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Despite Dire Predictions, Open Source and SaaS Remain Promising

Matt Asay has a good analysis up today about Goldman Sach's report predicting that things are about to get much worse for the tech industry. "The worst of the IT spending slowdown likely remains in front of us as we start the clock on slashed 2009 budgets," says the report. "We forecast 0% revenue growth for our group, below consensus at 5%, and 1% earnings growth, below Street at 2%." In addition, Goldman Sachs is predicting that revenues will stream primarily to large, established software vendors: Microsoft, Oracle, SAP, Symantec, and CA. I agree with Matt, though, that open source and SaaS (software as a service) players still stand to do well.

Matt writes:

"Interestingly, Goldman sees Salesforce.com getting a lower share of IT spending in 2009, and has slapped a Sell rating on its stock. I suspect Goldman may be off in this, given that SaaS is a great way to adopt IT at a measured pace with diminished risk."

I agree with this, and the keys there are "measured pace" and "diminshed risk." Web-hosted applications make a lot of financial sense for companies to use during uncertain financial times. Players such as SalesForce specialize in offering pay-as-you-go plans for application usage that allow for much more user and IT department flexibility than restrictive software licenses do.

We've also argued many times that open source stands to do well if purse strings tighten. The lesson about web-hosted applications is worth listening to for people working on open source projects with commercial goals. And, the Goldman report singles out Red Hat as a player that can withstand downward pricing pressure. Its model of reaping revenues from service and support, while the underlying software is free, is fine tuned for bad economic times. This was evidenced by the sterling quarterly performance that it just turned in, not to mention the more than $1 billion in cash the company has.

I doubt that only the most gigantic software companies will have steady ships during these economic times. On the open source front and the SaaS front, newer commercial models have potential to do well, and we won't see only old-school winners.

• Microsoft
• Red Hat
• Oracle

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