The Value of Open Source Software: A Deep Dive into Its Economic and Social Impact

In the modern digital age, software has become an indispensable part of our lives. From smartphones to cars, and refrigerators to cutting-edge artificial intelligence (AI), software powers nearly every aspect of technology we interact with daily. But behind much of this software lies a quiet yet revolutionary force that has transformed industries, economies, and even society itself: Open Source Software (OSS). 

In this long-read blog post, we’ll explore the immense value of OSS, its economic impact on the global economy, and why it’s one of the most important innovations of our time. Drawing from recent research—particularly Working Paper 24-038  by Manuel Hoffmann, Frank Nagle, and Yanuo Zhou—we’ll unpack the data, methodologies, and insights that reveal just how critical OSS is to the modern world. 

What is Open Source Software? 

Open Source Software refers to software whose source code is publicly available for inspection, use, modification, and distribution. Unlike proprietary software, which is owned and controlled by a single entity, OSS is typically created collaboratively by a decentralized community of developers worldwide. This collaborative nature allows anyone to contribute improvements, report bugs, or adapt the software for their needs. 

Examples of OSS include: 

•     Linux , an operating system used in servers, smartphones, and embedded systems.
•     Apache HTTP Server , a widely used web server.
•     TensorFlow , a machine learning framework developed by Google but released as open source.
•     Programming languages like Python  and JavaScript , which power countless applications.

While OSS was once dismissed as inferior to proprietary alternatives, today it underpins most of the technology we rely on. According to Synopsys (2023), 96% of codebases contain OSS , and some commercial software consists of up to 99.9% freely available OSS . 

Why Measure the Value of Open Source Software? 

Understanding the value of OSS is crucial for several reasons: 

1.     Economic Contribution : OSS plays a foundational role in the digital economy, yet its contribution often goes unmeasured because it doesn’t follow traditional pricing models.
2.     Avoiding Tragedy of the Commons : As a global public good, OSS risks being overused and underinvested in—a phenomenon known as the "tragedy of the commons." Measuring its value can help policymakers allocate resources to sustain and grow the ecosystem.
3.     Informing Policy Decisions : Governments and organizations increasingly recognize the importance of supporting OSS. Accurate valuation helps guide funding decisions and regulatory policies.

Despite its ubiquity, measuring the value of OSS is challenging due to its non-monetary nature and lack of centralized usage tracking. Traditional economic metrics struggle to capture the full scope of its contributions. However, recent studies have made significant strides in quantifying both the supply-side (cost to recreate) and demand-side (usage-based value) of OSS. 

The Methodology Behind Valuing OSS 

To estimate the value of OSS, Hoffmann, Nagle, and Zhou leveraged two unique datasets: 

1.     Census II of Free and Open Source Software – Application Libraries : Aggregated data from software composition analysis firms that track OSS usage within companies.
2.     BuiltWith Dataset : Scans of nearly nine million websites identifying underlying technologies, including OSS libraries.

These datasets provided unprecedented insights into how firms and websites utilize OSS globally. The researchers then employed a labor market approach  to calculate the cost of recreating OSS packages and a goods market approach  to estimate replacement costs if OSS were replaced with proprietary alternatives. 

Key Metrics Used: 

•     Supply-Side Value : The cost to recreate existing OSS once using global developer wages.
•     Demand-Side Value : The cost for each firm to internally recreate the OSS they currently use.
•     Programming Languages : Analysis focused on the top six languages driving 84% of OSS demand-side value: Go, JavaScript, Java, C, TypeScript, and Python.

     

The Staggering Numbers: How Much Is OSS Worth? 

The findings from the study are nothing short of astonishing: 

Supply-Side Value 

If society decided to recreate all widely-used OSS from scratch, the estimated cost would range between $1.22 billion  (using low-wage programmers) and $6.22 billion  (using high-wage programmers). Using a weighted global average wage, the cost comes to approximately $4.15 billion . 

This figure represents the labor cost required to write the millions of lines of code that make up widely-used OSS. While substantial, it pales in comparison to the demand-side value. 

