This report deals with open source software and open standards. An important feature of open source software is the freedom to modify the software. Interested parties may work together to improve or expand the software without questions of ownership hampering the co-operation. An important feature of open standards is the interoperability of information systems which is necessary in order to facilitate co-operation between (government) organisations and to co-ordinate business processes within and between organisations. Below a definition of open source software and open standards is given.

A definition of open source software and open standards

Open source software is software that meets two criteria:

• its source code is freely available;
• under the licence regulating the intellectual property rights and the use and re-use of the software and the accompanying source code, the licensee may access, use, improve, supplement and (in some licence models) distribute the source code.

• the costs for the use of the standard are low and are not an obstacle to access it;
• the standard has been published;
• the standard is adopted on the basis of an open decision-making procedure (consensus or majority decision etc);
• the intellectual property rights to the standard are vested in a non-profit organisation, which operates a completely free access policy;
• there are no constraints on the re-use of the standard.

Summary

The central question addressed in this report is twofold:

1. Will net social welfare increase if the Dutch public sector switches completely to software based on open standards?
2. Will net social welfare increase if the Dutch public sector applies open source software on a large scale basis?

In order to answer these questions, we conducted a cost-benefit analysis. We looked at the effects of the (the same) open standards throughout the entire public sector compared to no use of open standards at all, and we looked at the effects of large scale use of open source software compared to a situation in which the public sector merely uses closed source software. Because of a lack of data on ICT-expenditures, effects on productivity, licence costs and so on, we were unable to fill the analysis with actual data. Using the cost-benefit framework we were, however, able to develop insight in the effects of the two alternatives and come up with (tentative) conclusions.

The switch of the entire public sector to software based on open standards will in all probability entail a social welfare gain. This is mostly due to the efficiency gains caused by the improved exchange of information between citizens, companies and public organisations and to the fact that open standards allow combined use of software from different market participants and can prevent an organisation from being obliged to use the software of a specific supplier. As a result, the customer can choose the software component with the best price/performance ratio.

The net welfare effects of a large-scale application of open source software in the public sector are less unambiguous and much more case-specific. Benefits relate to lower licence cost and procurement cost and to the lessening of dependence on one software supplier. Users of closed source software are highly dependent on their suppliers. This dependence is reflected in the obligatory implementation of new versions, the obligatory purchase of new hardware, the unilateral alteration of licence conditions and the termination of maintenance agreements. These monopolies are eliminated when applying open source software since all suppliers have the same chance in the maintenance market. On the other hand the use of open source software also entails cost. Typical cost increases for organisations in the public sector are the (one-time) migration cost, education cost to retrain current ICT personnel and search cost in order to find the right software. All in all, our analysis points in the direction of a net welfare gain by a large-scale application of open source software in the public sector.

This study is not a plea for open standards or open source software. The choice for a specific standard or software package will have to be made on a case-by-case basis. In order to consider the possibilities of open standards and open source software in a more structural and systematic way, we developed a cost-benefit framework that enables a more complete comparison of the pros and cons of the closed and open alternatives. After all, the main benefit of cost-benefit analysis lies in the discipline it imposes.