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A technology downturn and mass layoffs are having competing effects on FOSS

Fewer funded roles, growing Understanding user behaviour has never been more important.

Over the past year, the technology sector has faced mass layoffs and redundancies worldwide. During 2022, there were more than 15 million layoffs in the US alone. According to data gathered on on the technology sector, there have been more than 186,000 roles cut across 637 companies so far in 2023.

At the same time, spend on IT and technology continues to rise globally, writes Matt Yonkovit, Head of Open Source Strategy, Scarf. According to Gartner, the worldwide market for IT will rise by 5.5% in 2023 compared to 2022, despite the slowdowns. So what is really happening in the technology sector that has led to so many being put out of work? More importantly, how will it affect IT strategies around areas like open source?

Unintended consequences

Beyond the individual companies affected by layoffs, there are other consequences as well. Open source will be affected by the layoffs. The Open Source Contributors Index flags that most contributors work for large tech companies including Microsoft, Google, Amazon Web Services, Intel, and Red Hat.

These companies build and contribute to open source to meet their own needs, but also to support the communities that exist around the projects and keep them healthy.

Because the big tech companies are looking hard at where their teams are working and where they directly generate revenue, those working on open source projects do seem to be more affected by layoffs. Steven J. Vaughan-Nichols points to Google firing members of its Open Source Programs Office, for example.

This leads to a knock-on effect for smaller companies as well. When larger tech companies lay people off and cut back on their spending around open source, the community has to shoulder more burdens. While some of those laid off might use the opportunity to market themselves and commit more, others will step back entirely as they go about job hunting. Any new roles they take may not have the same freedom to contribute either. This can drain some of the talent out of the pool.

At the same time, enterprise demand for open source software goes up in times of economic trouble. According to the data in our State of Open Source Usage report, open source software downloads went up by 60 percent in Q1 of this year, compared to the previous quarter. Alongside this overall growth, the number of companies downloading open source software went up by 18.5 percent too.

This demand for open source should not be a surprise, as it helps enterprises deal with the two big challenges around IT: cost and innovation. Open source is free for anyone to use, so it represents an opportunity to save on costs compared to either buying a product or building your own software to carry out a task. It also meets a quality threshold as you can look at the code and see how the community has developed around the project. Using open source helps developers also helps developers to innovate and move faster too, as building on established projects can help you deliver on business goals.

What will the future hold?

Many people think of open source software as a pure space, separate from the profit-driven motives that are present in the rest of the tech industry. However, open source as a whole has to be sustainable. That means looking at how to build successful businesses around those projects, and includes looking at how the people involved get supported too. There are several areas to consider.

From an investment perspective, there are still funds out there. However, investors seem to be pulling back from brand new investments that represent higher risks than they would support in previous years. During 2022, investment in startups dropped by 43 percent compared to the previous year. Instead, venture capital firms are focusing on companies that have a clearer path to sustainable revenue operations. Rather than sticking to the aggressive philosophy of growth at all costs, even at the expense of profitability, VC firms are now focused on those companies that can achieve sustainability in their operations.

In practice, this view of sustainability translates to real world usage in production environments. For example, Cowboy Ventures stated that the number one metric they look for in open source companies is production deployments, as "running a project in production signals trust as it can impact end-user experiences." Similarly, Redpoint Ventures pointed to developer usage as one of the most important metrics they wanted to track over publicly available data like GitHub star ratings.

Alongside looking out for funding, open source project leaders have to look at the features that matter to users and how quickly they get adopted. This involves having conversations with your users and community members about what they need, but also looking at what features get used in production. People may think they know what they want, but looking at what they implement and how quickly can tell you what is really valued. For businesses in general, this is a lesson in how to look at what people say they want, what they really need in their operations, and what they are willing to pay for.

For open source companies, building a path to commercialisation should be one of the biggest priorities on your roadmap. No matter how popular your project becomes, nothing can replace revenue and cashflow when it comes to making projects sustainable. While smaller projects might look at simple support and services offerings, this is not enough to scale up and create long term business success.

As a starting point, look at how you can support a business and plan around what customers might buy from the start rather than trying to bolt a company onto your project later. If you offer a paid product and it’s not being used, then figure out your position in the market so that you can build a loyal user base that will turn into customers.

Enterprise IT teams will also have to consider how they look at the open source software that they use in their endeavours and how they budget around them. For larger projects with commercial companies attached, buying support and services can pay for the community contributors to work on new development initiatives and keep things secure. For smaller projects where no commercial company exists, direct contributions and funding can help, as Bloomberg has shown this year with its free and open source contributor (FOSS) fund offering up to $10,000 per quarter to relevant projects.

From a developer perspective, open source offers convenient and high quality software. However, making that software is not enough. From the enterprise point of view, open source has to be supported and maintained, and that requires sustainable businesses that can exist around those projects. With more demand for open source caused by the economy, this should be a huge opportunity for those involved to put their budgets to good use. However, without that real world data and support to invest, open source projects will find it hard to get the support they need. And without these advancements, enterprises will have to spend more on building their own internal software or make use of services that they cannot control.

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