Oliver Alexy Free Revealing

Transkript

1 Oliver Alexy Free Revealing

2 GABLER EDITION WISSENSCHAFT Innovation und Entrepreneurship Herausgegeben von Professor Dr. Nikolaus Franke, Wirtschaftsuniversität Wien, Professor Dietmar Harhoff, Ph.D., Universität München, und Professor Dr. Joachim Henkel, Technische Universität München Innovative Konzepte und unternehmerische Leistungen sind für Wohlstand und Fortschritt von entscheidender Bedeutung. Diese Schriftenreihe vereint wissenschaftliche Arbeiten zu diesem Themenbereich. Sie beschreiben substanzielle Erkenntnisse auf hohem methodischen Niveau.

3 Oliver Alexy Free Revealing How Firms Can Profit From Being Open With a foreword by Prof. Dr. Joachim Henkel GABLER EDITION WISSENSCHAFT

4 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at Dissertation Technische Universität München, st Edition 2009 All rights reserved Gabler GWV Fachverlage GmbH, Wiesbaden 2009 Editorial Office: Frauke Schindler / Jutta Hinrichsen Gabler is part of the specialist publishing group Springer Science+Business Media. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright holder. Registered and/or industrial names, trade names, trade descriptions etc. cited in this publication are part of the law for trade-mark protection and may not be used free in any form or by any means even if this is not specifically marked. Cover design: Regine Zimmer, Dipl.-Designerin, Frankfurt/Main Printed on acid-free paper Printed in Germany ISBN

5 V Foreword Over the last decade, the commercial world has more and more embraced open source software such as the Linux operating system. What started out as an ideological movement for Free Software and as a hobbyists thing has largely turned into a mainstream part of the IT industry. By 2008, even the long-time open source critic Microsoft has created two open source licenses, and it comes as little surprise when Google releases the complete mobile operating system stack of its Android phone as open source. Yet, how exactly open source software and in particular the open source style of software development are integrated into commercial enterprises is far from being understood. Research into open source software and open innovation more broadly only just starts to address these issues. But these questions are of obvious importance for firms considering to launch or extend their open source engagement, and of academic interest to scholars studying open innovation processes. With this book, Oliver Alexy makes a significant contribution. Based on thorough empirical work and a deep understanding of the field, he addresses a number of key questions. How do firms decide if to launch an open source activity? Does the capital market reward or penalize open source engagements? How does opening up the software development process affect the various job functions involved, and how do individuals react to these changes? Finally, when mustering support by outside developers, would offering monetary rewards crowd out their intrinsic motivation? This book is Oliver Alexy s doctoral thesis at Technische Universität München, and it marks the starting point of a promising academic career. With its insights being valuable for firms as well as for research, I strongly recommend it to practitioners and academics alike. Munich, October 2008 Prof. Dr. Joachim Henkel

6 VII Preface I would like to take this opportunity to thank all those who have assisted me in creating this dissertation and, even more importantly, to get it done. First of all, I would especially like to thank Prof. Dr. Joachim Henkel, my thesis advisor, who has created a unique environment at his chair, enabling his team to conduct exciting, cutting-edge, interdisciplinary research in an international setting, and who has provided more support than I could have asked for. I am also indebted to him for coauthoring the paper that is underlying a large portion of the forth chapter of this thesis. I would further like to warmly thank my fellow PhD students, in particular Jörn Block and Simone Käs, for valuable input, thoughtful discussions, and encouraging comments which greatly helped me to stay focused and determined, and to move forward. For input from the real world of business, I would like to all my official and offthe-record interview partners. For giving me the wonderful opportunity of spending three months at the Massachusetts Institute of Technology and Harvard Business School, and for helping me become a better researcher, I would like to thank Professors Eric von Hippel and Karim Lakhani. For support in generating this thesis I would further like to thank Robert Simm, Josef Waltl, and Martin Leitner whose Diplom and Master s Theses provided valuable input to parts of this thesis. In addition, I would like to thank all those who assisted me in improving this thesis, or parts of it, for example seminar participants of the TIME colloquium, participants of the 5 th International Workshop on User Innovation, as well as all the others who have been such a great help. Finally, I want to thank my wife Margit, for all her support, and, sometimes, lenience. This thesis is dedicated to you. Oliver Alexy 22 October 2008 London, United Kingdom

