Open source profits, proprietary fails

The big money software companies, like Microsoft, still rely on proprietary software for their profits. Things are changing, though. While businesses like Microsoft and Sun are seeing their profits and growth decline, pure open-source play companies like Red Hat are actually gaining customers and profits in a down economy.

Take Red Hat for example. In Red Hat's latest quarter, which ended on August 31st, the company reported higher than expected revenue and profits. "Profits minus one-time expenses and including a 4-cent per share tax benefit hit $39.4 million, or 20 cents per share, up more than 30 percent from 2008."

It's not just Red Hat though. Novell recently reported a much more typical quarter for a tech. company in 2009. That is to say Novell also had a poor quarter. Except for their Linux lines -- that was a different story. There, Novell saw its Linux revenue go up 22% from the same quarter last year.

Microsoft? Oh, they're still worth billions and billions, but "Microsoft revenue declined 17% and net income declined 29% year over year in the company's fiscal 2009 fourth quarter due to continued weakness in global sales of PCs and hardware servers." Funny, that didn't seem to bother the Linux companies.

As for Oracle acquisition target Sun, well, if Oracle wasn't trying to buy it, I'd say Sun was in a death spiral. According to a recent IDC report, "Sun's second quarter server revenue declined 37% to $981 million, the largest percentage drop of any major [server] vendor." Maybe Oracle will want to re-think this deal since the European Commission has put the acquisition on hold over MySQL and database competition concerns.

Do you see a pattern here? I do. Open source-based businesses and product lines are doing quite well while those businesses that are centered on proprietary software are declining.

You don't have to believe in Richard M. Stallman style free software idealism to see that open-source software works well for business. By spreading the cost of development to the community and by bringing in many eyes to review the code, open-source software tends to be both cheaper and of higher quality than its proprietary competition.

It's not only the open-source companies that are benefiting from this: Google and IBM make their billions from running on open-source programs.

What I think has happened is -- despite Microsoft's best efforts -- business users have finally realized that open-source is kinder to their bottom line and just as reliable, if not more so, than proprietary offering. If I'm right, and this trend continues, we'll see the profits of the open-source companies and the businesses that rely on them continue to wax; the tide of proprietary software continues its slow, waning retreat.

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