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May 12, 2008 4:51 PM PDT

The market's irrational expectations of open source

Posted by Matt Asay
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I've commented on Oliver Alexy's research on open source's effects on stock prices before, but was gratified to see it featured in today's Wall Street Journal.

It turns out, as per Mr. Alexy's research, that open source can have a salubrious effect on one's stock price, but only if done right:

Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue. Companies that clearly communicated a short-term revenue model saw an average stock-price increase of 1.6 percent. Companies that didn't saw an average decline of 1.6 percent. This means companies can't rely on vague long-term assurances.

Ironically, this betrays a woefully naive view of open source by the market. Open source is a marathon, not a sprint. It's not a quick fix for any business.

In other words, the very thing that the companies most need to do (i.e., take a long-term view of open source's benefits for their businesses) is the thing most likely to punish them in the market. Who said markets are rational?

Matt Asay is general manager of the Americas and vice president of business development at Alfresco, and has nearly a decade of operational experience with commercial open source and regularly speaks and publishes on open-source business strategy. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure.
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Add a Comment (Log in or register) 3 comments
by ShaunRConnolly May 13, 2008 7:24 AM PDT
I read this WSJ article and wrote it off as uninteresting/uninformative since an impact of +/- 1.6% strikes me as pretty darn close to statistically insignificant.

Honestly, that low of a % difference tells me that the market really doesn't care if/when a company changes from closed to open.
Reply to this comment
by ShaunRConnolly May 13, 2008 7:25 AM PDT
I read that WSJ article and actually found it uninformative. A delta of +/- 1.6% seems pretty close to statistically irrelevant. Especially given the subjective nature of the statement "Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue."
Reply to this comment
by Kesteral May 13, 2008 10:38 AM PDT
'Professor Mode'

Statistical relevance depends on several more factors than simply the % change. The amount of deviation in the baseline is a major factor, as is the magnitude of the change. Since, the report dosn't give either of these numbers, we cannot say for certain wether a 1.6% change +/- is significant or not. a 1.6% increase of a $200 stock is a very significant earning, especially if the stock has been very stable in the past. It is wrong for the readers to reject the numbers out of hand simply because the percentage of change is low.
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About The Open Road

Matt Asay brings a decade of in-the-trenches open-source business and legal experience to the Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is general manager of the Americas division and vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure.

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