Capturing Value From Free Digital Goods

Companies can improve productivity by tapping into the market of free digital goods, such as open source software, and by paying their own employees to contribute.

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An MIT SMR initiative exploring how technology is reshaping the practice of management.
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Scientists refer to portions of the universe that they know exist but can’t easily measure as “dark matter.” As direct measurement is difficult, they study the indirect gravitational effects or galaxy rotation speeds to understand the phenomenon. Similarly, in the digital economy a broad range of “dark” elements are free and essentially limitless, and traditional tools can’t measure them.

One of the best-known examples of this phenomenon is Wikipedia. People use Wikipedia at no charge, and the content is created primarily by contributions from volunteers. Because no money changes hands (except for donations to help pay for technical infrastructure and office staff), Wikipedia has almost no direct impact on gross domestic product (GDP). Moreover, because Wikipedia has replaced physical and digital encyclopedias that people paid for, it has likely had a negative impact on GDP. Nevertheless, Wikipedia provides significant value for consumers, even if its economic worth is difficult to measure.

For companies, tapping into a faceless crowd for contributions to their innovation or production process can be daunting. Managers worry about the quality and availability of product support, and about security and intellectual property issues. And there are serious questions about who’s responsible if or when something goes wrong. However, in my research I’ve found that companies have opportunities to capture substantial value by using digital goods created by external communities and even greater value by paying their employees to give back and help build such goods, even if competitors are able to use them for free.

Consider open source software (OSS), which is produced through crowdsourcing, is generally free, and is critical to the digital economy. Over the past decade, OSS, long considered the purview of geeks, has played an increasingly important role at companies. More than 60% of web servers run OSS, and many of the technologies used for big data analytics are open source. In recent studies, I have found that using OSS and contributing to its creation allows companies to capture value more efficiently.

Effects on Productivity

There has been a long-running debate about whether OSS truly saves companies money. Although the software is free, it has limited official support and can require specialized technical knowledge to implement. However, until this point, the productivity impact independent of any cost savings has gone unexplored.

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An MIT SMR initiative exploring how technology is reshaping the practice of management.
More in this series

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