Cost-Conscious Companies Turn to Open-Source Software

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How Open Source Works

Open-source software actually refers to a method of creating software where the source code—essentially the blueprint of a software program—is openly shared. This is in stark contrast to how conventional software providers such as Microsoft (MSFT) closely guard the source code to products like Windows Vista. The people who create any given open-source software project usually don't work for one company. The creators are typically a community of software developers—often thousands of them—spread across the globe.

Companies generally can expect to pay less for a subscription to an open-source product than for its proprietary counterpart. Most companies download a free version of the software and test it out before they buy a subscription. The biggest commercial open-source company is Red Hat (RHT), with more than $500 million in revenue in the 12 months ending in February. Red Hat sells multiple products. The most widely used is Red Hat Enterprise Linux, with about 2.5 million paid subscriptions that give buyers access to software updates and support services.

Linux Leads in Server Software

Linux running on corporate servers is one of the most common uses of open-source software among businesses, according to a September 2008 Gartner (IT) survey of 274 companies worldwide that either currently use open source or are planning to do so in the next 12 months. About 52% of the companies surveyed are already using open-source server software and another 23% plan to use it within the next 12 months. Linux as an operating system for the desktop is much less established in enterprise use, with 39% of respondents in the Gartner survey currently using it and another 22% expecting to use it within the next year.

About two years ago, Office Depot (ODP) began installing the Linux operating system by Novell (NOVL) on its servers, moving away from proprietary software for a range of hardware including IBM (IBM) mainframes and Sun (JAVA) servers. "Each one of those platforms requires adept teams that know those operating systems and it's more cost-effective to standardize on one platform," says Michael Manis, vice-president for global shared services at Office Depot. Today, Office Depot runs about 400 servers with the Novell software and the company continues to add more servers as it makes sense. Manis says the software gives the company more flexibility because it runs on off-the-shelf servers and the company can build the system as it's needed—rather than, say, upgrading an entire mainframe all at once.

Office Depot says college graduates are also more excited about working with open-source software rather than proprietary programs, making recruiting easier. "You can't go out and get somebody out of the university today who is a mainframe COBOL expert," says Manis, referring to one of the oldest programming languages often used on the hulking computers that serve hundreds of people.

As the economy worsens, some degree of paralysis has set in with regard to IT spending. Companies that have stopped spending money on large, proprietary systems are unlikely to use budgets for open-source software spending, says 451 Group's Aslett. Others may flock to commercial open-source vendors but may be unwilling to pay subscription fees, since many of these packages are available for free. "Enterprises might do open source and support themselves, and they may not sign up for commercial packages," Aslett says.