Open Source Drives Continued IT Market Growth

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Includes: MSFT, RHT
by: Dennis Byron

Michael Tiemann, Red Hat (NYSE:RHT) VP of Open Source Affairs, is totally mixing up various information technology [IT] market numbers in his August 23, 2008 Open Source Initiative (OSI) blog posting. His three-card-Monte of hyper linking mixes three different estimates: software market sizings (a quarter of a $1 trillion market); overall IT market numbers (either a $1 trillion or a $3 trillion market, depending on whether you use IDC or Gartner; the latter counts telecomm); and total enterprise spend on IT (which includes the trillions in personnel and overhead costs associated with using software, systems, services and telecomm acquired in the marketplace). 

For example, one of the Red Hat executive’s links talks about “a real loss of $60 billion in annual revenues to software companies” due to open source terms and conditions (Ts&Cs) as identified by a Standish report in April 2008. The report was shared with analysts and journalists back in April and it says only a fraction of the savings relates to the software market. Other reductions come out of systems, non-software services, and possibly even personnel and overhead spending unrelated to open source software [OSS] Ts&Cs. As an aside, the number is nowhere near 6% of the entire IT market in my opinion (but Jim Johnson has a good track record at these sorts of things) and based on Standish’s methodology the savings by IT shops (the reverse of the loss in revenues) appear to be potential not actual.

The bigger picture is that the open source culture and open source software Ts&Cs are drivers of continued IT market growth and IT budget expansion. It is not a case of OSS taking multi-tens-of-billions out of the IT market as stated. Without OSS, HP (NYSE:HPQ), IBM (NYSE:IBM) and similar slowing legacy/UNIX-centric IT suppliers might have deflated. And OSS has also put thousands of program developers that otherwise were laid off by (or would have never been hired by) Data General, DEC, Prime, Wang, and so forth to work.

The OSS effect on Microsoft (NASDAQ:MSFT) cuts both ways. Its software market share has increased steadily for 30 years but investors still punish Microsoft for letting the legacy/UNIX business that migrated to Linux slip away. On the other hand, most open source software is running on Windows and that’s business Microsoft might have never seen if OSS projects such as Apache, Firefox, JBoss, Perl, and so forth hadn’t existed.

Michael is probably a good software developer and is definitely a visionary as to how the software development culture will play out until the robots take over. But the Red Hat executive is heading south with some very dubious data while the IT market and millions of enterprises head north.