Can Open-Source Software Help a Recession?


If you haven't noticed the general collapse of the financial system around you, coupled with the massive switch to corporate cost-savings mechanisms (including a healthy dose of "rightsizing" by every company under the sun), then you need to stop playing Wrath of the Lich King and flip on the news.  Money is important, but perhaps never as important to the general corporate well-being as right now.

It's no surprise then that good ol' open source hardware and software platforms are being thrown into the mix now more than ever.  Semantic arguments aside, the open source movement is generally consider a cheaper, if not free alternative to proprietary, commercial software in the enterprise market.  But that doesn't mean that open-source software comes without a cost, nor are these companies necessarily immune to the financial movements of the technological industry. So where, then, does open-source development rest in the spectrum? Can these solutions do enough to save the bottom lines of big business?  Or are open-source companies just as doomed by a market slowdown as the software vendors on the other side of the fence?

The Argument Against

Here's the deal: Open Source isn't freeware.  A business might be able to get its hands on a program's source code (or a non-licensed variant thereof), but that doesn't mean that it will be able to have a brand new enterprise server up-and-running at the touch of a button.  Open Source software developers make their money in a bundle of ways: selling the reference manuals for the software, selling a custom installer for the open-source application, selling open-source and proprietary versions of the software.  And those aren't even the big hits.  Numerous companies have found success in releasing the software for free, yet charging for services like technical support, books, speaking engagements, consulting, et cetera. In short, the business is built around the software.

With all of the big tech companies taking a hit from the ongoing recession, this means that open-source developers have also been forced to scale back on costs.  Sack the workforce, and there go the consultants and support.  Sack the developers, and there goes your ability to hit the market with more versions, updates, and add-ons to your product.  Sack the managers, and you've just lost the drum-banger for the ship, not to mention important bits of business like marketing programs, financial accountability, and other important MBA functions.  Open source companies are still technology companies, and seeing as they're not taking swims in the ol' coin vault out back like, say, Microsoft, economic downturns have the capacity to hurt them as well as any other company.  Nobody is immune from the dangers of this recession.

The Argument For

This example spells it out perfectly: if your average Fortune ### company can save $68,000 by switching from in-house computer systems and Microsoft software to a Google data center setup that uses Google Apps, that is a compelling cost-savings.  Factor in the economy of scale and a business could make the cost-cutting measures it needs--while retaining similar functionality as its previous hardware and software--by switching to open-source solutions.

The switch is already occurring.  Red Hat has seen a 29 percent increase in revenues this past quarter compared to the same time period last year.  And while the growth might not be as astonishing for every open-source company, there's still an element of hand-over-fist growth .  Unlike their dot-com counterparts, open-source companies seem more prepared to weather the financial storm as well.  There's less over-hiring, overfunding, and over-exuberance-- perhaps indicated by the less-than-crazy returns we previously noted. It's analogous to spreading one's stock picks over a wide spectrum of companies versus dumping your retirement fund into, say, Google: the returns might not be huge, but the losses won't crush you either.

There will always be a "service" component to open source.  But the one-time learning curve require to switch hardware or software services feels like a drop in the bucket compared to, say, investing in expensive new servers versus turning to a cloud-computing solution .  But we caution that these savings can be a panacea in their own right.  Switching a business to a new open-source platform isn't going to be the new captain that rights the ship.  At the end of the day, building out (or maintaining) a strong customer base is going to keep a company afloat during these unsteady times. But the cheaper investment opportunities allotted by open source might very well go a long way: to keeping business afloat in the recession, and keeping open source developers rich with new business.

The Final Word

Expect to see slow, steady gains in the open source market.  But the recession will do its part in taking out the stragglers and those on the cusp of pushing their business into the black.  Consider it a tightening of the open-source belt.  The general swath of companies will survive with less damage than their proprietary counterparts in the technology marketplace, but they will not be immune to the harsh financial times.  And if things get too bad, expect the more prominent failures of big business and startup companies to take a big chunk out of the open-source developers' client lists--weeding the field thinner yet.

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