Firm Assets and Investments in Open Source Software Products

Open source software (OSS) has recently emerged as a new way to organize innovation and product development in the software industry. This paper investigates the factors that explain the investment of profit-oriented firms in OSS products. Drawing on the resource-based theory of the firm, we focus on the role played by pre-OSS firm assets both upstream and downstream, in the software and the hardware dimensions, to explain the rate of product introduction in OSS. Using a self-assembled database of firms that have announced releases of OSS products during the period 1995-2003, we find that the intensity of product introduction can be explained by a strong position in software technology and downstream market presence in hardware. Firms with consolidated market presence in proprietary software and strong technological competences in hardware are more reluctant to shift to the new paradigm. The evidence is stronger for operating systems than for applications. The fear of cannibalization, the crucial role of absorptive capacity, and complementarities between hardware and software are plausible explanations behind our findings.