Free and open-source software (FOSS), software that has made its source code or programming language public, has major implications for developing countries and may "dramatically improve the digital inclusion of the developing world", according to a new report by the UN Conference on Trade and Development (UNCTAD).
The E-Commerce and Development Report 2003 says that the use of FOSS in developing countries would reduce barriers to market entry, cut costs, facilitate the rapid expansion of skills and technology, and create export opportunities for customized software from nascent IT industries in developing countries.
The report recommends that developing countries consider adopting FOSS as a means of bridging the 'digital divide'. To implement the adoption of FOSS, developing countries should formulate and implement appropriate policies on human resources development and training and e-government in the area of software development and related fields, the report emphasized.
The report adds that FOSS produces better software that can match the unending improvements in hardware and its success demonstrates that complex software can be built, maintained, developed and extended without anyone owning the underlying intellectual property.
As such, it represents "a viable mode of software production that presents a real choice for firms and governments making ICT decisions," particularly for developing countries.
Among the benefits of FOSS over proprietary software is that open- source environments often produce reliable, secure and ungradable software at relatively low cost. It can have an anti-monopolistic effect on the IT market and industry as well as help users avoid getting locked into financially disadvantageous and long-term relationships with particular proprietary software vendors or producers.
Moreover, its low cost may accelerate overall information and communications technology (ICT) adoption in developing countries, particularly given the increasingly stringent enforcement of intellectual property rights demanded by proprietary software products.
An often-debated notion is how local ICT industries can develop if they are 'giving away' their intellectual property by producing and using FOSS.
The report says that the reality is that the bulk of ICT software business comes from selling solutions that bundle system development, deployment and management, software customization and hardware, rather than just end-user licenses.
Even Microsoft has reportedly conceded that, in line with the findings of a survey by the Gartner Group, the cost of software licenses amounts to only 8% of the total cost of ownership, and that the other 92% reflects the costs of installation, maintenance, management and repairs after failures.
The report thus says that the majority of software development does not make money by selling licenses for prepackaged software. The opposite perception is encouraged by the fact that prepackaged proprietary software generates large revenues; however, the report adds, it does so because a few producers can charge monopoly prices.
More than half of all Internet servers are running on FOSS versions of the UNIX operating system, and 30% run on the GNU/Linux operating system. Some 65% of Internet servers use the open- source Apache Web server software to send out web pages, while the FOSS-based 'Sendmail' software routes about 40% of all e-mail travelling over the Internet. Apache Web server has dominated its market segment since 1996 and holds at least twice the market share of its nearest competitor.
Moreover, nearly 90% of all domain name system (DNS) servers rely on FOSS to match Web addresses (URLs) to the computers that host website files.
Multinational companies and governments have begun using FOSS in earnest, and influential software firms that previously balked at its anti-proprietary nature have now stepped into the fray.
According to Business Week, nearly 40% of large American companies and 65% of Japanese corporations use GNU/Linux in some form. A EU-sponsored FOSS survey in 2002 found that 43.7% of German companies and 31.5% of British companies use FOSS.
Amazon, E*TRADE, Reuters and Merrill Lynch are some multinational companies that have recently switched to GNU/Linux and Apache Web server software. IBM is now a major champion of open-source software, after publicly making a $1 billion commitment in 2001 to develop technology for and reconfigure central parts of its business models around GNU/Linux and other open-source software.
In 2002, IBM announced that it had earned revenues in excess of $1 billion from sales of Linux-based software, hardware and services. Other technology leaders including Hewlett-Packard, Motorola, Dell, Oracle, Intel and Sun Microsystems have made major commitments to FOSS.
National, state and municipal governments from China to Germany to Peru are also considering and in some cases mandating the use of FOSS for e-government applications.
Among its other findings, the UNCTAD report noted that new Internet applications such as business process outsourcing (BPO) and the online marketing of agricultural commodities are gaining momentum as potentially lucrative applications of ICTs.
