How Open-Source Software Can Affect A Company's Value

CIO - Open-source software is an increasingly popular software development and distribution model that may spread further in the face of financial constraints in our current economy. With publicly available source code generally offered without charge, it is tempting to look to open source for potentially significant cost savings in this time of need.

But not so fast. While proponents of open source proclaim the benefits of "free code," it might better be compared to the free puppy offered to a good home. The "puppy" may come at no initial cost, but the ongoing maintenance and undisclosed hidden dangers may create unforeseen hassles in your corporate home. Open source has complex legal restrictions that can create copyright and patent compliance issues and corporate transaction challenges for companies that rely heavily on customized software or that distribute software to partners or customers.

In 2004, the Federal Reserve, FDIC and other federal financial regulatory agencies outlined various strategic and legal risks of using open-source software in the jointly issued guidance notice "Risk Management of Free and Open Source Software." Public company disclosure statements also demonstrate open-source issues. In their annual reports, many public companies note their use of open source as a risk factor to their businesses, while others go as far as to highlight their lack of open source as a positive factor. Private companies seeking to be acquired have seen their valuation drop, or have seen acquisitions fail altogether, as a result of open-source software discovered during the due diligence process.

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