7 IX Table of Contents FOREWORD... V PREFACE... VII TABLE OF CONTENTS... IX DETAILED TABLE OF CONTENTS... XI LIST OF FIGURES... XV LIST OF TABLES... XVII LIST OF EQUATIONS... XIX LIST OF ABBREVIATIONS... XXI ZUSAMMENFASSUNG... XXIII ABSTRACT...XXV 1 INTRODUCTION: COMMERCIAL OPEN SOURCE SOFTWARE OPEN SOURCE SOFTWARE: SOURCE OF INNOVATION? TOP-DOWN ADOPTION OF OSS BOTTOM-UP ADOPTION OF OSS MANAGING OSS-RELATED PROCESSES MOTIVATION AND INCENTIVIZING OF OSS DEVELOPERS SUMMARY AND OUTLOOK: OSS IN THE 21 ST CENTURY BIBLIOGRAPHY

8 XI Detailed Table of Contents ZUSAMMENFASSUNG... XXIII ABSTRACT...XXV 1 INTRODUCTION: COMMERCIAL OPEN SOURCE SOFTWARE Development of the Open Source Phenomenon Motivation Research Questions Research Context Structural Outline OPEN SOURCE SOFTWARE: SOURCE OF INNOVATION? Definition and History of OSS Definition OSS Licenses Some Core Principles of Open Source Software Summary OSS as a Source of Innovation Open Innovation Collective Invention User Innovation Private-collective Innovation Summary Advantages and Disadvantages for Commercial Firms Advantages of Using OSS Disadvantages of Using OSS From Using to Revealing Advantages of Contributing to Existing OSS Projects Advantages of Releasing Proprietary Software as OSS Disadvantages of Contributing and Releasing Means of Protecting IP When Releasing Software Business Models around OSS Business Transformation Cost and Risk Reduction Dual Licensing Sale of Complementary Services Sale of Complementary Goods Implications for the Corporation and its Employees... 50

9 XII 3 TOP-DOWN ADOPTION OF OSS Specifying the Potential of OSS Use for the Organization Sample Variables Interview Results Survey Results Further Aspects Conclusion Capital Market Evaluation of Releasing Source Code Hypotheses Method and Data Results Discussion and Implications Conclusions BOTTOM-UP ADOPTION OF OSS OSS vs. PCSS Development Research Design Effects of Cooperate OSS Adoption on Employees Software Architects, Developers, and Testers Managers and Project Managers Hypotheses Data and Methods Data Collection Sample Dependent Variables Main Independent Variables Control Variables Results Job Functions Descriptive Analysis Job Functions Multivariate Analysis Control Variables Further Results Discussion and Implications Job Functions and OSS Adoption Limitations and Possible Extensions Exploratory Cluster Analysis Clustering Variables Method and Results Interpretation Implications Conclusions Introduction of OSS to the Corporation Corporate Source Need for Change Agents Summary: Top-down or Bottom-up

10 XIII 5 MANAGING OSS-RELATED PROCESSES Benchmark Study Using Open Source Software Contributing to Existing OSS Projects Releasing Proprietary Software as OSS Developing a Model Process for Releasing Source Code General Preparations Business Preparations Software Preparations Managing Company-Owned OSS Projects Getting Third Parties to Support the Project Governance Source Code Management and Release Policy Documentation Accepting Contributions Measuring Success Conclusion MOTIVATION AND INCENTIVIZING OF OSS DEVELOPERS Introduction Theory and Hypotheses Intrinsic and Extrinsic Motivation Crowding In and Crowding Out Payment Norms Developers Motivation Hypotheses Data and Method Method Sample Dependent and Control Variables Results Discussion and Implications Effects of Payment and Norms on Intrinsic Motivation Effects of Payment and Norms on Total Motivation Limitations Implications for Theory and Practice Summary: Managing Corporate OSS Efforts SUMMARY AND OUTLOOK: OSS IN THE 21 ST CENTURY Suggestions for Further Research The Future of Commercial OSS BIBLIOGRAPHY

11 XV List of Figures Figure 1: Development of rating criteria of OSS usage during evaluation process Figure 2: Time windows in event studies (based on MacKinlay (1997)) Figure 3: Distribution of events over time Figure 4: Projected CARs using only time and time-squared Figure 5: Market valuation of the business models over time Figure 6: Proprietary closed source software (PCSS) development Figure 7: Open source software (OSS) development Figure 8: OSS development cycle (Senyard & Michlmayr, 2004) Figure 9: Research model Figure 10: Business preparation phase Figure 11: Software preparation phase Figure 12: Types of motivation depending on regulatory style (Ryan & Deci, 2000) Figure 13: Interaction effect of monetary reward and strong norm for payment (using the normalized index for self-reported interest) Figure 14: Structural equation model to measure effect of payment on total motivation

