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Be Selfish for the Rest of Us

Why does so much free software exist?

Economists have studied the existence of free software since the open source movement began in earnest in the 1970s with a

jammed printer at MIT⁠

In this piece, I'll discuss the evolution of open source towards our modern day subscription economy, why giving stuff away is selfish, the long-term societal benefits of freebies, and sprinkle in some economic theory along the way.

⁠

I couldn't get the lines to intersect at $0 despite many attempts.

I couldn't get the lines to intersect at $0 despite many attempts.

⁠

I recently wrote about the benefits of

no-code⁠

and how it is creating a new class of proprietors that are turning ideas into products. I've also noticed an abundance of free products, templates, and cloneable assets available online in places like ProductHunt and the Webflow community - and reactions to them like the quote above.

Before I dive into the motivations of individuals offering these freebies, let's look at a brief history of open source software and the progression to where we are today.

Open Source Software

Open source software is code that is publicly available and can be viewed and modified by anyone. The general stipulation, managed by a variety of open source licenses, is that any modification to the code must also be sourced openly. Its antithesis - closed, or proprietary, code - is managed by private firms, only accessible to its own programmers, and used to create software products that are licensed at a price to an end user (think Microsoft and Adobe).

Driven by academic environments that relied on collaboration to develop useful software, examples of open source abound. Some of the more famous ones, amongst thousands spanning decades of development:

TeX: typesetting system largely used in academia

Sendmail: general purpose email router

Mozilla Firefox: web browser

Wordpress: content management system and website and blogging platform

Discourse: discussion forums and chat rooms

Mongo: NoSQL database

Ruby on Rails: web application and programming framework

These were all largely developed by programmers without any direct or obvious monetary compensation. Why?

What Puzzles Economists?

Why should thousands of top-notch programmers contribute freely to the provision of a public good? Any explanation based on altruism only goes so far. While users in less developed countries undoubtedly benefit from access to free software, many beneficiaries are well-to-do individuals or Fortune 500 companies. Furthermore, altruism has not played a major role in other industries, so it would have to be explained why individuals in the software industry are more altruistic than others.

- "The Simple Economics of Open Source", National Bureau of Economic Research
(Working Paper 7600)⁠
⁠

Rational choice theory maintains that rational economic actors always determine whether an action is worth pursuing for themselves by analyzing the personal costs and benefits of the activity. Behavioral economics incorporates psychology as an explanation for irrational behavior and curious decision-making.

Behavioral economics is not necessary to supplement rational choice theory in the case of free products. Giving stuff away is not irrational from an individual economic perspective (even throwing altruism as a reason out the window), and much more aligned with self-interest than might seem obvious.

I'll list the incentives behind this behavior, but first let's explore how more micro-versions of the open source examples above are accelerating the phenomenon.

Comparative Advantages and Modular Software

High quality databases, APIs, UI kits, JavaScript snippets, React components, static site generators, and deployment services. All free! It's overwhelming.

What's happening is a modularization of the software value chain and the ability for more individuals to contribute pieces to its whole, delivering something of value to end users without any individual or team having to build the full stack. This enables specialization and the ability for creators to capitalize on their comparative advantages.

Comparative advantage in economics is the ability for one person to produce something at a lower opportunity cost than someone else. It's not to be confused with absolute advantage, where one person is strictly better at producing things than another person. Comparative advantage explains why international trade would still occur if one country had an absolute advantage in the production of all goods, and why
`Tiger Woods should not mow your lawn`⁠
.

The Subscription Economy

Let's focus on Stripe and how its modularized payments processing service has generated a cascading effect of creation and growth.

An imperfectly brief history of Stripe:

Stripe built a payment processing service with easy-to-use APIs that empowered developers to plug it into their own projects, without having to spend weeks integrating with a bank's service and setting up their own servers.

This allowed developers to easily incorporate payments into their projects so they could focus on problems they're more efficient at programming (comparative advantage).

Stripe became a start-up for start-ups, and is now the payment processor for companies such as Lyft, Shopify, Salesforce, and Kickstarter, all powering incredible growth in e-commerce and subscription products. (Because again, their founders could focus their attention on their own comparative advantages.)

Incorporating payments functionality became trivial for creators dispersed globally who had ideas for subscription products but no way to monetize them, like a

bread delivery service in Egypt⁠

Companies such as ProfitWell, Baremetrics, and ChartMogul, that integrate into Stripe and help its users manage their subscription analytics and pricing, became the next iteration in this cycle of creation.

Now, more than ever, start-ups and individual proprietors can focus on the core parts of their businesses and the problems they solve, and don't have to spend development cycles programming payment processing into their apps and websites. A mere 10 years ago, this was not the case. Just plug in Stripe!

There's myriad examples of free, modular software components that can be glued together at little to no cost - and now people can do this and easily charge for them.

Selfish Incentives

This modularization of software and rise of no-coders is bringing more people to the development party. More creators spurs competition to stand out.

Their incentives to contribute freely:

Signaling incentive - a need for attention and peer recognition. People do great work for their companies every day. However, it's difficult to gain outside attention because while making contributions to a private firm, (a) the work can be proprietary and (b) the audience is limited in scope. Contributing to open source and providing free software to the masses online circumvents this problem.‍

Earnings incentive - an ability to advance a career. Arguably a subset of the signaling incentive. Giving away work signals future employers about contributors' talent and proficiency. The value of working in open source is good for

career prospects⁠

. I've also often observed people post free training tutorials online for a piece of software and later announce they've taken a position at that very company.‍

Own-use incentive - a desire to solve one's own problems. I recently had a problem. I was part of too many family text groups on my phone, which was constantly buzzing with new messages. Solution? I created a simple mobile messaging app and gave it away as a gift. My own problem was solved, and others benefited. Nothing was spent but a little bit of my time.‍

Intelligence incentive - creating things out of pure intellectual curiosity. Lots of people learn by doing. Open source and no-code tools provide opportunities to create while learning. A bi-product of peoples' intellectual pursuits of learning and creativity can lead to useful products that were never intended to be monetized.‍

Capture incentive - capture feedback or sales leads to sell future products. This is a pretty standard marketing tactic. Offer a free template, e-book, or video tutorial - to be delivered by email. You now have contact information for people who have expressed interest in your products or services. Or, put out a free, minimal version of a product you hope to develop to test its validity and to get feedback for a future, better version.

Selfishness is good for everybody

Selfishness is good! It results in free software!

But it also generates economic value. A wider base of creators exists than ever before. Those creators can self-select for their own strengths (comparative advantages) in the value chain, glue their modular pieces to other pieces, and create things that other people want. As a result, from the above incentives, we have:

More signalers attracting attention with valuable ideas, and getting investment to build them.

More creators opening doors for their own career earnings.

More individual problems being solved on their own.

More intellectual satisfaction and gratification.

More giveaways resulting in valuable products and services reaching those who want them.

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