Transaction Cost Economics in Software

Ecosystems

Wilco van Duinkerken - Utrecht Universitywilco@sparkboxx.com - June 19th 2009

Did you ever ask yourself one of the following questions?

Should I write a software component myself or buy/use it

from somebody else?

I’m using an open source component,

when do I start contributing?

What are the “hidden” costs of using external

components?

How can I limit the costs and risks of using external components?

How to govern the relationships with my component providers?

m-w: gov·ern (\ˈgə-vərn\) : a) to control, direct, or strongly influence the actions and conduct of b) to exert a determining or guiding influence in or over <income must govern expenditure> c) to hold in check : restrain

Transaction Cost Economics• Initiated by Coase, 1937

• Defined by Williamson, 1971 and going strong

• Researched in the fields of a.o. Human Assets, Procurement, Oil & Gas, Electricity, Music Industry and Outsourcing

• Little empirical research of TCE in IT

• No proof (yet) of TCE in the product software industry

• You can do/ produce something internally (yourself) or buy it from the market

• One can buy “from the market” using different governance modes

• The governance modes differ in the amount of control, flexibility and costs

The Basics

Governance modes• Markets

• Hierarchies

• Short term contract

• Long term contract

• Service Level Agreements

• Open Source License

• Open Source Contribution

• Alliance

• Joint Venture

• Master Service Agreement (Raamwerkovereenkomst)

• SaaS (webservice)

• Partial Ownership (buy shares)

The governance modes differ in the amount of control, flexibility and

costs

A governance mode is chosen based on transaction costs

Transaction Costs

• Are determined by three factors

• Asset Specificity: How specific (and important) is the product or service you are buying.

• Recurrence: How often does the transaction occur.

• Uncertainty: Internal, external and behavioral uncertainty.

Recurrence

Market Coordination

Hierarchy Coordination

Asset Specificity

Low High

Un

ce

r-ta

inty

Low

High

Classical Contract(non-collaborating)

Neo-classical Contract (Collaborating)

Relational contractinternal

governance

occasional recurrent

Governance mode determination by transaction costs

I want to answer the question:

• Can Transaction Cost Economics be applied to explain the governance structure of relationships between buyers and suppliers of software components in Software Ecosystems?

I would like to:

1. Have a group discussion about:What are transaction costs of software components?

2. Have individual interviews on:How do you choose which component to use? and How to govern the relationship with the supplier of this component?

Planning• Group Discussion:

• when: The first week of July (date to be set)

• where: Utrecht University (Beleidslab)

• how long will it take me? ± 90 minutes

• Individual interviews:

• when: Somewhere in July

• where: Anywhere

• how long will it take me? ± 60 minutes

Can I Participate in Both the group and Individual sessions?

Yes, you can :-)

What’s in it for me?1. You will receive a print and/or electronic

version of my thesis.

2. You will gain some insight in your company relations and possible ways of improving these relations.

3. I’m willing to give a presentation about the subject at your company when my thesis is finished.

Want to participate?

• Please contact me:

• E-mail: wilco@sparkboxx.com

• Twitter: @sparkboxx

• LinkedIn: http://www.linkedin.com/in/wilcovd

More sources

• Download my thesis so far

• View a summary of my thesis research at http://prezi.com/90808/