Here's why open source software startups often get stronger in downturns and recessions, according to executives who navigated the Great Recession

• As global markets teeter on the brink of a coronavirus-driven recession, experts believe that open source software companies are well-poised to continue growing.
• Companies like Red Hat grew during the Great Recession, and the open source operating system Linux hit a tipping point as the prevalent standard for running servers in the cloud.
• For companies, open source software - developed largely or entirely by teams of volunteer developers and released entirely for free - helps cut costs and break reliance on major vendors like Oracle or Microsoft.
• Meanwhile, some in the industry expect there to be a boom in open source software in the short-term, with more programmers staying home amid shelter-in-place mandates in Silicon Valley and elsewhere - meaning more time to work on hobby projects.
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The financial crisis of 2008, and the Great Recession that followed, saw great tumult, as stock markets around the world plummeted amid a housing market crash.

Amid the tumult, though, at least one company did just fine: Red Hat, the open source software company that rose to prominence as the leading provider of IT support for companies using the Linux operating system, a free alternative to Microsoft Windows. IBM has since purchased Red Hat in a recent deal valued at $34 billion.

A major factor in Red Hat's durability in that moment of crisis, says CTO Chris Wright, was that focus on open source. With companies tightening their belts, free software that was as good or better than that sold by the likes of Oracle or Microsoft was an attractive way to have their cake and eat it, too.

"From the pure numbers and business impact, our growth continued through the economic downturn," Wright told Business Insider. "I will certainly cite that open source was a component in our ability to maintain our business growth during that economic downturn."

That's a lesson that can be applied today, as the spread of coronavirus has many economic experts worried that history will repeat itself: The stock market's ups-and-downs have already led to layoffs across Silicon Valley and elsewhere. Just like last time, however, forces are aligning to bring open source into the spotlight, says open source licensing lawyer Heather Meeker.

"When times are tough and people are cutting costs, that's when businesses start turning to open source even more than they do," Meeker told Business Insider.

Indeed, if there is a recession in the near future, industry insiders expect that open source will not only survive, but thrive.

Many open source software companies have a similar model: They provide the software, services, and customer support that companies need to use open source software, which is otherwise free. Open source software development is often led by a sponsoring company, but accepts code contributions and feedback from volunteer developers all over the world.

Companies like Red Hat and SUSE manage the development of their own, free versions of Linux, and then sell additional services. More recent examples might include Docker or MongoDB, which both manage and develop the open source software of the same name.

"When I think about how we've come together to build out the communities and opportunities at hand, it's interesting in the sense that if you look at the venture market, what typically happens when you have an economic downturn for a period of time, that's when you see the greatest innovation," Yvonne Wassenaar, CEO of the automation software company Puppet, told Business Insider.

2008 was 'not a large event' for many open source software companies

John Newton, founder and CTO of the information management software company Alfresco, says that not much changed at the company day-to-day during the 2008 financial crisis. The rate of growth slowed down, but the fundamentals stayed strong, and it gave the executive leadership the breathing room to make a long-term business plan.

"We did see a slowdown overall in the business and not going quite as fast as we had before, but it continued," Newton said. "I think one of the toughest things is to figure out, 'what does this mean? What comes next?' I would say it's actually pretty good news in general, especially if they provide the basis for future growth of companies."

Likewise, Gerald Pfeifer, CTO of SUSE, says the 2008 financial crisis was "not a large event for SUSE's business."

"Looking back at 2008, I did not have too many memories," Pfeifer told Business Insider. "I thought, am I losing memory? Am I getting old? I reached out to some of my colleagues. The answer I got from all of them was pretty much the same. In 2008, both from a business perspective and a community perspective, we have actually weathered through very well, certainly better than other industries."

Dries Buytaert, CTO and cofounder of the web platform company Acquia, even says this company "grew pretty rapidly" during the Great Recession. Acquia maintains Drupal, an open source content management system for websites. In 2009, the White House adopted Drupal, helping build credibility for Acquia in turn.

"We came out of the recession with the world being a lot more confident with open source," Buytaert told Business Insider. "It was a great thing. For us, that was the driver."

'Companies want to take more control over their own destiny'

One way organizations can easily cut costs is using open source software, Acquia's Buytaert says, making the last financial crisis "transformational" for open source.