12 XVII List of Tables Table 1: Differences and similarities between OSS and open innovation (West & Gallagher, 2006b) Table 2: Benefits and risks of free revealing for different actors (Henkel, 2004b) Table 3: MySQL Network Support levels Table 4: Using of OSS vs. PCSS components Interview results Table 5: Arguments named in favor and against using OSS components in software development Table 6: Reduction in development cost experienced by firms using or developing OSS (N=20) Table 7: Comparative evaluation of arguments on OSS use and development Table 8: Business models in OSS Table 9: List of all events Table 10: Event descriptions Table 11: Descriptive statistics (N=38) Table 12: Correlation table Table 13: Statistics of CAR i by business model Table 14: Results of OLS regression of CAR i Table 15: Robustness check of time variables in different model specifications Table 16: Effect of timing of the announcement on CAR Table 17: Results of OLS regression on CAR including the interaction term time x business transformation Table 18: Survey participants by job function Table 19: Spearman rank correlation (displayed only for p<0.1) Table 20: Mean values, standard deviations, and medians of independent variables by job function Table 21: Questions underlying factor constructs Table 22: Means of OSS- and programming-related characteristics, by job function Table 23: Descriptive statistics of OSS- and programming-related characteristics Table 24: Descriptive statistics of dependent variables Table 25: Mean values of the dependent variables by job function Table 26: Mann-Whitney test on differences in medians (one-sided p-values) Table 27: Results of the ordered probit regressions Table 28: Ordered probit post-estimation: test of equality of coefficients (one-sided p-values) Table 29: Descriptive statistics for suggestions made

13 XVIII Table 30: Mann-Whitney test on differences in medians (one-sided p-values) for suggestions made Table 31: Results of the probit regression (suggestions made) Table 32: Probit post-estimation: test of equality of coefficients (one-sided p-values) Table 33: Questions underlying factors in cluster analysis Table 34: Cluster summary (ordered by average rank of the two benefit measures). 130 Table 35: Analysis of motivations in favor of OSS in the clusters Table 36: Benchmark results: Using OSS Table 37: Benchmark results: Contributing to existing OSS projects Table 38: Benchmark results: Releasing proprietary software as OSS Table 39: Scenario text Table 40: Sample split according to grouping variables Table 41: Descriptive statistics for the dependent variables Table 42: Factor analysis after varimax rotation (only loadings > 0.4 reported) Table 43: Descriptive statistics for the control variables Table 44: Correlations (only reported if p < 0.1) Table 45: Descriptive statistics split by grouping variables (std. dev. in parentheses) Table 46: Descriptive statistics according to 2x2 design (std. dev. in parentheses) Table 47: Effect of treatment on self-reported interest Table 48: Effect of treatment and strong norm for payment ((M)ANOVA F-values) Table 49: Descriptive statistics for fun measure by groups Table 50: Descriptive statistics for enjoyment measure by groups Table 51: Descriptive statistics for index on self-reported interest by groups Table 52: Results of OLS regression for self-reported interest Table 53: Effect of monetary rewards on total motivation Table 54: Results of OLS regression for total motivation Table 55: Extrinsic motivational factors depending on strong norm for payment Table 56: Motivational factors in past projects Table 57: Extrinsic motivational factors of participants in treatment * strong norm for payment group vs. rest of sample

14 XIX List of Equations Equation 1: Calculation of expected returns Equation 2: Calculation of abnormal returns Equation 3: Calculation of cumulative abnormal returns for a security Equation 4: Calculation of abnormal returns for all securities on one day Equation 5: Calculation of average cumulative abnormal returns Equation 6: Illustrating cluster differences

15 XXI List of Abbreviations ANOVA API AR BSD bus. bzw. CAR cf. CFI CIO DOI DrKW e.g. F/OSS FAQs FLOSS FS FSF GmbH GNU GPL H HTML HTTP i.e. IP IPO IS IT JSP KAI KDE ln LPGL MANOVA Max Analysis of variance Application programming interface Abnormal return Berkeley Software Distribution Business beziehungsweise Cumulative abnormal return compare (also: consult) (Bentler's) Comparative fit index Chief Information Officer Diffusion of Innovation Dresdner Kleinwort Wasserstein for example Free and open source software (analogous: OSS/FS) Frequently asked questions Free, libre, and open source software Free software Free Software Foundation Gesellschaft mit beschränkter Haftung GNU's not UNIX (recursive acronym) GNU Public License Hypothesis Hypertext Markup Language Hypertext Transfer Protocol that is Intellectual property Initial public offering Information systems Information technology Java Server Pages Kirton Adaption-innovation Inventory K Desktop Environment Natural logarithm GNU Library Public License (also: GNU "Lesser" Public License) Multivariate analysis of variance Maximum

