How to Save $1 Trillion a Year with Open Source
Published 14:14, 28 September 09
Michael Tiemann probably has more experience in making money from free software than anyone. He set up his company Cygnus as far back as 1989, a little while after coming across Richard Stallman's GNU C Compiler (GCC). He was amazed by its quality, and decided that it must be possible to build a business around it. As he told me ten years ago:
It comes down to my relatively simple belief that free markets are really the right way to run economies, and that if you've got a better way, it should be possible to make that profitable and successful.
I did want to get his blessing, as it were. He said: “absolutely” [to the idea of starting a company based around the GCC], as long as you adhere to the GNU Public Licence.
Stallman's love of recursive acronyms manifested itself once more: he claimed that Cygnus stood for “Cygnus, Your GNU Support”, although Tiemann comments:
That's like saying Emacs stands for “Eight Megabytes And Constantly Swapping”. The reality of the situation was that we couldn't find any names that were not previously registered. When I lamented this fact to a couple of my Net friends, one of them searched the dictionary for words that contained “GNU”. And “Cygnus” seemed the one that was least obscene. But people very quickly attributed what “Cygnus” might actually stand for. I'm happy for Richard to own one of those definitions.”
Cygnus flourished, and in 1999 was acquired by Red Hat. Since then, Tiemann has had various roles at the company, and today rejoices in the job title of Vice President of Open Source Affairs. This essentially gives him scope to ponder some of the deeper questions of open source theory and practice, and to travel around the world imparting his ideas in a wide range of contexts.
I spoke to him last week when he was in London for a lightning visit before rushing off to yet more locations to spread what turned out to be a consistently upbeat view of open source – indeed, I've rarely met someone so optimistic about its future.
In essence, that optimism stems from the magnitude of the savings that open source can bring to companies – and the world economy. Tiemann spells this out in a fascinating paper [.pdf], entitled “How Open Source Software Can Save the ICT Industry One Trillion Dollars per Year”.
I urge you to read in full discussion, but here is the argument in essence:
The $1T per year figure is extrapolated from the statistics that world-wide ICT is expected to top $3.4T USD in 2008 and because 18%-30% of all ICT investments, predominantly based on proprietary software because that is the dominant model of the industry today, are dead-loss write-offs.
Before explaining how open source can remedy the $1T USD problem, it is instructive to look at a contrary view, which is that in 2008 Open Source Software costs the IT industry $60B per year in lost licensing fees. That is to say that because of open source software, IT customers spent $60B less than they would have otherwise. Clearly this is a case of glass-half-full/glass-half-empty: the customers who were able to spend less on ICT were able to create more value for themselves 10. We shall now see that this $60B/year savings is just a small fraction of the total potential savings that open source solutions can deliver on a global basis.
In 2006 Open Source software and services earned $1.8B USD50 as compared with $235B USD in packaged software sales51 (which likely pulled through an additional $235B USD in support and services52). No matter how one looks at it, Open Source solutions represent less than 1% of global software spend, and yet now enable a reduction of more than 25% of such spending (because $60B is more than 25% of $235B). More impressively, Open Source solutions represent less than 0.1% of global ICT spend, and have already been estimated to deliver back 2% in total returns ($60B is approx 2% of $3T). With these kinds of numbers, the idea of spending half one's budget on open source software and half on proprietary becomes meaningless: the whole problem could be solved twice over with Open Source solutions for 10% of what is being spent right now.
Tiemann's optimism in the face of all the challenges confronting open source is based on these enormous numbers, which make the case for free software so compelling.
What I found particularly interesting in talking with him is how he frames this argument in terms of externalities, which are costs (or benefits) not fully reflected in the price of something (probably the best example of an externality is that of the pollution caused in the manufacture of an object, not included in the price directly but paid for by everyone indirectly by living with the consequences of that pollution.) Tiemann sees huge negative externalities in the way proprietary software is produced today, and believes that open source can reduce these, just as green technologies are able to reduce the negative externalities of traditional industrial production.
Indeed, another word that Tiemann used frequently in his interview was “sustainability”: open source software is inherently more sustainable than closed source, because of its open, modular nature, and the fact that it is able to respond more easily to the emerging needs of users. He also explicitly related this kind sustainability to the even more problematic ones confronting our planet – obviously something I found attractive given my own tendency to do the same.
Talking with Tiemann, I was also struck by the importance of his role at Red Hat: given their potential impact in many spheres, it is crucial that these kind of big ideas are aired in economic, political and social forums around the world, as well as in the technological ones. It's good that in Michael Tiemann Red Hat has found someone capable of communicating them - and the optimism they engender – with such skill and passion.