Is open source recession proof?

Posted: 1/14/2008 10:37:00 AM
Adrian Kingsley-Hughes of asks if open source is recession proof. Here are my thoughts.
To answer Adrian's question we must first determine who creates Open Source software, who uses it, what is its value and what will happen to all of those questions in a recession. So I'll start by answering the questions for the current economy and then address them in a recession.

Who creates Open Source Software?
There are mainly two types of organizations who write open source software: Individuals who want to solve a problem and companies who want to earn consulting fees or attack the business model of a competitor. Currently, we have a good industry for IT people. A lot of them write code on business hours. Open Office is supported by Sun to help fight Microsoft. Sun has a team of over 100 developers working on a product that generates no revenue and the justification is that it hurts a competitor, both in sales of Microsoft Office and by enabling users of Linux to have an Office Suite.

The problem with this model is that it is difficult to quantify the financial benefit. In a recession, the bottom line matters most and I suspect companies will abandon these models. In times of recession, employee productivity is important and that productivity must directly affect the bottom-line in a measurable way or the employees are laid off. Those laid-off employees may have more free time to work on Open Source projects to keep their resume fresh, but they may be too busy looking for a job. I suspect it will be the bright ones who have saved money that will find Open Source more easy to fit into their schedule and it may be an avenue for independent contracting and consulting sales. The rest of the laid off crowd may not have the technical capabilities to product good software, so the quality of open source may decline while the quantity rises. This could hurt customers of Open Source software and prompt them to abandon it, because of the Market for Lemons.

Who Uses Open Source Software?
The primary audience for open source software is companies and individuals on a budget. In times of recession there will be more of these so the market for Open Source software will grow. With this additional demand, the supply will shrink. Not the supply of the bits, but the supply of developer time to meet the needs of the growing customer base. This may allow free software models to begin charging for their work and develop a paid software product. It will be the best of breed who go on to create companies around these innovative products, but the best Open source products may convert to commercial licenses.

Larger companies in times of recession will take fewer risks and this could hurt the market for open source software. Open Source is already more risky than commercially produced software and this keeps many away now. Those with the ability to accurately determine the quality of software may decline in times of recession and further limit the market.

What is the Value of open source software
First, we must acknowledge that open source software is not free. Many times it comes with bugs, it is not of the highest quality, the user base is smaller and the technical skills required to use it are higher requiring a bigger investment in education up front. The real value of Open Source software is the innovation and competition it brings to a market with huge barriers to entry. Small groups of coders working independently and in their free time can chip away at a large market, but it takes a very long time to make any headway or generate the kind of revenue that can support full-time concentration on a project. This amount of time is often longer than a recession. A lot of the major open source projects now were around during the dot-com boom and survived.

I think the market for Open Source products at the corporate level will shrink due to risk aversion, but grow among individuals because there are fewer of them working and they'll be spending less on technology. This could be good for Open Source because more people with technical skills will work on it. The problem this raises is that the high quality programmers are the last to get laid off and the low quality programmers only code for money.

Is Open Source recession proof?

If this question means, "Will open source go away in a recession?" The answer is no, there will still be plenty of people dedicating time to open source. Corporate sponsored open source projects will likely decline. Individually created projects may increase, though the quality will diminish.

The bottom-line is that recessions are bad. Open source will be hurt, but it will not go away.