16 XXII Mgrs. Min MIT Motiv. NCSA NIH OLS OS OSDL OSI OSS Paym. PBX PCSS PHP R&D RISC RMSEA rpc S.D. SDK Std. dev. Std. err. SWOT TAM TCO VC vs. XML z.b. Managers Minimum Massachusetts Institute of Technology Motivation National Center for Supercomputing Applications Not-invented-here Ordinary least squares Open source Open Source Development Labs Open Source Initiative Open source software Payment Private branch exchange Proprietary closed source software Hypertext Preprocessor (programming language) Research & development Reduced instruction set computing Root mean square error of approximation Remote procedure call Standard deviation Software development kit Standard deviation Standard error (also: Rob. std. err.: robust standard error) Strengths, weaknesses, opportunities, and threats Technology Acceptance Model Total cost of ownership Venture capital, or: Venture capitalist versus Extensible Markup Language zum Beispiel

17 XXIII Zusammenfassung Warum geben einige Firmen freiwillig ihr Wissen an ihre Wettbewerber weiter? Die aktuelle wissenschaftliche Diskussion zeigt auf, dass free revealing also das bewusste Zulassen von Spillover-Effekten, welches gleichzeitig eine Aneignung möglicher Innovationsrenditen durch Patentierung oder Geheimhaltung unmöglich macht in vielerlei Hinsicht vorteilhaft für eine Firma sein kann und gleichzeitig für viele Firmen in den verschiedensten Industrien anwendbar ist. Unklar ist jedoch, wie Firmen, die dem traditionellen privaten Innovationsmodell d.h. privat in Innovation investieren, um auch selbst die Renditen abzuschöpfen folgen, den Übergang zu einem offeneren Modell erfolgreich gestalten können. Unter diesem Gesichtspunkt soll diese Arbeit am Beispiel kommerziellen Open Source Software (OSS) Engagements, welches die Nutzung von OSS, Quellcodebeiträge zu existierenden OSS-Projekten und Quellcodefreigabe zur Neugründung eines durch die Firma geleiteten OSS-Projekts umfasst, versuchen, insbesondere zwei Fragen zu beantworten. Erstens, sieht die Firma selbst einen Vorteil in free revealing, so dass sie beabsichtigt, ein solches Verhalten auszuüben? Zweitens, wie können Firmen, die dies tun möchten, den Umstieg vom privaten zu einem offeneren Innovationsmodell vollziehen? Ein Blick auf die aktuelle wissenschaftliche Literatur, die sich mit solchen Innovationsmodellen befasst, zeigt, dass free revealing unter verschiedensten Umständen Wert für die Firma schaffen kann, was bedeutet, dass die Freigabe von geistigem Eigentum (IP) im Allgemeinen und kommerzielles OSS-Engagement im Speziellen vielfältige Vorteile für die Firma haben können. Für die Freigabe von eigenem Quellcode kann eine Firma diese Vorteile beispielsweise dadurch abschöpfen, dass sie eines von fünf Geschäftsmodellen (business transformation, cost or risk reduction, dual licensing, sale of complementary goods, sale of complementary services) wählt und gleichzeitig mögliche Nachteile, wie den ungewollten Abfluss von IP und den damit verbundenen möglichen Verlust von Wettbewerbsvorteilen, minimiert. Firmen, die aktuell dem privaten Innovationsmodell folgen, bzw., für den Rahmen dieser Arbeit, proprietäre Softwareentwicklung betreiben, können sich auf zwei Arten ein offeneres Innovationsmodell, wie z.b. kommerzielles OSS-Engagement, erschließen: top-down, also auf Initiative der Unternehmensleitung hin, oder bottom-up, also auf Initiative der Mitarbeiter. Offensichtlich ist jedoch in beiden Fällen die Unterstützung beider Gruppen nötig, damit die Firma den Übergang zu einem offeneren Innovationsmodell erfolgreich gestalten kann. Aus Sicht des Managements kann für alle drei Formen kommerziellen OSS- Engagements Nutzung, Mitarbeit an existierenden OSS-Projekten und Freigabe eigener proprietärer Software, um neue Projekte zu starten eine Vorteilhaftigkeit gezeigt und somit Wert für das Unternehmen geschaffen werden. Wie in einer ersten empirischen Studie untersucht wird, beruht diese bei der Nutzung von OSS vor allem auf Kosteneinsparungen, jedoch auch auf einer möglichen Erhöhung von Qualität und Innovativität innerhalb der Firma. Bei der Freigabe eigener Software kann in einer weiteren Studie gezeigt werden, dass durch Kombination mit einem geeigneten Geschäftsmodell neues Umsatzpotenzial für die Firma erschlossen werden kann. Weiterhin wird festgestellt, dass das Management dieses Potenzial aktiv beeinflussen kann, indem es zum Einen das Geschäftsmodell, zum anderen aber auch den Anfangszeitpunkt einer solchen Initiative wählt.

