How Much to Open, How Fast to Fix and Develop? Impacts of Openness on Software Development and Maintenance

Proprietary software firms have recently begun to emulate the open source software community in opening up some of their software. We analyze this phenomenon in the context of resource allocation between fixing defects and the development of the next version of the software — an important issue that many software firms face in light of the prevalence of software defects. Based on the evidence from prior literature and current business practices, we develop our analytical models, more specifically optimal control models, to determine the conditions when a software firm should make its software fully open source or partially open source, or keep it proprietary. In our analysis, we consider various factors including: (i) the characteristics of the market (e.g., valuation of the software, market competitiveness, network effects, and market expectations from the next version of the software), (ii) the characteristics of the software firm (e.g., costs for developing software and fixing defects), and (iii) the effects of making the software fully or partially open source on the current and next versions of the software. Based on the results, we derive and discuss several important insights and shed light into the business practices of different software firms. Some of our findings include: (i) the software firm might keep its software proprietary even in conditions that seem to favor an open source software environment, (ii) if the software becomes more valuable, the software firm might decide to decrease the level of effort for fixing defects but rely more on the open source software community, and (iii) a decrease in the cost of collaboration with open source community might result in drastic changes in the behavior of the firm