Study: Open Source Software to Grow by 26 Percent Annually

Open source software (OSS) is poised for strong growth through the next half-decade, and some of that growth will come at the expensive of proprietary software -- like the kind Microsoft makes -- according to a new study.

IDC, an IT market analysis company, predicted that revenue from standalone OSS, which reached $1.8 billion in 2006, will increase 26 percent per year through 2011, to $5.8 billion.

Matthew Lawton, program director of IDC's Open Source Software Business Models research program, said he wasn't surprised by those figures. The OSS market, he said, "is working from a much smaller revenue base than the overall software market."

Lawton uses the example of Red Hat Enterprise Linux (RHEL) to define what he calls "standalone OSS." Customers of RHEL don't specifically pay for the software: they pay an annual subscription fee that entitles them to a certain level of support on their products, including software updates on a scheduled basis. That's the current business model for making money on OSS, which is usually free.

Although many people immediately think "Linux" when they think of OSS, Lawton said that he doesn't see what he calls "system infrastructure software," which includes operating systems like Linux, to be the biggest growth area of OSS. He said the two layers above that -- middleware, such as development software and development application tools, and the top layer, software applications -- as the categories most likely to see the biggest gains. The reason, he said, is that "they're newer, and haven't been as readily available as Linux has been in the last 10 years."

They include applications for larger businesses like OSS enterprise resource planning (ERP) and customer relationship management (CRM), which are "starting to get some takeup in the industry now." He sees programs like that starting to be supported by vendors through the same type of subscription model that's currently working with Linux.

As OSS starts to move more into the mainstream, and corporations begin to look at OSS software more broadly than just in the data center, Lawton believes it could have an impact on the proprietary software market.

"Over time, [OSS] will eat into areas" currently dominated by for-profit software, Lawton said -- an "erosion, to some degree, of traditionally proprietary software." Not all of it will come at the expense of the Microsofts and Oracles of the industry, however. Much of the increase, Lawton predicted, will be due to an overall expansion of the market.

That expansion shouldn't be ignored by resellers.

"The emerging OSS opportunities for vendors is significant for the partner community," Lawton said. "For service-oriented partners, it's a big opportunity to provide services to OSS that competitors -- who are still working only with proprietary -- may not be ready to provide."

Some partners may not be willing to jump into the OSS market because they're scared off by the smaller margins they see compared with the proprietary world. That would be a mistake, Lawton said.

"For the partner base, it's a bigger market opportunity for them. They can open up new markets they otherwise might not have taken advantage of."

About the Author

Keith Ward is editor of Virtualization Review magazine. You can contact Keith at [email protected].