Open For Business

Federal, state and local governments' love affair with open-source software isn't cooling off. Government use of open-source technology, in fact, continues to expand beyond the Linux operating system into infrastructure software such as application servers and databases, as well as development tools and even applications.

"The level of acceptance of open-source software in government has never been better," says Mike Byrd, director of government sales for Red Hat, which provides Red Hat Linux, the JBoss Web server and other open-source products and support services.

Such growth offers opportunities to solution providers and VARs. But it also means they have to continually develop their expertise in open-source technologies, adjust their business processes to a subscription pricing model and overcome lingering distrust of open source in some government quarters.

Government agencies are voracious IT purchasers. Federal government spending on information technology will grow from $63 billion in fiscal year 2006 to $81 billion by fiscal year 2011, according to Input, a government research firm. Input predicts that IT spending by state and local governments will grow even faster, from $50 billion in 2006 to $72 billion by 2011.

Open source is a small but fast-growing piece of that pie. Government spending on open source--mostly for services and maintenance contracts--will increase at a compounded annual growth rate of more than 30 percent between now and 2009, according to IDC's Government Insights research wing.

Even with such rapid growth, Government Insights predicts that Linux--which has been the open-source trailblazer in government markets--will account for only 15.2 percent of the federal government's $2.1 billion in spending on enterprise-server software by 2009. Open-source software such as the MySQL database, Apache Web server and JBoss application server will account for only 2.5 percent of the U.S. government's $3 billion spending for system-infrastructure software by 2009.

Adoption of open-source software at all levels of government in the United States generally lags adoption by governments in Europe, Asia and South America, according to Input.

NEXT: The ultimate open-source motivator.

While there are numerous reasons for open source's increasing popularity in government, lower cost remains far and away the chief attraction. While most open-source software vendors charge annual subscription fees for support services, the lack of big up-front license fees makes open-source packages attractive for budget-conscious agencies. Government agencies on all levels are also turning to open source to reduce their dependence on--or at least improve their negotiating position with--proprietary IT vendors.

Open-source technology is a linchpin of government efforts, such as the Component Organization and Registration Environment (CORE.gov), to build software and components that can be reused by government agencies on all levels. Federal government agencies, such as the Department of Defense (DoD) are overhauling their IT systems to make more information available to a wider audience of agency decision-makers and employees through the use of service-oriented architecture (SOA).

"There's some major retooling going on," says Red Hat CTO Brian Stevens. Because IT budgets remain so tight, many government IT managers are turning to open-source software to support those projects, he says.

Few government IT departments, however, are ripping out their core systems in favor of open-source technologies, says Kerry Ancheta, enterprise sales vice president at MySQL. Most continue to use databases such as Oracle's or IBM's DB2 for their central processing needs and surround them with new applications running on open-source databases like MySQL or the PostgreSQL-based Enterprise DB.

Ancheta says 90 percent of the development work being done on open-source databases involves new applications and only 10 percent is in migrations from commercial databases.

NEXT: Another open-source attraction.

Another attraction is the growing pool of IT workers skilled in Linux and other open-source software, says Mary Ann Fisher, IBM's director of open-source initiatives for the global government industry. The communities built around open-source products can be a no-cost source of support for government IT workers on tight budgets. And open-source software is widely viewed as more secure than proprietary products given that open-source code is visible to everyone and so has fewer bugs that hackers can exploit.

Recent moves by open-source software vendors and adopters have raised the visibility of open-source technology and added to the growing sense that it's a legitimate alternative to traditional software products.

In June, the DoD's Office of Advanced Systems and Concepts released the Open Technology Development Roadmap Plan, a 79-page report that calls for the department to adopt more open-source technologies and incorporate open-source strategies into its IT procurement and development processes. The document is widely viewed as a major endorsement of open-source software by the government's biggest IT buyer. IDC Government Insights says DoD spending for open-source software, pegged at $2.9 billion in 2004, will reach $4.1 billion in 2009.

In November, Novell--maker of the SuSE version of Linux--struck a deal with Microsoft under which the two vendors are jointly developing technology for Windows-Linux integration and SuSE Linux users are protected against patent lawsuits from Microsoft. Aside from the obvious benefits of legal indemnity and improved interoperability for users, the pact represents a major attitude shift toward Linux by Microsoft, whose CEO, Steve Ballmer, once referred to Linux as "a cancer."

