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The True Costs of Software

By Alan MacCormack
May 29, 2003 12:00 PM ET

Computerworld - How much does "free" software really cost? That question remains at the heart of decisions made by CIOs and other technology leaders trying to decide what software and associated hardware will lead them into the future.
Advocates of Linux and open-source products sometimes argue that because their software is distributed freely, it's self-evident that their software is more financially attractive than propriety software from companies such as Microsoft, IBM, SAP or Oracle. IBM suggests that a consensus is emerging that the total cost of ownership (TCO) of Linux is significantly lower than similar costs for competing proprietary operating systems (although it doesn't extend this argument to other open-source software that competes with its own revenue-producing software).
Journalist accounts of the spread of open-source also tend to assume that the price difference is a critical competitive advantage. "Because it is free," declared a recent Business Week cover story, "Linux is undercutting Microsoft much the way Microsoft has gutted its rivals with lower prices for the past two decades." Yet anyone who looks into the problem of measuring the TCO of software quickly recognizes how murky this field can be. "Free," it turns out, doesn't necessarily mean cheaper.
To assess the merits of these various claims, I recently reviewed a large sample of publicly available articles that purported to address the TCO of different software server platforms. The first fact to emerge was that most of the 84 documents I reviewed could not even be considered studies -- they didn't capture sufficient data on the full range of costs needed to evaluate TCO and often based their conclusions on the analysis of only a single firm. Yet the handful of studies that were more comprehensive revealed that the debate about software TCO is more complex than is typically portrayed.
To begin with, it appears that the price of software itself -- whether it's free or not -- is so low relative to the TCO that it may have little impact on the outcome of IT investment decisions for many purchasers. In most cases, the price of software proved to be less than 10% of the total cost of ownership. Where costs do become significant for all types of software is in the level of staffing needed. By staffing, I mean the training, maintenance, support, administration and other personnel costs necessary to run the software package efficiently. These costs can add up to as much as 50% to 70% of a software system's TCO over its useful life.
Yet even staffing costs vary greatly depending on what type



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