Now that I’ve had the opportunity to observe the Open Source industry from the inside for a couple of years, I find myself musing a fair bit about the economics - broadly speaking the exchange of value - involved.  Much of the customer appeal for open source solutions comes from the sticker price, which is generally zero.  But as the adage goes, if something sounds too good to be true, it generally is.  If open source software is to be high quality and broadly applicable, the customer demand for low-cost software needs to be matched with incentives for vendors and individuals to continue to produce high-quality software.  When the transaction isn’t based on actual currency, what is the commodity that makes this a successful transaction for both sides?

For individual open source authors the incentives might include the joy of having a large and loyal user base.  It might include fame and the development of skills that lead to greater personal satisfaction and a more impressive and marketable resume.  But I’d like to focus here on the incentives for professional software development businesses to invest in producing more and better open source software.

The research, development and deployment of software is a complex and costly process.  How are open source vendors able to accomplish these goals without getting licensing revenue in return?  I believe there are many ways a vendor can receive value from a user besides an exchange of currency.  Although the commodities exchanged aren’t tangible the exchange is rarely a zero-sum game, and can enrich the supplier without depriving or depleting the customer.  No matter how many smiles you give, you never run out.

Enforcement of non-tangible exchanges is impossible, and thus the exchange relies on the good will of the customer to give back.  My intention in this post is to enumerate some of the ways this non-monetary economy works, and I hope to encourage users to participate more fully and consciously in holding up their end of the transaction, and thus to perpetuate a virtuous cycle of open source software development.  If you use open source software, please consider one of the following ways you can remunerate the creator.

What the user gives		How the creator benefits
Tell the author whether you liked the product or not	=	Reduced cost of soliciting customer feedback, ability to target new features more cost-effectively
Tell a friend or blog about it	=	Reduced awareness-marketing costs
Rating the technology positively on sites Digg or Ohloh	=	Reduced awareness-marketing costs
Lend an eyeball to a promotion or advertisement	=	Makes marketing expenditures more productive
Become a registered user	=	Reduces costs of contacting users, helps accurately judge the popularity of the product and thus the level of continuing investment
Ask a question on the mailing list	=	Reduces costs of getting customer feedback
Answer someone else’s question on the mailing list	=	Reduces general product support costs
Write an article or blog about creative uses of the product	=	Reduces documentation and marketing costs
File a bug	=	Reduces QA costs
Send a patch	=	Reduces development costs
Implement a new feature	=	Reduces development costs
Download additional products	=	Reduces marketing costs and strengthens the business
Consider purchasing other products or services from the author	=	Improves profitability and increases ongoing R&D
Be grateful for the software	=	Increases everyone’s karma

The laws of economics state that the more rewards there are for a product or service, the more of that product and service will be produced.  By increasing the rewards for vendors to create useful and high-quality open source software, you encourage more of that software in the future.  Isn’t that worth an investment of a little time?  It doesn’t even lighten your wallet!

As I posted back in 2005:

The US automakers don’t seem tapped into [the fuel economy] trend at all.  They still seem to think circumventing mileage minimums by pumping out SUVs is the way to sustainable revenues.  Last week Ford and GM were put on notice that they were wrong.  At least the blue half of this country, and I suspect lots of export markets, are willing to invest their automobile acquisition budget in a choice that reduces pump costs, unsightly and unhealthy smog, and reduces our dependence on foreign oil, and maybe even get a bit of value appreciation while they’re at it.  They’re even more motivated to vote with their dollars since their election votes haven’t provided much of a visible return.  Yet despite plenty of urging by the environmental community, Ford and GM seem to have ignored the inevitabilities of the long-term.  More and more of those purchasing dollars will head straight to Japan.  I suspect the next 15 years could be pretty rough as our automobile designers adapt.

High fuel prices have accelerated the timeline beyond what I had imagined, and Prius sales have accordingly boomed. 

I’m proud to at last announce I’ve joined those voting with their wallets for fuel efficiency and low emissions (and unfortunately against our domestic automakers) with my new purchase!

Let’s hope American competitiveness is up to the challenge, and hope that they do a much better job of recognizing and capitalizing on long-term trends in the future.