Open source software market poised for growth

3 June, 2007
By Patricia Pickett

A recent study from research outfit IDC Corp. has found that the market for standalone open source software (OSS) is growing significantly -- but don't expect revenues to keep up with adoption rates.

The study found that worldwide revenue from standalone OSS reached $1.8 billion in 2006. This revenue will climb to $5.8 billion in 2011, representing a compound annual growth rate of 26 per cent from 2006 to 2011, IDC predicted. IDC defined standalone OSS as being distributed or sold on its own, rather than being embedded in or sold as a complementary offering with other software.

The degree of expected growth for OSS shouldn't be surprising for those who have been watching adoption increase over the last few years, according to Matt Lawton, Toronto-based program director of IDC's Open Source Software Business Models research program. "That kind of growth is easier to obtain when...adoption of open source software is starting to take hold in a commercial environment that is looking to pay for subscriptions, support around that software and other services."

Adoption has climbed as recognition and acceptance of Linux as a "prime and leading example of open source software" has grown, said Lawton. But in the last year or two, OSS activity has moved up the software stack, reaching the application deployment and development tools arena. The JBoss Application Server, developed by the Red Hat-sponsored open source middle community, is a good example, Lawton said. OSS has climbed even higher up the stack into the realm of applications such as enterprise resource planning (ERP) and customer relationship management (CRM). "We're starting to see that vendors are producing (OSS apps), a community is developing around them, and customers are starting to adopt them," he said. Leading examples of OSS apps include SugarCRM, webERP, ERP5 as well as Compiere, an integrated ERP/CRM solution.

Even though OSS growth is projected to be healthy in the coming years, revenues will continue to lag behind distribution. "It's the nature of open source software," Lawton said. It's free to download the code and run it, and if you pay for anything, it's for professional support. But many people using OSS don't need the support, or are just trying it out for now. A certain portion of users will eventually convert into paying customers, "but there is a lag when it comes to how long that takes," he said.

A number of barriers to OSS adoption still exist. There has been a lot of publicity around the "viral nature of the GPL (general public license)" -- a reference to the GPL's stipulation that if any GPL code is included in another program, the entire program becomes subject to the terms of the GPL, which include not being able to restrict the use, copying, modification or redistribution of that software. Some organizations are worried about being sued for license violations or patent infringement if GPL code finds its way into the software they are using. But a number of vendors have offered indemnification around those issues. "This is causing concern in the IT user community that vendors will need to address further, to give (customers) the comfort they need to embrace open source software more fully," Lawton said.

License proliferation is also an issue, creating some confusion in the marketplace, Lawton said. "End users have to work extra hard to do an analysis on the licenses before they have the assurance that a particular software is safe to adopt, or before they know what they are committing to." But probably the biggest adoption barrier would be the perception that there is a lack of professional support around OSS, Lawton noted.

When choosing which OSS to adopt, companies should look at the community surrounding it, which should not only have developers but other end users that are helping with things like testing and documentation, Lawton said. "You need to look at how well developed and how broad the community is so that you're not locked into a small community that may not survive or reach critical mass." It's also important to look at the vendor and partner ecosystem to gauge what level of professional support is available, he added.

Channel partners will find opportunities in the OSS space as they reach out to a whole new set of customers, Lawton said. Partners will likely have to provide more services than what they traditionally would offer with proprietary software, and will not rely as heavily on the resale of licenses for their revenue.