The Government Surrenders to a New IT Paradigm

Traditional software giants are shaking in their boots today. Another government arm has committed itself to the open-source movement.

In a public statement, the Consumer Financial Protection Bureau pledges to publish the source code to all software it builds or contracts out for others to build. The bureau reserves the right to make exceptions for extra-sensitive code, but the general policy is clear as day: "When we build our own software or contract with a third party to build it for us, we will share the code with the public at no charge. ... We believe that, in general, hiding source code does not make the software safer."

This policy change is based on earlier research by the Department of Defense, which already declared open-source software as fit for government projects. In short, the CFPB has been using free software for years and is now ready to give something back to the developer community.

And so the dominoes start to fall. It's particularly interesting for investors to see an agency concerned with consumer finance leading the charge; this is a vote of confidence in just how stable and secure open-source software really can be.

Red Hat (NYS: RHT) recently broke new ground for open-source businesses by reaching the $1 billion watermark in annual sales. That's a first for this burgeoning industry.

By comparison, Microsoft (NAS: MSFT) can look back at $72 million in trailing revenue, mostly from selling proprietary software such as Windows and the Office suite. Oracle's (NAS: ORCL) trailing sales stand at $37 billion and IBM (NYS: IBM) collected $107 billion over the last 12 months. These numbers should give you some idea of the size of the market opportunity in front of this upstart-ish business model.

All these tech giants (and many more besides) stand to lose market share as Red Hat and other open-source mavericks grab sales in the worlds of enterprise-class business and government contracts. My three victims are presented here in a very deliberate order, ranging from most to least vulnerable when the open-source guerrilla comes knocking. Big Blue is a well-known supporter of the open movement, but is not exactly built that way itself.

You can see why I have a bullish CAPScall on Red Hat: This megatrend is just too juicy to ignore. Open-source developers also form a large squadron of the cloud-computing army that already has Microsoft begging for mercy. Find out more about that paradigm shift in a free video report.

At the time thisarticle was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Oracle and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Microsoft.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft. The Motley Fool has adisclosurepolicy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.