18 XXIV Damit die Firma das Potenzial eines möglichen OSS-Engagements voll ausschöpfen kann, ist nicht nur die Bereitschaft des Managements, sondern insbesondere auch die der Angestellten notwendig. Jedoch beeinflusst ein intensiveres OSS-Engagement verschiedene Angestelltengruppen innerhalb einer Firma unterschiedlich. Daraus resultieren unterschiedliche Erwartungen und Anforderungen, die sich in einer entsprechend höheren oder geringeren Bereitschaft, das verstärkte OSS-Engagement der Firma zu tragen, äußern. In einer weiteren empirischen Studie wird herausgearbeitet, dass insbesondere Programmierer und Projektleiter, für die sich durch OSS große Prozessveränderungen in der Softwareentwicklung ergeben, im Vergleich zu anderen Gruppen skeptischer gegenüber OSS und OSS-Entwicklung gestimmt sind. Um ein erfolgreiches OSS-Engagement zu gewährleisten, werden verschiedene Maßnahmen aufgezeigt, auf welche Weise es der Firma gelingen könnte, durch eine schrittweise Einführung von OSS inklusive Fortbildungsmaßnahmen wie Schulungen, Verwendung von Promotoren und Schaffung geeigneter Rollen und Ansprechpartner, auch diese Gruppen für ein verstärktes OSS-Engagement zu gewinnen. Insgesamt lässt sich beobachten, dass eine Mehrheit der Mitarbeiter ein kommerzielles OSS-Engagement unterstützen würde. Die vorangehende Studie bestätigt die Vermutung, dass der Übergang von proprietärer Software zu OSS und von proprietärer Softwareentwicklung zu OSS- Entwicklung die Firma vor erhebliche organisatorische Probleme stellt. In einer Benchmarkstudie, die mit mehreren etablierten IT-Firmen, die seit langem OSS und OSS-Entwicklung unterstützen, durchgeführt wurde, werden Prozesse abgeleitet, die für Firmen, für die ein solches Verhalten neu ist, als Wegweiser dienen können, um potenzielle Nachteile und Gefahren zu vermeiden. Insbesondere wird einen Modellprozess entwickelt, der für Firmen, die proprietären Quellcode als OSS freigeben möchten, als Leitfaden genutzt werden kann. Falls sich diese Firmen entschließen, ein solches Projekt aufzusetzen, müssen sie sich überlegen, wie sie es schaffen können, externe Entwickler dazu zu bringen, sich generell an dem Projekt zu beteiligen und idealerweise genau an jenen Aufgaben arbeiten, die für die Firma am kritischsten sind. Im Gegensatz zur Prinzipal-Agenten- Theorie, die für so eine Situation das Anbieten von monetären Anreizen als Lösungsmöglichkeit vorschlüge, argumentiert die verhaltensökonomische und psychologische Literatur, dass dies durch eine Unterminierung der intrinsischen Motivation der externen Entwickler sogar einen nachteiligen Effekt ausüben könne. In einem Experiment mit über 200 Informatikstudenten wird jedoch festgestellt, dass letzteres nicht zutrifft, wenn der Entwickler, dem Geld angeboten wird, eine starke Norm für Bezahlung hat. Eine solche Norm existiert häufig im Bereich der OSS- Entwicklung und so lange die Firma sicherstellt, dass dies in der Tat der Fall ist, bevor sie monetäre Anreize anbietet, können letztere sogar positiv wirken, indem sie der Firma helfen, externe Entwickler für das firmeneigene OSS-Projekt zu gewinnen. Insgesamt kann also gezeigt werden, dass beide Forschungsfragen positiv beantwortet werden können. Erstens ist häufig davon auszugehen, dass sowohl die Unternehmensführung, als auch die Mitarbeiter dem Beginn oder der Erhöhung eines kommerziellen OSS-Engagements wohl gesonnen sind, so dass die Firma als Ganzes bereit wäre, den Übergang vom privaten auf ein offeneres Innovationsmodell zu wagen, wenn dies für die Firma von Vorteil ist. Zweitens kann gezeigt werden, dass es Möglichkeiten gibt, diesen Weg erfolgreich zu beschreiten. Beispielsweise können die bewährten Prozesse von Firmen, die bereits jetzt im OSS-Umfeld aktiv sind, meist problemlos auf die eigene Firma übertragen werden. Zusätzlich sind traditionelle Methoden der Mitarbeiterführung und des Projektmanagements, z.b. die Vergabe monetärer Anreize, auch für OSS-Projekte weiterhin gültig.

