Paper ID: W317

In this paper we develop a transaction cost perspective of the computer industry evolution and standardization processes in order to evaluate the future of the open source software (OSS) movement, particularly with regard to how the involvement of firms--as opposed to individuals--will shape its direction. For this purpose we define two types of transaction costs related to coordinating the development of complementary products and services on the one hand and to communication of knowledge necessary for evaluating products incorporating new technology from a buyer’s point of view on the other hand. We then apply these concepts to the analysis of the computer industry evolution and its standardization processes. Building on a discussion of the differences of OSS from other traditional standardization processes in terms of the two types of transaction costs, we depict two possible future scenarios for OSS and its impact on the whole computer industry. This allows us to identify the conditions under which OSS will not just provide an alternative standardization mechanism for the computer industry but a governance structure for organizing innovative activity as an alternative to the market.