posted by David Adams on Mon 16th Aug 2004 17:44 UTC

"Section 7"
The side of the story that's ignored is that there are two sides to the software industry: the producers and the consumers. In fact, the number of companies and individuals who use software vastly outnumber those that produce it. And there are two sides to corporate profit: revenues and expenses. The average corporation spends a huge amount of money, a significant percentage of its IT budget, on software licensing.

Take a look at the largest companies in the world. Of them, only Microsoft makes the majority of its money from software licensing. A handful of them, IBM, HP, Siemens, Hitachi, Motorola, Lockheed, Intel, make some of their money from software sales, generally a small part. A few, like Wal-Mart and Best Buy make a small portion of their revenue from retail sales of software. So the vast majority of large global companies consume software rather than produce it. Same goes for small businesses. And let's not forget governments and academic and research institutions, some of the other largest consumers of software. When looked at it from this angle, if the cost of software is driven down by competition from open source, and thus a major cost of doing business is reduced for global industry, will it be a net gain or net loss to the economy?

And the cost savings can come in unexpected places. A large corporation that I know of replaced thousands of Sun/Solaris servers with inexpensive Intel/Linux ones and ended up saving $250,000 per year -- in electricity -- on top of millions of dollars in licensing fees. Where did that money go? Did it disappear into the ether? Well, Sun Microsystems (and the power company) probably thinks it did, but in fact, instead of going to Sun, it went to pay salaries, to fund new projects, and back to the shareholders in dividends and a kick in the stock price due to greater profits. In other words, it went right into the economy. Every dollar not spent on software licenses is spent on something else.

And economics is not a zero-sum game. Money can be spent in ways in which its positive impact on the economy is greater or lesser. If a firm spends $25 million developing a software product that never achieves widespread use and never makes much of an impact (and a huge proportion of commercial software projects fall into this category), the only positive impact on the economy will be the transfer of funds from company coffers to general circulation (and taxes) via the salaries of the employees involved.

On the other hand, if a useful piece of software becomes available at little or no cost to many companies, especially to companies that otherwise would not have been able to afford such software, it can give a major boost to that company's productivity. In that case, even if no money was spent, all those companies increased their efficiency and revenues. Increased productivity and decreased expenses can have a massive effect on a company's bottom line.

Table of contents
  1. "Section 1"
  2. "Section 2"
  3. "Section 3"
  4. "Section 4"
  5. "Section 5"
  6. "Section 6"
  7. "Section 7"
  8. "Section 8"
  9. "Section 9"
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