19 XXV Abstract Why do firms voluntarily give away knowledge to their competitors? The academic literature tells us that free revealing, that is, the company letting spillovers happen on purpose thereby giving up on appropriating future rents from this knowledge through patents or secrecy, may bring several advantages to a corporation and is likely to be applicable to many firms in different industries. What we do not yet know, however, is how firms following the traditional private model of innovation, that is, privately investing into innovation to privately appropriate the rents from it, can make the transition to such new behavior. In particular, this thesis will try to answer two questions. First, do firms perceive a benefit residing in freely revealing intellectual property (IP) so that they would intend to engage in such behavior? Second, assuming they indeed wanted to do so, how can a firm adhering to the private model of innovation make the transition to a more open one? Using the example of firm engagement in open source software (OSS), where engagement encompasses using OSS, contributing to existing public OSS projects, and releasing proprietary software to start a new OSS project, this thesis will try to answer these questions. First, looking at the academic literature on models other than the private model of innovation, there are several circumstances under which free revealing may potentially be beneficial to a firm, showing that the release of IP in general, and corporate OSS engagement in particular, can have numerous advantages. For example for releasing proprietary software as OSS, by choosing one of five available business models (business transformation, cost or risk reduction, dual licensing, sale of complementary goods, sale of complementary services) firms should be able to make use of these advantages, while minimizing potential downsides such as a loss of competitive advantage through a loss of IP. Looking at organizations following the private model of innovation, or, in this case, proprietary closed source software (PCSS) development, there are two ways in which a more open IP regime, such as corporate OSS engagement, may be introduced to the corporation: top-down, that is, initiated by top management and later adopted by the employees, or, vice versa, bottom-up. Eventually, in both cases, both groups need to support the firm s move to the new IP regime in order for the firm to be able to successfully engage in it. Management is shown to potentially support all three forms of firm engagement in OSS. In two empirical studies, management is found to actually perceive the following advantages. First, using OSS is thought to enable the firm to reduce development costs, and also to increase product quality and innovativeness of the firm. Second, a positive reaction by the capital market to firms freely revealing their source code can be observed provided the firm chooses an adequate business model to do this. Furthermore, management can be shown to be able to actively influence this potential for value creation by choosing the respective business model and strategically placing the launch date of such an initiative into a phase of positive investor sentiment. To become a success for the firm, corporate OSS engagement does not only depend on the support of top-level management, but also on that of the regular members of the organization, its employees. When analyzing the traditional PCSS development process, it becomes obvious that increased corporate OSS engagement affects different job functions within the firm differently, leading to a higher or lower willingness of the respective groups to support the respective actions taken by management. In another empirical study, it will be shown that in particular programmers and project managers are exposed

20 XXVI to considerable organizational change in the software development process caused by OSS and are consequently more skeptical towards an increase in corporate OSS engagement. In order to enable a company to tap the full potential such an engagement might have to offer, several recommendations on how management might win over these groups are derived, such as through a step-by-step intensification of corporate OSS engagement, by offering training, or by identifying promotors. Still, overall, employees are favorable to an increase in corporate OSS engagement. As further confirmed in the last of the above studies, moving from PCSS to OSS and from PCSS to OSS development poses considerable organizational difficulties to the firm. In a benchmark study conducted with several corporations that have long been active in OSS and OSS development, processes are laid out for the different modes of OSS engagements that firms new to this might follow to counter potential disadvantages and threats. In particular, a model process of how PCSS firms might release proprietary software to start a new OSS project is developed. Having launched such a project, in order for it to become a success for the corporation, the firm will need to attract outside developers to work on the project and, ideally, in particular on those tasks that are most critical to the organization. Whereas agency theory would argue that this might easily be achieved by offering monetary rewards to potential project participants, psychology and behavioral economics literature contradict this opinion, saying that this may reduce the motivation of those people to contribute as the monetary reward would undermine their intrinsic motivation. In a scenario experiment with more than 200 students of computer science, the latter is found not to apply under certain circumstances, namely when the developer offered the monetary reward has a strong norm for payment. Such a norm can often be found in OSS development, and as long as the organization makes sure it exists before offering monetary rewards, those may even exhibit positive effects and help the organization attract external contributors. Overall, both research questions can be answered positively. First, both top management and the employees of the organization can often be expected to be positive towards initiating or increasing corporate OSS engagement, so that the organization as a whole should be willing to move away from the proprietary IP paradigm to a more open one when such a behavior is beneficial to the firm. Second, there are ways in which firms can successfully do so as both role models to follow and the processes those adhere to are available and, more importantly, because these processes should be transferable to many firms. Also, traditional methods of human resources management and project management, such as employee incentivizing, will similarly apply to closed IP regimes and more open ones.

