Open Sources | Rodrigues & Urlocker » The economic impact of open source on Europe (Report)

January 13, 2007 | Comments: (0)

The economic impact of open source on Europe (Report)

TAGS: Open Source

Rishab Aiyer Ghosh and UNU-Merit put together this insightful report [PDF] on the impact of FLOSS (an unfortunate acronym for free/libre open source software) on the European economy. It was financed by the European Commission’s Directorate General for Enterprise and Industry.

Why does it matter? The paper starts by suggesting that the information economy accounts for ~10% of the GDP of most developed nations, and more than 50% of their economic growth. Think about that. If even remotely true, it means that the kind of IT we espouse matters a great deal. It's fundamental to our future economic growth. Do we want closed or open economies? I think the answer to that is obvious.

Some of the more interesting findings, some of which don't ring true for me:

• FLOSS market share [is] higher in Europe than in the US for operating systems and PCs, followed by Asia. These market shares have seen considerable growth in the past five years.

  ASAY: I can buy this for operating systems and PCs, but my own experience shows that commercial adoption of open source is generally much higher in the US than in Europe, and far behind in Asia-Pacific.

• FLOSS market penetration is also high – a large share of private and public organisations report some use of FLOSS in most application domains. In the public sector, Europe has particularly high penetration, perhaps soon to be overtaken by Asia and Latin America. In the private sector, FLOSS adoption is driven by medium- and large-sized firms.

• Almost two-thirds of FLOSS software is still written by individuals; firms contribute about 15% and other institutions another 20%.

  ASAY: This is probably true if the report is measuring open source, generally. But for widely used open source (Linux, Apache, etc.), the software is developed by individuals who largely work for corporations that specifically pay them to write open source software. I doubt the report makes this distinction, largely because it would be difficult to trace who works for whom, given that most developers participate as individuals, though their ability to do so regularly results from a corporation's paycheck.

  
• Europe is the leading region in terms of globally collaborating FLOSS software developers, and leads in terms of global project leaders, followed closely by North America (interestingly, more in the East Coast than the West). Asia and Latin America [Page 9]

  This is probably true, which is why I always find it so odd that European-based open source companies relocate to the US...so that they can be next to VCs(???). VCs are nice and necessary, but they're not buying product. Be where your customers are. Your customers are likely often in the US, but almost never in the Bay Area.

All of which is interesting and perhaps a bit self-congratulatory. But where the report gets really interesting is when it attempts to measure the direct impact of open source on the European economy:

• The existing base of quality FLOSS applications with reasonable quality control and distribution would cost firms almost Euro 12 billion to reproduce internally. This code base has been doubling every 18-24 months over the past eight years, and this growth is projected to continue for several more years.

  If you're a proprietary software manager reading those numbers, you've got to be scared witless. Roughly $12 billion in software out there, doubling roughly every two years. Why would anyone pay you for your software when they will increasingly be able to get equivalent or better quality software for free, and spend their money on service, when they can (and not when the vendor dictates), not code? (Hint: They won't.)

• This existing base of FLOSS software represents a lower bound of about 131 000 real person-years of effort that has been devoted exclusively by programmers.

• Firms have invested an estimated Euro 1.2 billion in developing FLOSS software that is made freely available. Such firms represent in total at least 565 000 jobs and Euro 263 billion in annual revenue. Contributing firms are from several non-IT (but often ICT intensive) sectors, and tend to have much higher revenues than non-contributing firms.

• Defined broadly, FLOSS-related services could reach a 32% share of all IT services by 2010, and the FLOSS-related share of the economy could reach 4% of European GDP by 2010. FLOSS directly supports the 29% share of software that is developed in-house in the EU (43% in the U.S.), and provides the natural model for software development for the secondary software sector.

And here's the kicker:

• Proprietary packaged software firms account for well below 10% of employment of software developers in the U.S., and “IT user” firms account for over 70% of software developers employed with a similar salary (and thus skill) level. This suggests a relatively low potential for cannibalisation of proprietary software jobs by FLOSS, and suggests a relatively high potential for software developer jobs to become increasingly FLOSS-related. FLOSS and proprietary software show a ratio of 30:70 (overlapping) in recent job postings indicating significant demand for FLOSS-related skills.

In other words, you have nothing to lose but your chains. It may well be that open source won't lobotomize the Proprietary Bloc so much as make it irrelevant and insignificant over time. It's happening already.

What about innovation? The report addresses this, too:

• FLOSS potentially saves industry over 36% in software R&D investment that can result in increased profits or be more usefully spent in further innovation.

  ASAY: Importantly, these savings apply to everyone, not merely open source companies/developers. Open source isn't biased in distributing its benefits.

• ...• Increased FLOSS use may provide a way for Europe to compensate for a low GDP share of ICT investment relative to the US. A growth and innovation simulation model shows that increasing the FLOSS share of software investment from 20% to 40% would lead to a 0.1% increase in annual EU GDP growth excluding benefits within the ICT industry itself – i.e. over Euro 10 billion annually.

If the investment in open source makes sense for Europe, it also makes sense for the US (to maintain its lead) and for the rest of the world, to close the gap. More open source = more innovation = more jobs = more money for everyone.

So what does this mean for Europe? The report challenges us with the following scenarios:

Europe faces three scenarios: CLOSED, where existing business models are entrenched through legal and technical regulation, favouring a passive consumer model over new businesses supporting active participation in an information society of “prosumers”;
GENERIC, where current mixed policies lead to a gradual growth of FLOSS while many of the opportunities it presents are missed; VOLUNTARY, where policies and the market develop to recognise and utilise the potential of FLOSS and similar collaborative models of creativity to harness the full power of active citizens in the information society.

Amen.

I've hit the highlights from the executive summary, but the real meat of the report is in its detailed findings. I'd encourage you to take a look, and to de-propertize your software lives. You'll be better for it. I promise.

Burn the boats.

Posted by Matt Asay on January 13, 2007 12:49 PM

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