Red Hat: Financial crunch will spur business for open source

During a trip to Australia, the CEO of Red Hat predicted that open source will be better off than proprietary software after the end of the financial crisis. But lately, other observers have been saying open source carries its own costs.

Will open source software gain more business due to the current economic crunch? While in Australia this month, Red Hat CEO Jim Whitehurst appeared to say so. Yet open source isn't necessarily less costly at all than proprietary alternatives, some analysts suggest.

"What I do know is that open source software will be in much better shape, coming out of the financial crisis than going into it, relative to our proprietary competitors," Whitehurst reportedly said, during an interview with ZDNet Australia. In the widely linked to article, the Red Hat chief is also quoted as predicting that, during a slowdown in spending for more functionality, he'd expect more companies to consider open source as an option.

But assuming that companies do explore open source, what are they likely to find? Like other software vendors, open source companies do need to generate revenues to stay in business, after all.

Even as far back as the LinuxWorld OpenSolutions show in February of last year, customers already familiar with open source were complaining about the associated costs, hidden or not. One revenue-generating activity sometimes used is to charge customers money for support services.

However, a recent study by the 451 Group discovered that while ad hoc support services are offered by almost 70% of the vendors assessed, they represent the primary revenue stream for less than 8% of the "open-source-related" vendors.

On the other hand, most open source vendors use some sort of commercial licensing to distribute, or generate revenue from, open source software, noted Matthew Aslett, an analyst at the 451 Group, in a blog post last week. Subscription-based pricing is yet another "revenue generation trigger" for open source.

Moreover, "half the vendors assessed are using hybrid development models -- combining code developed via open source projects with software developed out-of-sight of open source project members," Aslett added.

Open source vendors, of course, can also choose from different types of software licenses. "The license used for an open source project (reciprocal or permissive) has a strong influence on development, vendor licensing, and revenue-generation strategies," the analyst noted.

In all, the 451 Group uncovered more than 80 different combinations of primary revenue trigger, vendor licensing strategy, and development model being followed by open source vendors.

Yet if anybody knows how to generate revenues from open source, it's Red Hat, a company long recognized as the industry leader in Linux software sales in the US.

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