Demand-Side Value 

When considering actual usage, the numbers skyrocket. If every firm had to recreate the OSS they currently use, the total cost would range between $2.59 trillion  and $13.18 trillion , depending on whether low- or high-wage programmers were hired. Using a global pool of developers, the estimated cost is approximately $8.8 trillion . 

To put this into perspective: 

•     Global software revenue in 2020 was $531.7 billion .
•     Private-sector investment in software in 2020 was roughly $3.4 trillion .
•     Adding the demand-side value of OSS brings the total potential expenditure to $12.2 trillion , meaning firms would need to spend 3.5 times more  on software if OSS didn’t exist.

    

Heterogeneity Across Programming Languages 

Not all programming languages contribute equally to the value of OSS. For example: 

•     Go  leads with a supply-side value of $803 million and a demand-side value four times higher than the next language.
•     JavaScript , the most popular language on GitHub since 2014, generates massive demand-side value, reflecting its dominance in web development.
•     Python , despite lagging behind in raw value, remains essential for AI and data science applications.

     

The Economic Impact of OSS 

The implications of these numbers extend far beyond mere accounting. Here’s how OSS shapes the global economy: 

1. Massive Cost Savings for Businesses 

• Firms across industries save billions annually by leveraging OSS instead of developing proprietary solutions. For instance: 
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•     Professional Services : Industries like consulting and IT services derive immense value from OSS, with estimated savings exceeding $43 billion .
•     Retail and E-commerce : Platforms built on OSS enable businesses to scale rapidly without exorbitant licensing fees.

2. Fueling Innovation 

OSS lowers barriers to entry, enabling startups and small businesses to innovate without prohibitive upfront costs. Tools like TensorFlow and Kubernetes empower entrepreneurs to compete with established players. 

3. Enhancing Productivity 

By providing ready-to-use components, OSS accelerates development cycles and reduces duplication of effort. This boosts productivity not just for individual firms but for entire sectors. 

4. Supporting Intangible Capital 

As intangible assets (e.g., software, intellectual property) become increasingly vital to economic growth, OSS represents a significant form of intangible capital. By fostering collaboration and knowledge sharing, it amplifies the returns on other forms of investment, such as R&D. 

Inequality in Value Creation 

One striking insight from the study is the extreme concentration of value creation among a small subset of contributors: 

•     Top 5% of Developers : Responsible for over 96% of demand-side value .
•     These elite contributors don’t just work on a few high-profile projects—they contribute to thousands of repositories, ensuring the stability and evolution of the broader OSS ecosystem.

This concentration underscores the importance of supporting core contributors who act as stewards of OSS. Without them, the ecosystem could falter, jeopardizing the foundation of modern technology. 

Challenges Facing the Future of OSS 

Despite its undeniable value, OSS faces several challenges: 

•     Underfunding : Many contributors volunteer their time, leading to burnout and sustainability concerns.
•     Security Risks : As OSS becomes more pervasive, vulnerabilities in widely-used packages pose systemic risks.
•     Lack of Recognition : Companies often fail to acknowledge or compensate the individuals and communities maintaining critical OSS infrastructure.

     

Addressing these issues requires coordinated action from governments, corporations, and civil society. Initiatives like the European Commission’s Open Source Software Strategy 2020-2023  and Executive Order No. 14028 in the U.S. highlight growing awareness of the need to secure and support OSS ecosystems. 

Conclusion: A Cornerstone of Modern Society 

Open Source Software is more than just lines of code—it’s a cornerstone of modern society, driving innovation, reducing costs, and democratizing access to technology. Its value extends well beyond the $8.8 trillion estimated in this study; it encompasses societal benefits like increased transparency, enhanced security through peer review, and opportunities for skill development. 

However, sustaining this invaluable resource requires collective effort. Policymakers must prioritize funding and incentives for OSS contributors. Corporations should actively contribute back to the projects they rely on. And individuals can participate by reporting bugs, improving documentation, or making financial donations. 

As Joseph Jacks aptly put it, “Open source is eating software faster than software is eating the world.” Understanding and valuing OSS isn’t just about economics—it’s about securing the future of innovation for generations to come. 

This deep dive into the value of Open Source Software reveals its profound impact on the global economy and highlights the urgent need to nurture and protect this shared digital commons.