How Do Investors Value Open Source Software?
I came across a story last month in the Wall Street Journal about how investors looked at companies that embrace open source software approaches to their products, and whether investors view it as a positive or negative development. Or as the article stated it, "Will investors reward openness by driving up the company's shares -- or punish it by knocking the stock down?"
Oliver Alexy a research assistant and doctoral candidate at the Technische Universität München TUM Business School in Munich, Germany, decided to find out. To do so, he spent a bit of time researching the topic:
"First, I searched through news releases from January 1999, shortly after the start of the open-source movement, to April 2007, looking for announcements that fit the bill. I then weeded out a number of companies, mostly because their announcements contained other news that might affect the stock price. That left 38 announcements from 30 companies."
"Next, I analyzed the companies' stock performance for 125 days prior to the announcement -- to get a baseline for performance -- and then watched the stock activity the day before the announcement and the day of the announcement. (I looked at the day before in case the markets had anticipated the news.)"
The results?
"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%. Companies that didn't saw an average decline of 1.6%."
Companies, if they are going to embrace open source software, need to have credible short-term plans on how they are actually going to make money going down this path. As Alexy points out, "vague, long-term assurances" aren't going to impress investors; they sound way too much like "trust me."
It will be interesting to see what other bits of information Alexy's research turns up.
