IBM Opens the Open-Source Floodgates

Last week at the LinuxWorld conference in San Francisco, IBM (NYSE:IBM) officials announced a "fundamental expansion" of what the company is doing around open source -- software whose code is "open" to alterations from users.

Big Blue, since investing $1 billion in Linux back in 2001, has been one of the open-source community's biggest corporate backers, primarily because it has viewed the operating system as a way to make serious inroads against Microsoft's (NASDAQ:MSFT) Windows operating system.

The worldwide market for Linux operating systems is now estimated to sit at more than $7 billion. IBM, which already has a sizeable chunk of that business, believes that with this latest push, it can add to that figure and, in the process, position itself well for future growth. I agree. I recently noted that Hewlett-Packard (NYSE:HPQ) is now within striking distance of replacing IBM as the largest technology company. But if IBM can successfully apply these open-source applications to new markets and products, it can easily stave off HP.

Among the new open-source projects under way are advances in client-side middleware, development tools, Web application servers, system management, data servers, open-source hardware architectures, grid computing, and its consulting and technology-services business.

In more practical terms, this means that Big Blue is hoping to get Linux to run more quickly and securely on its new processor, ship more Lotus desktop applications that run on Linux, and expand its open-source Web server business. If it's successful, IBM customers should, in turn, increase their use of IBM's chips, desktop applications, and middleware. It's a classic win-win situation for IBM.

A second opportunity lies in using this new initiative to expand IBM's reach for new customers -- particularly among smaller start-up businesses that are looking to keep their costs lower. And in yet another big market, IBM is eyeing is an "open health-care framework" for developing software applications for the medical industry.

Perhaps the biggest money-making opportunity, however, lies in using these new applications to carve out a host of new and innovative consulting opportunities for its Global Services consulting business.

Any way you spin it, IBM looks to have found a nice, big open-source window that it can use to climb through to reach some higher profits.

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Fool contributor Jack Uldrich owns stock in IBM. The Motley Fool has a strict disclosure policy.