The Move to the Middle: Convergence of the Open-Source and Proprietary Software Industries

In this paper we focus on open-source software within the broader framework of the software industry. More specifically, we compare proprietary and open-source software (OSS) companies in terms of three criteria: (a) approaches to the production of software; (b) business models; and (c) strategic interactions. We postulate three convergence hypotheses. First, there is evidence of convergence in production approaches: leading OSS firms tend to rely on R&D and acquisitions as intensely as leading proprietary companies do. Second, there is evidence of convergence in business models: through dual-licensing models, top OSS firms derive substantial portions of their revenues from licenses, just as many proprietary companies do. Third, there is evidence of convergence in strategic interactions: the competitive strategies that a company follows do not really hinge on the 'proprietary versus open-source' dichotomy, but on whether a firm feels threatened in the software layer where its core assets are located. This evidence of convergence raises a number of interesting questions for economic theory and for the analysis of the industry's future evolution.