21 Introduction: Commercial Open Source Software 1 1 Introduction: Commercial Open Source Software How do I make money on software if I can't sell my code? You can sell your code. Red Hat does it all the time. What you can't do is stop someone else from selling your code as well. That just says that you need to add extra value to your code, by offering service, or printed documentation, or a convenient medium, or a certification mark testifying to its quality Development of the Open Source Phenomenon Open Source and its use in companies have come a long way since April 8, 1998, the day when Open Source Software (OSS) was invented (Tiemann, 2006) 2, that is, the term OSS was created to describe this special kind of software, the most prominent feature of which seems to be that it is free gratis, that is. Since then, commercial use of OSS has passed through phases of curiosity, hype, and disillusionment before finally arriving at pragmatism (Driver et al., 2005). Although the once dazzling stock market valuations of companies such as Red Hat and VA Linux 3 have settled at more sober levels, OSS has nevertheless gained a strong a foothold in commercial settings; OSS is becoming more and more widely adopted in a rapidly-changing software industry. When asked in 2002, one third of the top 25 software companies were using Open Source Software (OSS). 12% had some sort of minor OSS engagement going, whereas the majority of the 25 companies was not using OSS at all (Wichmann, 2002). From the top 25 software companies of 2002, many do not exist any more. 4 Of the remaining firms, there is almost none left that has no engagement in OSS at all. Also, whereas cost cutting has often been found to be the single most important reason for companies to start using OSS in the past (LaMonica, 2004), quality and other factors are becoming more well-known and more respected. Consequently, OSS has become widely established even to a degree so high that removing it would occasion the breakdown of many firms IT infrastructures (Driver & Weiss, 2005; Goulde, 2006), and even, for example in the electronics industry, of numerous products. OSS applications such as the operating system Linux or the web server Apache are only two examples of this Open Source Initiative (OSI) Frequently Asked Questions, retrieved March 10, Also see Moody (2001, pp ). VA Linux is called SourceForge, Inc. (NASDAQ: LNUX) nowadays. For example, BEA has been acquired by Oracle, and Macromedia by Adobe Software.

22 2 Introduction: Commercial Open Source Software It is also interesting to note that many companies are now facing open source competition, increasing pressure and pace in the industry even more. This concerns primarily IT products such as operating systems and web servers, however, OSS is moving both upwards in the software stack as well as sideways into industries where IT plays an integral but secondary role, such as telecommunications or electronics. With respect to the former, OSS has started to penetrate areas such as enterprise resource planning, project management, and office software. Regarding the latter, the example of Asterisk an open source PBX softswitch 5 shows that using OSS may enable small firms to compete with industry giants such as Lucent-Alcatel or Siemens. A $13.8 million investment made by well-known venture capitalist Matrix Partners in September 2006 shows that Asterisk should not be underestimated by the established players in this market (Kraeuter, 2006). However, it is not only the use of OSS that has increased. Over the last few years, we have seen an increase in firms participating in existing OSS projects. OSS organizations such as the Eclipse foundation, the Apache Foundation, or the Open Source Development Labs (OSDL) with its Mobile Linux initiative have constantly been growing in size over the last years with most new members being commercial firms building on the platforms established in the joint OSS efforts. IBM, just for the Linux OSS operating system, is estimated to spend 100 million dollars annually whereas it would cost about 500 million dollars per year to maintain a comparable proprietary system in-house (CED, 2006). Furthermore, even starting new OSS projects has become more popular amongst firms. For example, several worldwide IT players announced the release of their major development kits as OSS, with Adobe for its Flex Software Development Kit (SDK) and later, even Adobe Flex itself (Adobe, 2007) and Sun for its Java Development Kit (JDK) and later, too, Java itself, under OSS licenses (SUN, 2007). Other firms that have released the source code to some of their products and made them OSS include IBM, SAP, or Oracle. Moreover, Google launched its third Summer of Code in 2007 with over 900 accepted OSS projects sponsored by the search engine provider (Google, 2007). And even the most prominent global software firm known for its criticism on open source, Microsoft, is engaging in OSS: it has closed a deal with Novell by the end 5 In general, the PBX is private since it serves a user company that wants to have its own branch to save some money on, for example, internal calls. This is done by having the exchanging or switching of telephone calls done locally, inside the company. The PBX allows multiple lines inside the office to connect without each phone requiring a separate outside line. Because fax machines, modems, and many other communication devices can be connected to a PBX, extension developed to a generic term describing all devices connected to a PBX. The PBXs are connected to the outside world by a number of lines called trunk lines. The term softswitch indicates that the switching is done entirely software-based (Alexy, 2007).

