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What is an Open Source Project worth?

posted 07:51PM Jul 18, 2006 with tags business opensource softwarequality test by Lars Trieloff

Measuring the value of anything is a hard task, but it is much harder to measure the value of intellectual goods. And it is even harder to measure the value of something that is given away for free like Open Source Software. Or as Oscar Wilde put it:
A cynic is a man who knows the price of everything but the value of nothing.
When it comes to measuring the value of software, the most obvious approach is to calculate the cost of development by assuming a proportional correlation between lines of code and cost of development as done by koders.com. The flaws of this approach, even if it uses more sophisticated parameters like age of project and number of active developers as done by Ohloh have been described by Steve Loughran: Dubious Statistics. The salaries of developers are far-fetched, they do not include real costs for the employer or customer and there is no way to take quality into consideration.

But even if these flaws had been corrected, e.g. by adjusting salaries to average salaries for software developers in the respective contries and only tested lines of code had been counted, the main point of value is not considered: the value to the user.

Take for example JUnit. koders values this framework with 25.000 USD, Ohloh with 143.000 USD, but none of them catches the invaluable impact JUnit had on today's best practices for Java development. This little test framework created an unified way of measuring quality of software projects. It set the minimum standard for development practise and it prevented millions of bugs.

Even an automated value guessing system should try to take usage and usefulness into consideration, e.g. by estimating how many other projects are relying on the code, how many users are posting to the mailing list of a project and how many weblogs lik to it's homepage.

| Comments[5]

Comments:

I cannot agree with this: It (JUnit) set the minimum standard for development practise... . If you mean the concept of unit testing set a minimum standard, ok. But JUnit surely didn't. There are a lot of successful SW projects not using JUnit. There maybe even projects not using Java :-)

BTW I think the idea of weighting the distribution and usage of a software package is not bad. But how to determine it.

Posted by Lars Lindner on July 18, 2006 at 08:23 PM CEST #

There is a difference between the development cost (which koders.com and ohloh are trying to estimate) and the value to the user (which is very difficult to estimate in general as you note). But this difference is quite simply the profit one can make by developing and then selling this intellectual good.

Posted by Alexander Klimetschek on July 19, 2006 at 12:57 AM CEST #

Hi Lars,

you are right, JUnit is not the only unit testing framework in the world, and even in the small part of the world that is Java-centric, there are other good unit test frameworks like for example TestNG.

But the important value added by JUnit is the immense popularity of the framework that made unit testing a best practice nearly as distributed as version control or issue tracking. This is what saved the quality of thousands of enterprise Java projects.

Posted by Lars Trieloff on July 19, 2006 at 09:14 AM CEST #

Alex,

you are right. Turning the difference between development cost and user value into profit is the exercise left to the entrepreneur. JBoss' code base is valued by koders.com approx. 10M USD. The JBoss corporation has been valued by Redhat with 350M USD, which shows that there is plenty opportunity to turn value into profit, especially for open source projects.

Posted by Lars Trieloff on July 19, 2006 at 09:18 AM CEST #

I think the value of something is measured by taking the profit from it and divide by "normal profit" - which is around 8% in the US economy. In other words, given $100K, you can expect to earn about $8K profit from it in one year. So, if you have a lemonade stand that makes $8 profit every day of the summer (after paying all expenses, including the kid that works there), say for 100 days a year, then the value is ($8*100)/8% = $8000 / 8% = $100K. You shouldn't sell that lemonade stand for less than $100K! The numbers may be off, but the idea here is that you can invest your $100K in "the US economy", or in the lemonade stand, and can expect to make "normal profit" from either investment (plus/minus some, given the risk and normal business cycles, etc.) based on it's "value" of $100K.

Now, how much do we profit from FOSS? JUnit popularized unit testing, which, as a wild guess I would say makes me about 2x more productive than I'd otherwise have been (rough guess). If I make about $80/year, that means JUnit is worth $80K / 8% = $1 million to my employer! But every developer is about 2x more productive... given that more than 1M developers use JUnit, that makes it worth, uh, one billion dollars!? Even if it makes me only 10% more productive, it's still worth $100 million. Uh, I'm sure there's a flaw in in here somewhere.

Of course my employer would never actually pay $1M for a copy of JUnit. But the "cost" of most software is far below the "value" it represents!

Posted by Hans Loedolff on July 19, 2006 at 03:40 PM CEST #

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