Open source software makes economic sense.

Floss for economic health. That's the conclusion of a newly released

European Commission study on the impact of Free, Libre, and Open Source

Software (Floss) on the European IT sector.

The EC study, conducted by UNU-Merit, a research institute of the

University of Maastricht in the Netherlands, finds that the use of open

source software adds 263 billion Euros to the European economy and "the

number of employees among firms contributing code to Floss projects is

at least 570,000."

It also says that open source software programmers, nearly half of which

are based in Europe, volunteer least 800 million Euros (roughly US$1

billion US) worth of labour.

The report calls for "correcting current policies and practices that

implicitly or explicitly favor proprietary software" by offering fairer

R&D incentives, supporting standardisation, avoiding vendor lock-in in

education settings, equitable tax treatment for open source

contributors, and encouraging partnerships between businesses and the

open source community.

The report estimates that the Floss-related share of the economy could

reach 4% of European GDP by 2010.

"By providing a skills development environment valued by employers and

retaining a greater share of value addition locally, Floss can encourage

the creation of [businesses] and jobs," the report says.

That's a perspective shared by Richard Gorman, a venture partner at

Silicon Valley VC firm Bay Partners, which invests in open source

companies. "Open source is clearly a major trend and is clearly an

economic stimulus for the economy today," he said. "The reason we like

the open source business model is that it's a way of entering markets

and solving customer problems in a very effective way, both from a

control and an economic perspective."

Some of the report's findings and recommendations may rankle leading

proprietary software makers such as Apple and Microsoft.

One policy recommendation seems particularly applicable to Apple and the

ties between the iPod and iTunes Music Store: "Explore how unbundling

between hardware and software can lead to a more competitive market and

ease forms of innovation that are not favored by vertical integration."

And one of the report's findings is that users of Microsoft Office are

no more productive than users of OpenOffice. "We also investigated the

productivity of the employees in using Microsoft Office and

OpenOffice.org," the report says. "Office suites are widely used and are

a good test bed and representative for a comparison on issues like

effort and time spent in the daily routine of work. Delays in the task

deliveries may have a bigger impact than costs on the organisation's

management. Our findings report no particular delays or lost of time in

the daily work due to the use of OpenOffice.org."

The report, however, stops short of recommending businesses switch to

free applications such as OpenOffice because "employees may perceive

that their work is under-valued using 'cheap' OSS products." It says

organisations should consider that migrating away from proprietary

software might have implications beyond cost.

Microsoft maintains that the total cost of ownership for Windows

software is less than Linux and continues to host dozens of case

studies, white papers, and customer testimonials to that effect on its

Get the Facts website.

But Gorman insists the open source software makes economic sense. "It's

a very good business model for entering large, existing markets and

taking significant share, and creating significant customer and investor

value," he said. "If you're an incumbent competing with a new company

that's an open source company, it's very difficult to adjust or change

your business model to be competitive. Usually by the time they end up

adjusting, it's too late."