Open source revenues expected to soar -- but what of the savings?

But given that Microsoft remains one of the last pure (mostly) commercial software vendors, eschewing open source models (mostly), Microsoft may well stand to lose the lion's share of the revenues formerly known as commercial (mostly). And even $5 billion in unrealized potential revenue per year has to matter in Redmond, especially when high-growth patterns in other commercial software areas are under pressure from IBM, Google and SaaS.

Researcher IDC has published market-sizing figures calculating that revenue from open source-focused businesses totaled $1.8 billion in 2006. More impactful is the expected growth pattern, according to CBR:

IDC has also predicted that the market will grow by a compound annual growth rate of 26% from 2006 to reach $5.8bn in 2011, driven by customer interest in increased choice and more comfort with the subscription revenue business model.

I think they will be comfortable with total lower costs too. If we can extrapolate that the spending on open source approaches compared to the fully commercial alternatives conservatively reduces TCO by 25% -- though I've heard many say that the savings are higher -- we can come up with an even larger and more important number. And that is, What is the amount of savings that the IT market enjoys by the growth and development of open source alternatives to commercial lock-in?

Well, using my 25% lower TCO guesstimate, by 2011, using IDC's projections, some $7.25 billion that would have gone to commercial software will not. I happen to think this tabulation is quite low, and that enterprise and service provider moves to open source models over the next five years will pull closer to $20 billion a year out of the potential commercial software well (if there were no open source alternatives). That's a lot less money that enterprises would have to spend on IT ... which makes IT more productive, which lowers the costs of goods and services those enterprises deliver to consumers, which increases general productivity of the economy while mitigating inflation.

Last I heard these were all good things ... and good old Microsoft used to love this logic when Moore's Law was the primary reason for the IT productivity improvements. It sure wasn't CALs. Microsoft was quite fond of pointing out that the costs of computing were lowering each year, though you don't hear that so much from them any more. I expect an increasing reason for IT's overall productivity growth will now come more from open source adoption. IDC seems to say as much.

Of course many vendors (other than Microsoft) will have mixed bag when it comes to deriving revenues from both commercial and open source go-to-market models. Some may lose from one area, while gaining entirely new recurring revenues from others. Many will never recover the same profits levels from all-commercially licensed businesses. So the figures on how the trend toward open source affects individual vendors are tough to reckon. Even Wall Street can't work this one out for the multi-year future.

But given that Microsoft remains one of the last pure (mostly) commercial software vendors, eschewing open source models (mostly), Microsoft may well stand to lose the lion's share of the revenues formerly known as commercial (mostly). And even $5 billion in unrealized potential revenue per year has to matter in Redmond, especially when high-growth patterns in other commercial software areas are under pressure from IBM, Google and SaaS.

Perhaps that's why we seeing the recent fumbled attempts to ward off the "evils" of open source, even at the expense of the general productivity of IT and of the economy at large. Used to be what was good for General Motors was good for America. Can we same the same for Microsoft?