Why Do Firms Use Open Source Strategies?: An Uncertainty Reduction Theory

Abstract

Recent academic inquiry has questioned the traditional assumptions that successful market competition among profit-driven firms must be done in a closed manner to avoid competitors benefiting from knowledge spillovers by demonstrating that an open source strategy can be successful as well. Yet, it is still not well understood why firms choose an open source strategy when they have an array of more traditional strategies at their disposal. I argue that firms select an open source strategy to reduce the impact of different types of uncertainty that impede the clarity of their strategic options. An open source strategy allows firms to accept, disarm, share, compartmentalize, survive, and select uncertainty, reducing the negative impact of discontinuous change, strategic inertia, loss of control, resource allocation problems, environmental selection, and poor fit. This choice means that firms are not stuck with strategies requiring high-stakes bets, hedging practices, or luck in order to reduce uncertainty. Instead, they can select an open source strategy that best reduces the types of uncertainty that they are facing.