Open Source in a Down Economy: The Money Race Is On

The sour economy is causing industries and individuals alike to tighten their belts in just about all areas of spending, including software. Downloading free and low-cost open source software is often an attractive alternative to proprietary commercial products. The potential for enterprises and other users switching from high-priced software to open source alternatives poses a new opportunity for open source developers.

Can open source meet this new niche of use in response to the economic slide industries are facing? It’s perhaps too soon to tell how much of a real impact open source will make. Open source adoption worldwide was growing rapidly before the economic downturn struck, but enterprise adoption of open source in the U.S. is lagging behind European enthusiasm, according to the Open Source Census conducted by OpenLogic.

The second round of OpenLogic’s survey results, released last month, showed more than 300,000 open source package and project installations in use around the world. Government agencies and the financial industry are among the biggest users of open source software. Also, Windows users are among the biggest consumers of open source software, according to the latest survey results.

“Open source did really well the last time the economy took a turn for the worse. SourceForge.net saw a significant spike in downloads in late 2000 and 2001, and that’s when a lot of the big commercial open source success stories saw huge growth as well. Why? Nervousness about the economy drives down IT budgets but doesn’t necessarily reduce IT expectations,” Ross Turk, community manager at SourceForge.net, told LinuxInsider.

More Boom Times?

Turk has noticed an interesting spike in the number of users and projects on the site during economic downturns. SourceForge.net is one of the Web’s largest open source repositories.

However, a spike in open source users may not always point to an upturn in success for commercial open source software (OSS) companies. Many OSS developers work for companies like IBM and Novell, and regardless of the nature of the software they make, they might find that their jobs are in jeopardy if revenues taper off, noted Turk.

“So if history repeats itself, open source consumption will boom, and commercial open source startups are in a time of opportunity. Not everyone may be so lucky, though. Hobbyist open source developers might find themselves with a whole lot more spare time than they’ve ever had, and sponsored developers might be the last ones left asking, ‘Now what?'” he said.

Fence-Sitting Season

In tough economic times, cutting costs without hurting productivity is the battle cry for enterprise, medium-sized and small-business managers alike. This desire to save money is driving more interest toward companies that provide open source solutions.

“People looking at proprietary solutions are trying it out and making last-minute shifts to open source for less money,” Kim Weins, senior vice president of marketing and products at OpenLogic, told LinuxInsider. “We are seeing more and more companies looking at open source now.”

Since mid-summer OpenLogic, a provider of open source packages, has seen an uptick in the number of companies inquiring about open source governance solutions as companies look for money-saving alternatives to save money.

“Numerous fence-sitters are suddenly deciding to go open source. Customers had their vice presidents looking at the high cost of other commercial products and demanded a change to open source,” Weins said.

Risky Business

Software selection is just one slice in the money-saving pie that business managers have to choke down during the current chilly economy. The focus must shift to using recession business economics.

“At Opengear we are seeing customers increasingly are deciding that the tight times are with us for a medium or long run. Given the uncertainty of past years, lots of ICT (Information and Communication Technology) decisions and investment have been deferred or slow tracked. But these customers have now spent enough time sitting on their hands, and they are committing to new courses of action using recession business economics to evaluate the paths forward,” Bob Waldie, CEO of Opengear, told LinuxInsider.

The focus now is on reducing operating costs while protecting income rather than spending to increase revenues. They are actively analyzing their businesses’ cost and cash matrices to identify areas to improve, he said.

Like any other business decision, switching to open source has to be weighed against other factors. Open source may not be an ideal answer in every instance.

No Guarantees

“The best area to use open source to reduce costs is probably the server space. After setup and file deployment, the ongoing maintenance costs aren’t going to be much different,” Michael Krotscheck, senior developer at social media marketing firm Resource Interactive, told LinuxInsider.

Even so, using open source is only one part of a larger cost reduction equation. For instance, software is an easy area to cut because transitioning to another platform appears less expensive on licensing fees. However, that transition might increase costs in environmental controls, power consumption, hardware and personnel, he said.

“As for day-to-day software and hardware, well, I don’t think anyone’s going to trade Photoshop for GIMP [an open source photo editor]. There’s no real give in the creative space, so our desktop machines won’t move off of commercial operating systems anytime soon. Rather than move to open source desktop solutions like OpenOffice, the preferred response will probably be to delay the upgrade cycle until absolutely necessary,” Krotscheck said.

Pricing Strategy

From a business perspective, open source companies have a tough sell ahead in bringing former proprietary software users to their side. The technical service has to be priced competitively.

“It’s the same perspective when pricing open source as with other products — service and brand recognition. Open source is just an extreme case of all of that,” Matt Johnson, partner at Simon-Kucher & Partners, told LinuxInsider. His company is a business consulting firm that specializes in pricing issues.

Open source’s key to succeeding in replacing its proprietary competitors in this downturned economy is in pricing the subscription service. For example, open source firms have to articulate that it is all about service and how well the product is maintained, he explained.

Competition Not Quitting

In a bad economy, proprietary software makers have to sell to more customers, and maybe at a lower price, to keep their revenue from dropping through the floor. In this climate, commercial proprietary vendors become more receptive in a downturn to restructure their pricing, according to Johnson.

If they wish to take full advantage of the situation, open source vendors will have to meet this opportunity and hold the line on increasing their pricing. This is a real opportunity for open source, one that the current economic conditions can accelerate, he said.

“Only time will tell who will play their hand better. Not every open source company operates as a for-profit firm as much as they should. The race will be, can open source vendors understand the new economic mandate?” Johnson concluded.

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