BPO, in which companies delegate non-core operations to outside service providers - usually offshore and particularly through information technology - is the most recent trend in outsourcing. Estimates for the growth of this worldwide market, which surged 23% annually since 1999, range from $300 billion by 2004 to $585 billion by 2005.
"Moving functions such as call centres and customer support centres offering remote services providing Internet and Web- enabled applications to countries with lower cost base has emerged as a new business model for enterprises in developed countries," the report said.
India, with its skilled English-speaking workforce and salaries of up to 80% lower than in developed countries, has captured a dominant share of the international outsourcing market. IT-enabled services are projected to employ up to 1.1 million people in India by 2008. Worldwide, offshore outsourcing could generate some 3.3 million jobs by 2015, 2.31 million of them in India alone.
The fact that these services have grown specifically in developing countries mirrors an increasing demand for cost-saving measures from enterprises in the US and Europe, the report stresses. BPO service providers are also emerging in Bangladesh, Brazil, China, the Philippines, Romania, Russia, Singapore, Thailand, Venezuela and Vietnam.
In respect of marketing of agricultural commodities online, the report looks at how producers can use Internet commodity sales to bypass intermediaries, access more buyers in the global markets at lower costs and retain a larger share of the export price.
In the developing world, e-markets and online auctions are increasingly used to sell coffee and tea, with larger profits accruing to producers than would otherwise be the case.
In Brazil, for example, price premiums from online auctions of coffee have been high - as much as $2.60/lb for the 'champion' coffee in 1999, when the comparable price on the New York Futures Market was between $1.32-1.34/lb. A new record was set in the 2002 auction at $12.85/lb where the winning farms received up to 85% of the proceeds. Since the auctions began in 1999, nearly 6,000 bags of coffee have been auctioned, at an average price of more than three times the commodity market price per bag.
The Brazilian model has been emulated in Guatemala, Nicaragua and Kenya. In Guatemala, an online auction sponsored by the Guatemalan National Coffee Association in 2001 fetched $11/lb for the best coffee - 20 times higher than on the New York Futures Market. Similar success has been reported by India's online tea auction site, Teaauction.com.
In terms of Internet use, the report finds that developing countries continue to grow faster than the developed countries. At the end of 2002, they accounted for 32% of the world's 591 million Internet users, up from 28% the previous year.
However, Internet hosts are heavily concentrated in the developed world with North America and Europe accounting for 89% of all hosts worldwide. In terms of retail sales online, total sales for 2002 were $43.47 billion in the US, $28.29 billion in the EU, $15 billion for Asia-Pacific, $2.3 billion for Latin America, but as little as only $4 million for Africa.
While e-business continues to grow vigorously in the developed countries, there are divergences surfacing among developing countries. Many developing countries face limitations on the development of their e-economy stemming largely from low income levels, low literacy rates, lack of payment systems that can support online transactions and cultural resistance to online trade, the report notes.
The report also touches upon the ever-increasing problem of security on the Internet, with problems taking on multiple forms, ranging from spam (unsolicited e-mail), viruses, Web squatting, fraud and copyright violation and unauthorized entry into corporate or personal computers.
Spam, for example, has acquired serious dimensions and is proliferating at an alarming rate. By year-end an estimated 50% of all e-mails circulating on the Internet could be unsolicited. Around 58.4% of spam received in the world in March 2003 originated from the US. In 2001, the European Commission estimated that spam- related costs amounted to over $9.6 billion worldwide in connection charges alone.
Spam is also associated with other activities such as identity theft (for example, the use of stolen credit card information) resulting in estimated losses of around $221 billion worldwide in 2003.
In terms of digital attacks, in the first six months of 2003, a total of 91,088 digital attacks around the world were documented. Developing countries are the leading victims of attacks against government online systems. Most digital attacks in 2002 originated from a few countries, with the US at the top of the list, followed by South Korea, China, Germany and France.
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