Understanding B2B Relationships Between an Open-Source Firm and Application Developers: Sharing Profits from Applications and In-Application Advertisements

Recently, an open-source strategy has received considerable attention among for-profit organizations. In open-source projects, such as Google’s Android project, an open-source firm (e.g., Google) takes a portion of profits that its partners (e.g., application developers) earn from selling application and in-application advertisements. However, such a use of profit-sharing scheme and the role of in-application advertisements as a source of profits have not been well-studied in the literature on open-source strategy. Thus, we propose a mathematical model to understand how the profit-sharing percentage that an open-source firm takes from application developers affects profits of the open-source firm from applications and in-application advertisements. Our proposed model shows that (1) the size of the user network (e.g., the number of Android users) plays a more important role in generating profits from advertisements than those from applications and (2) the open-source firm may experience a decline in its profit by increasing its own profit share percentage too much.