. Microsoft Windows and Microsoft Office). Secondly, they have created barriers for customers who want to turn to alternative products by introducing significant switching costs (proprietary file formats, fundamentally dissimilar user skills required, etc.). This vendor lock-in supplies software vendors with more consistent rent extraction from their customers and has created enormous positive returns of scale in the software industry.

OS Software - difference between OS and “free” software

Open source emerged as a reaction to the traditional proprietary model of software. Coined in 1998 the term is also contrasted to "free software/libre software" with the two being closely similar but with several differences. While open source focuses on the way the software is developed and on licensing rights, free software puts a stress on various ethical questions and enhances user rights.

Open source (OS) software differs from proprietary software in two major facets – intellectual property and software development methodology. The most significant difference from proprietary software is in terms of IP rights. The definition[2] of OS, given by the Open Source Initiative organization shows that OS requires the free (understood as in unrestricted, financially free and non-discriminatory or biased) distribution of the software in its source code form and the obligation for all derived works (enhancements, modifications and extensions) to be distributed under the same terms as the original. These conditions are enforced by various types of software licenses. The second major difference from the proprietary software model is the method under which the software is being developed. The open source production process is strongly based on collaboration and informal links between participants. Healy and Schussman (2003)[3] describe the OS development team as an egalitarian network of developers largely free of hierarchical organization and centralized control. This flat peer-to-peer structure is complemented by another main characteristic of the OS community – the so called “user-centric innovation”[4] The father of this term – von Hippel defines innovation as open when design information about that innovation, as well as contextual information others would need to understand, reproduce, modify and improve that design, are offered at equal terms to all without any charge. Open-source software is made available to the wide public, thus forming a community of users, which are willing to voluntarily tweak and improve the products they use. This trend is often observed amongst hobbyists (it was first discerned amongst windsurfers, creating their own widgets) or communities, sharing common idealistic principles and goals. The multi-dimensional nature of the OS community as a social movement, formal organization, and volunteer network, makes it a prone to further research phenomenon in terms of Open Innovation and economic sociology.

When it comes to the difference between OS and “free” software today the two form two separate movements with different philosophies, goals and even dissimilar views on acceptable licences. While “free” software gives users the rights to execute, view and study, amend, and distribute the software code freely with or without changes and is hence associated with ethical and social connotations such as solidarity, freedom, etc., open source is stripped off such moral arguments and is seen as nothing more than a practical development methodology for ensuring powerful and reliable software products. Thus, open source software is software for which the source code is freely and publicly available (which is similar to “free” software). However, the specific open source licensing agreements and what the user is allowed to do with that code may vary (which is different from “free” software).

Overlap of OS and OI

Open source and Open innovation share two major similarities – the shared rights over technology and its collaborative development. The main distinction that could be drawn, however, is the incentive for participation. While the open source community is mainly based on voluntary effort, driven by personal and (mostly) non-economic purposes, open innovation lures firms when they are able to capture an economic return (either directly or in a collateral way) in order to justify their investment. When these dissimilar interests find a focal point, however, they can create powerful fuel to be channelled in the engine of innovation.

Such was the case[5] in 2005 when IBM made 500 valuable patents available to the open-source software community. IBM did this in hope to stimulate a flow of innovation to its ecosystem, thereby boosting the total value of the market segment. Among other things, this move has allowed the Linux operating system to flourish. Linux is a vital part of many of IBM’s product offerings and has become a viable open-source alternative to other proprietary operating systems, i.e. Windows. In this way, supporting Linux has helped IBM to undermine its rivals and form closer ties with the open-source community at the same time.

[1] Krueger C., Software reuse, ACM Computing Surveys (CSUR), Volume 24 Issue 2, June 1992, p. 131-183


[3] Hely K., Schussman A., The Ecology of Open-Source Software Development, University of Arizona, January 14, 2003

[4] Lakhani, Kareem and Eric von Hippel. n.d. “How Open Source Software Works: Free User to User Assistance.”, Research Policy