"During these economic downturns, organizations tend to look to lower their costs," Buytaert said. "They need to do more with less because their budgets are being squeezed with economic pressures. That has actually given a bump to open source."

It's also cheaper for the companies maintaining the open source software, as they can invest less in sales. Since open source software is free for anyone to try out, developers can work with it, customize it to their needs, and introduce it to the companies they work for, without any salespeople involved.

"The discovery process of open source is pretty light-touch," Newton said. "In fact, under the circumstances where people are locked away at home, anything that requires some sort of face-to-face meeting and traditional sales process [isn't needed]. From the last recession, open source ended up being pretty good for us."

And not only is it cheaper, Buytaert says, open source software helps companies retain more control over what they're building. Because open source software, by its very nature, is free for anybody to download and remix to their heart's content, it means that companies can custom-tailor any code for their exact purposes - without having to rely on bespoke solutions from traditional software vendors like Oracle, SAP, Microsoft, or anybody else.

"There's another element which is we found that companies want to take more control over their own destiny as well," Buytaert said. "People are more scared about what's happening in the world...If you use open source software or you use proprietary software, the vendor could go out of business, whereas if you use open source, there's not the risk of the vendor going out of business."

Wright says that this is a big part of why Linux came out of the Great Recession as the de facto way to run cloud software on platforms like Amazon Web Services. During the downturn, IT departments were empowered to download and experiment with Linux as a way to cut costs, which helped lay the foundation for using it for new projects when things took a turn for the better.

"The adoption started increasing and it became the ubiquitous product as it is," Meeker said. "That's one example of how a downturn will just jump start the adoption of open source software. You've got resources that are available and a huge need."

Under the current coronavirus crisis, open source company leaders say not much has changed in their business operations, as much of their development happens remotely anyway - many open source projects are developed by teams scattered across the globe.

"From an open source standpoint, this remote transition is likely easier," Wassenaar said. "That's because open source projects give you the base of working collaboratively with distributed communities around the globe."

A slightly different situation

Experts point out two major factors that would make any pending recession different from the last one, at least within the open source world.

The first is that unlike in the Great Recession, open source software is now the widely-accepted way of doing things. Even Microsoft, once a fierce foe to Linux, has opened up its Azure cloud to open source developers, to great effect.

The second, more subtle difference is that with tech companies all over the US and overseas - including Amazon, Microsoft, Cisco, and many others - implementing mandates for workers to stay home and do their jobs remotely, it means software engineers will have more time for hobbies like contributing to open source.

"People are sequestered and quarantined," Brian Noll, vice president of sales at JetBrains, told Business Insider. "Now people will do a lot more self learning than what existed in 2008...This is an opportunity for developers to learn new skills, try new products and to really explore different solutions that are out there."

As a result, Sacha Labourey, CEO and cofounder of the developer software company CloudBees, predicts that open source projects will see more growth as well.

"I'm suspecting we're likely going to see more contributions because people see more inside," Labourey told Business Insider. "I'm expecting this to be an increasing hobby for many engineers."

On the flipside, because everyone now has to work remotely, companies will still face some challenges. Events and in-person meetings have been canceled, which affects how companies interact with customers. Because of this, Hadi Hariri, vice president of developer advocacy at JetBrains, says that companies that are reliant on on sales, support, and consulting to drive revenue will face major dents to their business.

"We have people who have reached out to us saying that their training courses have been canceled," Hariri said. "If you're talking about open source software companies where the revenue model is built around consulting and on-site consulting, I think it will have a massive negative impact."

'Stay the course'

Alfresco's Newton says that there is one lesson from the Great Recession he can share: companies can benefit by showing their customers that they can help them cut costs.

"Making really good optimization and cost cutting arguments as well is really important for open source," Newton said. "You can prove a company's going to save money by using your technology, especially by replacing expensive to operate legacy technology. You are the disruptive force that gets rid of the legacy that existed."

In addition, even though there's a crisis, it's important not to panic and to "stay the course," SUSE's Pfeifer says.

Finally, leaders say it's important for open source software companies to continue supporting their developer community.

"Open source will do well but that doesn't mean every individual will do well because people will be affected," Acquia's Buytaert said. "Some people will be affected in one way or another. Providing support to one another in these difficult times is really important."

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