Adaptive Entry Strategies Under Dominant Standards - Hybrid Business Models in the Open Source Software Industry

During the '60s and the '70s, basically all software was Open Source and everyone was allowed to copy, modify and redistribute computer programs. When software ceased to be hardware-specific and the diffusion of computers took off, firms started to produce software independently from hardware and to protect their code through intellectual property rights. At present, a turnaround is taking place: the Open Source production mode is spreading across the software industry and, in some cases, it performs even better than the traditional proprietary one. Although a growing body of literature is analyzing Open Source software (OSS) issues, there is still lack of empirical data on the phenomenon, and little is known about firms that enter the software industry by producing under the Open Source license scheme (Open Source firms). This paper is a contribution to fill this gap and focuses on the business models of these firms. We find significant heterogeneity among them, in particular many agents supply both proprietary and Open Source software. We present a model of adoption that studies the intra-firm diffusion of the new paradigm. Explanatory hypotheses are discussed analyzing how the characteristics of the Open Source production mode and of network externalities in software demand shape the strategies of firms that entered the OSS field.