Open source can still win in a down economy

In meetings with venture investors in the last few days, it became clear that the impact of the credit crisis and the overall bleak economic outlook has people really freaked out.

Rightly so, but it's times like these in which smart investors invest in early-stage ideas that will take a few years to mature.

While it's clear that spending will slow a bit in the technology sector, today's environment is less risky than that in the last meltdown, in which everyone was overinvested in technology. That doesn't mean that we won't be impacted; it means that the nuclear winter in financial services probably won't affect tech as much as it did circa 2001, when many start-ups failed, and big companies lost billions of dollars.

Open-source consumption did really well during the last economic downturn. In this downturn, open source offers the best value for money, and with more mature supported products, enterprises can continue to innovate while budgets are frozen.

SourceForge saw a significant spike in downloads in late 2000 and 2001, according to Ross Turk, director of community. Why? Nervousness about the economy drives down IT budgets, but it doesn't necessarily reduce IT expectations.

If you are trying to do more with less, open source helps you get things done with a try-before-you-buy approach, instead of a huge up-front investment. Large vendors such as IBM, Intel and Novell, all which fund open-source development, will likely continue to fund the developers and the projects, which are now core parts of their products. In fact, I think that the guys working on open source in big companies have more job security than almost anyone else.

Open-source consumption is in for a boom, and commercial open-source start-ups should be able ride the wave, provided that they have enough adoption and working capital to get through the rough patch.

[AppleSuxLeo]

Open source with a big , for-profit company behind them , can win. Apple is scared to death of Android ;)

[mahauma]

I agree that commercial open source startups are in a relatively strong position. The caveat is that only the ones with very crisply defined <a href="http://www.mulesource.com/solutions/Whitepaper_Business_Value_of_MuleEE.pdf">ROI value propositions</a> for their offerings will continue to succeed in winning new customers. Otherwise it is too tempting for IT organizations to view open source as equivalent to "free."

[Penguinisto]

Actually, overall Open Source experienced its greatest growth period during the dot-bust era. It got drowned out during the preceding dot-com era by most folks, who were busy swimming in venture capital and buying over-priced Sun gear or hiring overpriced "Em See Ess Eees" like there was no tomorrow. But when money got tight and online businesses had to actually show some fiscal responsibility, suddenly it made perfect sense to turn to FOSS and to start banding together to share code. IBM had initially sunk $1bn into Linux (and abandoned its own AIS) just before the bubble burst, but in spite of the bust, it has made that money back many, many times over.

Even on a personal level, developers who were out of work otherwise (or were freelancing) still wanted to write code. Also, the code-monkeys I still associate with enjoy writing code that they can point to as work product in job interviews, and need to do so without worrying about NDA violations - Open Source makes perfect sense in this arena.

@mahauma: I agree that if ROI is defined by a marketing department to make a given product look more attractive, then sure - that product would be the only thing that looks as such. OTOH, all one needs to do is point out the missing bits of an ROI paper. I've done so numerous times and proven Open Source to be the more attractive alternative. Also, larger and stronger corporations (see also Intel) have already done their own private calculations, and made up their minds to use Open Source to their advantage. Granted that Intel makes its money from hardware, but most companies don't rely on proprietary software sales to make money, so it's easier to make the argument in these cases.

That said, even software companies (see also VMWare) have long since seen value in Open Source - if not completely, then enough to put a serious dent in the perception that proprietary software is somehow the best solution money-wise.

[fred_gallagher]

Dave,

I think you have it right.

Managers of all departments, not just IT, will face a "do more with less" mentality in this current environment. Companies will require shorter payback periods for projects. Imagine if all companies required a 30- to 90-day payback period on projects, there would be no room for a perpetual license.
The opportunity within this current crisis is that IT managers can justify the move to proven open source technologies to satisfy the needs of business. Even projects that are underway should consider open source components to ensure that the business needs are addressed on a budget that addresses the economic climate.

Let me know what you think.

Fred Gallagher

[Varsys]

Good IT Managers should always use "do more with less" mentality. I think open source systems can be a good solution to provide continuty of the IT innovations while budgets are frozen. In a long run, however, open source systems often do not offer the best value for money.

Ed Ver
<a href="http://www.varsys.com"> http://www.varsys.com</a>