Open source a boon to overall software usage

While Canadian businesses are increasingly benefiting from free open-source software, they continue to shell out billions for software licences. From Linux to SugarCRM and at all points in between, open source is changing software market dynamics — but not in the way some predicted. Paradoxically, free open-source software isn’t dampening a healthy Canadian software market; the situation is quite the opposite.

Transforming free into fee is certainly not unique. built a market for used books, a market for book buyers to sell into when they’re reading is through. As luck (or shrewd planning) would have it, cheaper books encourage more sales of new books.

Open source software likewise creates new opportunities and continues to shake up old business models.

Firefox, MySQL, PostgreSQL, SpamAssassin, JBoss, Eclipse, Apache and, of course, Linux have made impressive inroads, yet the Canadian software market is still forecast to post a respectable four per cent paid licence (and maintenance) growth each year through 2009.

The top reason why open source hasn’t crushed this market growth is that commercial IT vendors control the open-source success stories. They fund it, they contribute developers and code, they control the channels of distribution, and, most importantly, they earn the direct and influenced revenue and they reap the reward of lower costs.

The point here is not to label IT vendors as the corrupters of open source. Frankly, if it weren’t for the involvement of vendors such as IBM, Sun, Novell, MySQL, Red Hat and others, most open source applications would not see the light of day.

Rather, the point is that, as licensing and business models are fleshed out and fine-tuned, the software industry won’t fall prey to free software — it will increasingly draw benefit from it.

But why, if open source is free and being accepted into Canadian businesses, does revenue created in the software market in Canada (and globally for that matter) continue to grow? It’s not because open source is of less quality, has no support or has worrisome intellectual property gotchyas; it wouldn’t be adopted at all and not have the opportunity to deflate the market in that case.

In fact, asking why the market growth isn’t slowed due to free open-source software may be the wrong way to look at this entirely. Free open-source software (or any low-cost or free software) acts as a means of increasing overall software usage — “I tried it and I liked it.” Essentially, free software influences the purchase of other software, as well as the purchase of services (e.g., support) and hardware.

Moreover, software developers get to market armed with compelling pricing from freely embedding open-source code — such as the open-source Sleepycat database or Gluecode application server — within their paid software product.

Then there’s the elephant in the room: support costs. Irrespective of whether or not open-source support costs are more or less than proprietary software support costs, the reality is that nothing comes for free. And even a little less than free makes people stop, think and adopt less.

Free support services coupled with free software would aptly whack away at software market revenue, but not free open-source on its own. But, if open-source software wasn’t around at all — purely for thought experimentation — would the software industry be larger than it is?

No, considering you step back to take a wide-angle view over a couple years. The value in software — the competitive advantage delivered to a business — continues to shift upmarket, creating new higher-end software markets.

Commoditization sets in on software where technical parity is being reached by competing vendors — as in the operating system or the database. This leads to downward pricing pressure and opportunity for open-source success.

Without open source to contend with, competition would have shifted revenue anyway. Although open source has, to date, touched commodity software markets, this could be changing. CRM, business intelligence and even business process management are witnessing more lines of available open and free code.

Sun Microsystems has, for example, pledged the contents of its SeeBeyond acquisition in 2005 to open-source. Open-sourcing of value-add, non-commodity software doesn’t eliminate revenue. Rather, it shifts it — at least that’s the bet.

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— Senf is the manager of IDC Canada’s Canadian Software Research Service. He can be reached at [email protected]

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