Open innovation and within-industry diversification in small and medium enterprises: The case of open source software firms

This paper examines the within-industry diversification of software small and medium enterprises that collaborate with the open source software community (OSS SMEs). In doing so, it offers new insights into the association between open innovation and diversification. We rely on arguments inspired by the literature and evidence collected through interviews with OSS SMEs’ top managers to investigate factors that favor or hinder within-industry diversification. First, in line with the mainstream diversification literature, we focus attention on the role of firm size. Second, in the spirit of the open innovation research, we concentrate on the mechanisms that OSS SMEs put in place to get access to the external resources of the OSS community. Econometric evidence on 100 European OSS SMEs shows that firm size is negatively associated to within-industry diversification, while OSS SMEs that have contributed to a larger number of OSS projects have a more diversified portfolio of software products. Furthermore, we provide preliminary evidence that the practice of authorizing firm programmers to contribute autonomously to OSS projects of their own choice during working hours may be positively associated to within-industry diversification only if OSS SMEs possess adequate internal technological resources.