Open-source Software: Strategic Insights
What started as a niche collaboration among a few passionate developers has now grown into a multi-billion-dollar ecosystem, powering everything from Fortune 500 companies to cutting-edge startups. In fact, more than 90% of global enterprises now rely on open-source solutions in some capacity, making it one of the most influential forces in the digital landscape.
In this article, we’ll unpack the strategic insights behind open-source software, explore how it reshapes industries, and highlight the key trends investors need to watch.
What is Open-source Software
Open-source software (OSS) has been quietly revolutionizing software development and distribution since the late 20th century. Its roots trace back to the early days of computing in the 1950s and 1960s when software was typically distributed with its source code. However, the formal open-source movement began in 1983 when Richard Stallman launched the GNU Project, aiming to create a free operating system. This initiative led to the establishment of the Free Software Foundation in 1985 and the introduction of the GNU General Public License. A pivotal moment came in 1991 with the release of the Linux kernel by Linus Torvalds, which, when combined with GNU components, created the first complete free software operating system.
Today, it represents a multi-billion dollar market with a significant impact on all sectors - it's expected to reach $41.83 billion in 2024 and almost double to $77.75 billion by 2028, with an CAGR of 16.8%. Thanks to its widespread adoption, open-source software has become an integral part of the modern infrastructure:
4 out of 5 businesses use open-source software in some capacity
Over 80% of mobile applications incorporate open-source components
It powers more than 90% of the world's supercomputers
94% of leading cloud service providers utilize open-source software
Sectors Set for Disruption
Finance and Banking - 98% of financial services firms use open-source software. Open-source is notably crucial for blockchain technologies, with open-source components having a market cap of over $500 billion.
Cloud Services - Open-source software accounts for 78% of the $40 billion global cloud services market. Popular open-source cloud platforms like OpenStack and Kubernetes have become industry standards, enabling businesses to build and manage cloud infrastructure more efficiently.
Government and Public Sector - Over 80% of governments worldwide use open-source software in various applications, from e-governance platforms to public service delivery systems, enhancing efficiency and citizen engagement.
Enterprise IT - 85% of enterprise IT organizations use open-source software. 95% of Fortune 500 companies use open-source software in some capacity.
Mobile Applications - Over 80% of mobile applications use open-source software. Popular open-source mobile development platforms like React Native and Flutter have revolutionized how mobile apps are built and deployed across different operating systems.
Web Infrastructure - Open-source software accounts for 86% of web servers worldwide.
Key Drivers
Cost-effectiveness is one of the key factors behind OSS growth, as it enables companies to save heavily on licensing fees and development costs. Its flexibility and scalability allow businesses to easily adapt it to their changing needs. More developers and companies now contribute to and benefit from OSS due to increased access to these platforms. OSS also provides access to advanced technology, offering sophisticated solutions for startups, schools, and large enterprises alike.
As companies face increasing cost pressures, they are turning to more affordable software options, making OSS highly appealing. The demand for flexible, collaborative software has risen, and OSS stands out by enabling developers and users to work together effectively. Technological advancements have improved OSS's capabilities, making it more competitive with proprietary software. Additionally, open APIs have enhanced integration between different systems, further boosting OSS adoption.
The shift to cloud-based infrastructures has also benefited OSS, as many cloud services rely on open-source technology. Growing awareness of OSS's security advantages, with frequent community-driven improvements, has encouraged more companies to adopt it. The collaborative nature of OSS accelerates innovation and problem-solving, making it a preferred choice for businesses seeking cutting-edge solutions. Companies can also leverage existing libraries and frameworks to reduce development time and costs, making OSS an efficient and cost-effective option for many organizations.
Transformative Use Cases Across Industries
Let's take a look at a few concrete examples of how open-source software is put to use:
Healthcare: OpenMRS (Medical Record System)
Finance: Apache Kafka
Automotive: Android Automotive OS
E-commerce: Magento
Cloud Computing: OpenStack
Government: DHIS2 (District Health Information Software 2)
Education: Moodle
OpenMRS is an open-source electronic medical record system platform used in developing countries. It has been implemented in over 40 countries, supporting healthcare delivery for millions of patients. The impact includes improved patient care, better data management, and cost-effective healthcare IT solutions for resource-constrained settings.
Originally developed by LinkedIn and later open-sourced, Kafka is now widely used in the financial sector for real-time data streaming. Companies like PayPal, Goldman Sachs, and JPMorgan Chase use Kafka for fraud detection, real-time analytics, and transaction processing. Its impact includes improved system reliability, scalability, and the ability to handle massive amounts of data in real-time.
Google's open-source Android Automotive OS is being adopted by car manufacturers like Volvo, Ford, and General Motors for their in-vehicle infotainment systems. This has led to more advanced and customizable in-car experiences, faster innovation cycles, and reduced development costs for automakers.