Exactly how far up the technology stack government will adopt open-source software remains an open question. While still a relatively small part of total government IT acquisitions, Linux is firmly entrenched, and open-source databases are being installed at a rapid clip.

Craig Abod, president of Carahsoft Technology, a government IT solution provider, says acceptance of MySQL is about where Linux was two years ago. Open-source Web servers such as Apache and application servers such as Red Hat's JBoss are also catching on in the public sector, as are open-source virtualization tools from XenSource.

Less clear is just how much federal, state and local governments, given their often unique computing needs, will adopt open-source applications. Government Insights says that governments haven't broadly adopted open-source applications in financial management and accounting, human-resources management and case management. The market-research firm predicts that open source will account for only 1.3 percent of the $7.3 billion the federal government will spend on applications in 2009.

But there are exceptions. Oregon's Department of Human Services is using the open-source SugarCRM application to manage interdepartmental communications and track correspondence with Medicaid patients. An increasing number of government agencies are using open-source telco-related applications such as Asterisk's PBX software and VoIP software from iptel.org. And the Open Source Software Institute, a nonprofit organization of government, corporate and academic representatives formed five years ago to promote government use of open source, is developing a suite of public-safety applications for state and local governments.

Government IT operations, nevertheless, are more likely to use open-source development technologies such as Eclipse to build applications that run on open-source platforms. Government Insights forecasts that the CAGR for government spending on open-source application development and deployment technologies will be 8.4 percent through 2009.

NEXT: Helping goverment IT managers understand open source's value.

It has taken some time for solution providers' selling models and government agencies' procurement processes to adapt to open-source software. Those applications are typically free, and vendors and solution providers make money by providing development, support and maintenance services.

While recurring revenue is attractive to solution providers, it can pose a challenge to those who are used to selling and buying traditional applications and hardware that have one-time costs. Managing subscription renewals can be cumbersome for solution providers, for example. But Carahsoft's Abod believes both sides have largely gotten over those hurdles.

It has also taken government IT managers awhile to fully understand the value of open-source software that doesn't have an attached price, as commercial software does, says Peter Gallagher, president of Development Infrastructure, or Devis, a leading provider of IT solutions and consulting services to government agencies. IT managers, he says, often overlook the potential value of using the same application throughout an organization--something that can't be done with the restrictive licenses of commercial software.

Gallagher refers to products such as Red Hat Linux and JBoss as "commercial open source" to allay doubts that conservative IT managers have about open-source software. "It makes people anxious," he says.

Because open-source software is much less expensive than high-margin proprietary products, solution providers are adjusting to the fact that they must earn their money based on their know-how rather than just their sell-through. "It's turning into more of a service-based business rather than a reseller-based business," Red Hat's Stevens says.

And because open-source technology isn't always the best solution for a government customer's needs, it's up to VARs and solution providers to educate themselves about all of the open-source and proprietary products out there, says Nancy Faigen, vice president and general manager of Linux for Novell Americas. "They need to be able to make an educated recommendation," she says.

Solution providers have to negotiate some tricky government-procurement rules too. Most RFP policies were designed with proprietary software and its big up-front costs in mind, says Input senior analyst Michelle Miller. And in competing for contracts, some big vendors play loose with the definition of open source, pitching products that contain proprietary technology. "There can be a lot of gray area for open source," Miller says. "That definitely becomes an issue."

And like all markets, the government-software market is subject to channel conflict--maybe more so because governments advertise procurement contracts so widely, Abod says. As the master GSA Schedule holder for Red Hat, MySQL and JBoss software, Carahsoft is the master distributor of those products for all solution providers that sell to the federal government. To prevent channel conflict, Carahsoft has established a program whereby VARs register when bidding for government contracts. "We're helping to manage that process for Red Hat and MySQL to minimize channel conflict as much as possible," Abod says.

One strategy solution providers should pursue is partnering with systems integrators as closely as possible. Major integrators such as BearingPoint, CSC, IBM, SAIC and Unisys have fully embraced Linux and are a driving force in government's acceptance of open-source software, says Shawn McCarthy, a Government Insights analyst. For every $1 they spend on open-source subscriptions, governments spend about $8 for professional services, estimates Red Hat's Byrd.

Open source is changing the way that government IT organizations operate, and that means solution providers must change the way they do business with them. But the potential rewards are great if they can make the transition.