Is open source recession proof?

Adrian Kingsley-Hughes of ZDNet.com asks if open source is recession proof. Here are my thoughts.

Posted By Randall on 14-Jan-2008

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.

Top 20 Entrepreneurial Quotes

Get your motivation on.

Posted By Randall on 15-Dec-2007

Lots of good motivational quotes from the likes of Thomas Edison, Guy Kawasaki, JFK, Eisenhower, and more...

Read all 20 Entrepreneurial Quotes

Starting Up and Down and UP and down...

Starting a company isn't always roses, sometimes it's really hard. Sometimes you'll want to give up. Don't.

Posted By Randall on 11-Dec-2007

Today I read, "On the Other Hand: The Flip Side of Entrepreneurship by Glenn Kelman," and it made me feel a bit more normal.

Hosted Solutions vs. Download and Install

One of the key decisions to make as a software company is how to sell your product. Hosted or installed?

Posted By Randall on 10-Dec-2007

Joel on Software, in Where there's muck, there's brass writes:

We offer both kinds of FogBugz--hosted and installable--and our customers opt 4 to 1 to install it at their own site. For us, the installable option gives us five times the sales. ... we've got racks and racks of nice, well-managed Dell servers with plenty of capacity and our tech support costs for the hosted version are zero. Life would be much easier. But we'd be making so much less money we'd be out of business.

How to sell Qrimp is a decision I have had to think about a lot. On the one hand, I believe SaaS is the future, but it's not the future yet. There are still customers who want their information locked up tightly behind a rugged firewall -- and I don't blame them. I'll attempt to justify their concerns, they are my concerns too, and I'll try to help you decide which to offer yourself.

Hosting is easier for the solution provider

Hosting is a much easier solution. The provider controls the environment, there's no need to fly out to the customer site to debug installations, you can concentrate on making the system good and powerful and avoid concentrating on the installation routine. That last one is only partly true -- every time someone asks for an account, we have to perform a little bit of work to copy files and create a database, but still, I can control all that from my laptop anywhere in the world.

For some systems, creating binary installables doesn't make a lot of sense. Can you imagine a locally installed version of Twitter or Youtube? Of course not. What about SalesForce? or Wikipedia? In some cases it makes sense, in others not. You'll have to look at your own product to determine, but in our case, both scenarios are viable. Due to Joel's post, I'm going to continue down the road we started and offer both a hosted solution and an installable version.

Belly Up?

A big part of my complaint with existing SaaS providers is that they are only available from the vendor's website. If all my data is on that vendor's computers and the vendor goes belly up, what are my options? If I can install the application on my own servers, I have less fear of using the service. If it's locked up in a proprietary database written in language I've never heard of or can't be installed on less than a $40,000 server cluster, I'd be cautious putting my business critical information on it.

Privacy

What if, at some point I grow to love the service and I'm at the point I want to host super sensitive information in the application? I won't be too comfortable knowing that some Database Administrator there could be sifting through it like they do over at FaceBook. What if it's my source code? What if it's the minutes to my Board of Director's meeting? What if it's my patent library? Who would put trade secrets in a hosted SaaS?

I'm a real proponent of privacy -- especially my own -- so I think it is important to produce a product I would want to use myself.

This is why SaaS is the future and not the now.

Scalability and Availability

The final issue I'll talk about today is scalability and the availability of Hosted solutions. One complaint a lot of SaaS customers have is latency -- especially at the end of the month. We're all procrastinators and we all rush in at the same time -- the last minute. If hundreds of thousands of people are hitting your servers all at once, scalability will be a concern. Of course we all use the best caching algorithms money can buy and unbelievably massive clustered environments to help us respond to the load, but what happens when the internet goes down? Power outages? Earthquakes?
Technicians!?

The best of both worlds

So, what we decided here at Qrimp is to offer both. We're fortunate to have an architecture that supports it and an installation routine that isn't too painful. I do all the development on a MacBook Pro running Windows XP, so I had to keep the system lightweight and easy to move around. We require IIS 6.0 and SQL Server 2005 and the .NET CLR. The best part about this is that it allows us to work off-line, so if the Internet goes down, we don't lose access to all of our data, just the stuff we've added since the last synchronize.