Magento, an open-source e-commerce platform, has been used by numerous businesses to create online stores. Its flexibility and extensive community support have allowed companies to build customized e-commerce solutions without starting from scratch, significantly reducing time-to-market and development costs.
OpenStack, an open-source cloud computing platform, is used by companies like Walmart, Comcast, and China Mobile to build and manage private and public clouds. It has enabled these organizations to create scalable, flexible cloud infrastructures without being locked into proprietary solutions, leading to cost savings and increased control over their IT environments.
DHIS2 is an open-source health management information system used by governments in over 70 countries. It has transformed how health data is collected, analyzed, and used for decision-making in public health systems, particularly in developing countries.
Moodle, an open-source learning management system, is used by thousands of educational institutions worldwide. It has democratized access to e-learning tools, allowing schools and universities to create customized online learning environments without significant software costs.
Strategic Insights for Investors
Open Source software is increasingly being adopted by large enterprises because of its cost-effectiveness, scalability and flexibility. Many OSS companies monetize their activities through subscription models and cloud service offerings, generating stable, recurring revenues. The collaborative nature of OSS encourages rapid innovation, making it competitive and attractive to investors. It’s also worth noting that OSS’ cost-effectiveness makes it particularly profitable during economic downturns.
Investment Opportunities in Open-Source Software
Infrastructure Software - Tools like Kubernetes and Docker are critical for cloud infrastructure, driving enterprise adoption and offering monetization via managed services and support.
Data Platforms - Open-source databases and analytics platforms like PostgreSQL and Databricks are key to modern data-driven operations, with revenue opportunities in enterprise subscriptions and cloud hosting.
Developer Tools - OSS tools like GitLab and Jenkins streamline software development. Investors benefit from enterprise demand for premium features and cloud offerings.
Cybersecurity - Open-source security tools such as Tailscale offer transparent, community-driven solutions. Managed services and enterprise suites provide strong revenue models.
AI & ML - Platforms like TensorFlow and PyTorch dominate the AI landscape, with opportunities in cloud services, enterprise tools, and training.
SaaS Applications - Customizable OSS business tools (e.g., Odoo, Nextcloud) are in demand as companies seek flexible, cost-effective software. Subscription models drive recurring revenues.
Blockchain & Web3 - Projects like Ethereum and Hyperledger are central to decentralized applications and digital assets, offering monetization via tokenomics and DeFi.
Data Integration Tools - Solutions like AirByte facilitate data movement across platforms, benefiting from the growing need for seamless cloud integration.
Networking & Edge Computing - OSS tools for networking and edge computing (e.g., Tailscale) are crucial for secure, scalable infrastructures, especially with the rise of IoT and 5G.
Key Private Players
Databricks - Databricks is a data and AI platform that helps enterprises unify their data, analytics, and AI workloads on a single platform. It is renowned for its contributions to the development of Apache Spark and its managed cloud-based services for big data. The company has raised over $3.5 billion in funding, with top-tier investors including a16z, Accel, and Tiger Global Management. Databricks recently secured a valuation of $43 billion following a large Series I round, further cementing its leadership in the data engineering and AI landscape.
AirByte - AirByte is an open-source data integration platform that allows companies to move data between different systems effortlessly. It focuses on simplifying ETL (Extract, Transform, Load) processes. AirByte has raised $181.2 million in funding, with prominent investors such as Benchmark, Sequoia Capital, and Accel backing the company. With over 300 connectors, AirByte is quickly becoming a go-to solution for data movement across cloud platforms.
Tailscale - Tailscale is an open-source VPN solution that simplifies secure networking for remote teams by creating a private network between devices. The company has raised $115 million in funding from investors like Index Ventures, Accel, and CRV.
Risk Factors
Intellectual Property - While open-source licenses like GPL and Apache facilitate collaboration, legal challenges around intellectual property rights and licensing can pose risks for companies heavily invested in OSS development.
Fragmentation - The diverse ecosystem of open-source projects can lead to compatibility issues and fragmented support, requiring careful integration and management strategies for enterprise deployments.
Market Competition - While collaborative development fosters innovation, it also intensifies competition among OSS contributors and commercial vendors, potentially impacting market share and profitability.
The Bottom Line
Open-source software presents compelling investment opportunities, disrupting traditional software markets with its agility, community-driven innovation, and cost-efficiency. As adoption expands, early investors can capitalize on OSS's transformative potential across diverse sectors. Its collaborative ethos and technological adaptability position OSS as a cornerstone of future software development, driving growth and resilience in an increasingly digital world.
At Acquinox, we are dedicated to identifying pioneering opportunities in emerging fields like open-source software. Through strategic insights and investment guidance, we empower our clients to navigate and thrive in dynamic market landscapes.
Published by Samuel Hieber
