IDC has recently released one of the first 2006 sizings I have seen of the open source software (OSS) market. IDC also provides a forecast (naturally, it’s IDC!) that puts the OSS opportunity into perspective, raising questions that IT executives (vendors and users alike) and VCs need to ask themselves.
In a press release, IDC says “the market for standalone OSS is in a significant growth stage... Adoption of OSS will accelerate over the forecast period of 2007 through 2011 as barriers to adoption get knocked down. Growth in revenue, however, will lag behind the growth in distribution of open source software.” That last sentence is a key reminder from Matt Lawton, program director of IDC OSS Business Models research, that the rules in the software business may have changed.
First, here’s the data:
• Worldwide revenue from standalone open source software reached $1.8 billion in 2006.
• This revenue will reach $5.8 billion in 2011, representing a compound annual growth rate (CAGR) of 26% from 2006 to 2011.
IDC defines standalone OSS revenue as license and maintenance subscription revenue related to any type of OSS regardless of the operating system platform. Most of Red Hat's revenue qualifies as “standalone OSS” revenue for example. So does Covalent Apache-related subscription maintenance even if Apache is running on top of Windows. But the numbers do not include the related proprietary software revenue (that is, Windows in the Covalent example) and they do not include revenue from the sale of complementary services (e.g., the kinds of professional services and training that were a key part of the JBoss operation before it was acquired by Red Hat).
By comparison, a similar IBM-, Microsoft-, or even Sun-based software ecosystem sizing and forecast would be measured in the tens of billions, albeit growing more slowly. Be careful however because increasingly the IBM and Sun numbers will overlap with the OSS measurement. Some analysts have even hypothesized that the Microsoft and OSS ecosystems will someday intersect.
Here are some of the questions that suppliers and investors need to think about: How does the infrastructure potential within these IDC totals stack up against OSS applications? Applications traditionally account for 60%-70% of software spend but just the opposite seems to be happening with OSS, according to other IDC data released in May and discussed here. Is there any opportunity in the infrastructure sector given Red Hat’s and Apache’s head start and the support of the leading IT suppliers for Apache projects? What applications should a developer or investor concentrate on if he or she thinks the historical application/infrastructure split will emerge? And most important, how much will revenue lag adoption (see IDC quote above) and can a supplier risk an investment waiting for “a slower dime” when the whole 40 years of software market history has been based on “fast nickels.”
As for IT executives in enterprises and government, they need to ask whether the metrics and processes that they have traditionally used to run their IT shops are really changing. Is a maintenance contract for something as reliable as the Apache web server even necessary? A lot of JBoss application server users apparently felt they didn’t need one given Red Hat’s experience. How does this new development philosophy on the part of most IT suppliers fit with the emerging budget philosophy of paying for software as a service (SaaS)? And most important, can the enterprise truly “afford” to join the OSS movement, giving back as much as it gets?
Of course, those are just the questions. If you want to discuss some possible answers, post a comment or send an email. The IDC study, Worldwide Open Source Software Business Models 2007-2011 Forecast: A Preliminary View (IDC #206681) is available on the IDC web site.
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