23 Introduction: Commercial Open Source Software 3 of 2006, aiming to improve interaction between the Linux and Microsoft operating systems (Novell, 2006). What is more, Microsoft is now hosting websites on OSS at Microsoft in general, OSS projects for Microsoft platforms, and the original OSS interoperability lab Port 25. Also, Microsoft has entered its two shared source licenses into the Open Source Initiative (OSI) approval process; they became official OSS licenses after the OSI announced it had accepted them as such in October Motivation The last two points concerning firms contributing source code to public OSS projects and releasing proprietary software to start new OSS projects seem somewhat dazzling. Firms supposedly invest in R&D to generate private rents, the appropriability of which should be enhanced by legal mechanisms such as patenting or secrecy (Demsetz, 1967; Teece, 1986) not by giving away the blue prints of the innovation. Still, as for example the firm engagement in OSS reported above suggests, conditions under which such behavior is beneficial to the firms are very likely to exist, that is, sometimes, companies seem to be able to gain more from freely giving away the innovation and the knowledge underlying it than they could have possibly received from keeping it to themselves. Whereas past research has indeed confirmed that such behavior can in fact be beneficial to a corporation (see, e.g., Allen, 1983; Harhoff, Henkel, & von Hippel, 2003; von Hippel & von Krogh, 2003), it has also shown that such behavior clearly contradicts established policies in many corporations, as those usually tend to focus on protecting intellectual property rather than releasing it into the open (Chesbrough, 2003, pp and 56-57). For most organizations, consequently, freely giving away their intellectual property would imply new behavior of which they now have to decide whether or not to engage in it. The outcome of this decision depends on two questions the organization needs to answer for itself: is it the right thing for us to do, and, if so, how can we do it right? The first question will be answered positively, if, overall, the firm can derive more benefit from freely giving away its knowledge than it can from protecting it. Whereas different advantages and disadvantages have been associated with this, 7 suggesting a potential for value creation resulting from freely revealing one s knowledge, the current 6 7 The respective licenses are the Microsoft Public License and the Microsoft Reciprocal License. These will be elaborated on in Chapter 2 of this thesis, which is why I have refrained from reciting them here.

24 4 Introduction: Commercial Open Source Software literature is mostly silent about the costs that are associated with the change inherent in moving from a proprietary to a more open intellectual property regime. 8 However, with respect to the decision of supporting such efforts when intended by the corporation, the consideration of these costs is of vital importance. For example, different firms and in particular their employees, that is, with regard to their job function or skill level, will evaluate these changes differently (Kotter & Schlesinger, 1979), which might strongly affect whether, and, if so, how, the organization as a whole is favorable towards migrating to the more open intellectual property regime. Regarding the second question, the current literature also fails to give a coherent account of how firms deciding in favor of making the move from a proprietary intellectual property regime to a more open one can potentially do so, let alone do so successfully. 1.3 Research Questions In this thesis, I will try to address the above issues using the example of corporate OSS engagement in OSS. Thus, when specifically looking at the adoption of OSS by corporations where corporate adoption includes using OSS, contributing to existing public OSS projects, and releasing proprietary software to start a new public OSS project two basic questions can be derived: Why should corporations be doing this? (Is it the right thing to do?) and having answered the first questions positively How can they do it? (How to do it right?). With respect to the OSS phenomenon, many researchers have addressed the issues of OSS business models, collaboration between firms and the OSS community, and inter-firm OSS-based collaborative innovation processes, resulting in the pros and cons of commercial OSS engagement by now being quite well understood. Little, however, is yet known about how firms become OSS adopters and, afterwards, how they should manage their OSS efforts. In this context, several questions arise. In which fashion top-down or bottom-up is OSS introduced to the organization? How do OSS and OSS-based development practices spread within the firm? Who promotes OSS, and do particular job functions and personal characteristics favorably dispose individuals to lobbying for its adoption? Do the employees actually want to work with and on OSS and OSS projects, and, if so, under which conditions? Finally, how do firms manage 8 Exceptions to this are mainly to be found in the IT literature. For example, Senyard and Michlmayr (2004) analyze some of the differences between proprietary and OSS development. Goldman & Gabriel (2005), also with respect to OSS, give a practitioners account of how the role of the programmer changes from proprietary to OSS development.