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Economics of Open-Source and Closed-Source Software


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The rising popularity of the open source OS market, spearheaded by a number of highly popular open source applications, heralds not only a change in how software and information are viewed, exchanged, and developed, but also a shift in the very economics of the software industry. While some see the growth of the OS community as a threat to traditional software commerce and business models, in reality, the nature of open source software necessitates a different - though equally viable (and in some ways superior) - approach to the nuts and bolts of selling, distributing, and maintaining software.

The Premise of Closed Source (CS) Software

The core justification of closed source software (that is, software whose source code is hidden and whose uses are limited by copyright law) is economic. When software developers came up with a new product, they faced a dilemma. On one hand, as entrepreneurs, they had a need to sell their products and receive financial compensation for their work. On the other, the very nature of software makes it a very easily duplicated; a single copy of the application or program could be used to make hundreds or thousands more. Without product scarcity to create market demand, how could one sell software at any sort of respectable price?

The answer was closed source software. By hiding the vital innards of their applications from the public, and barring tampering through copyright protections, software developers were able to impose a type of artificial scarcity on the market, and were thus able to create demand for their products.

Open source software, on the other hand, cannot rely on such an economic strategy. Instead of driving or being driven by market forces, OS software developers are dependent on the popularity and quality appeal of their products. Though this does not necessarily guarantee quality, advocates say that the push for perfection (which is arguably much stronger in the absence of artificial demand) is a strong tenet of OS developers.

Open Source and Closed Source in a Growing Consumer Base

As consumer bases grow, both open source and closed source software encounter new challenges to their existence and maintenance. One such issue is security. Advocates of CS software say that, by hiding source code, they deter hackers and crackers from discovering and exploiting flaws in their applications. Open source advocates respond that, while hackers do have more access to OS software code, the openness of their products means that support and security patches are handled and produced by enormous consumer bases - resources unavailable to CS developers.

For more information on downloads of nonprofit open source software, visit

Joseph Devine


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