As the economy continues to head south, there has been a lot of speculation about the rise of open source applications.

As we all know, the price of acquisition for any type of open source software is usually right. Now people can and do argue about the total cost of ownership of software over a three to five year period. But in tough economic times expediency usually wins out over any argument about what might be happening three years or more down the road. Cases in point are Alfresco Software, which makes an enterprise content management system and xTuple, a maker of enterprise resource planning (ERP) application software, are both reporting noticeable increase in demand.

Alfresco executives say they are seeing quarter over quarter revenue growth of 50 to 100 percent form other 600 enteprise customers and there has been a 25 percent increase in the number of leads they are seeing this quarter compared to last quarter. xTuple executives, meanwhile, say the number of downloads they've seen for there ERP software that runs on top of the PostgreSQL database has moved past 170,000. Furthermore, the company says there is somewhere between 15,000 to 20,000 people participating in its community.

None of this guarantees that either company is going to dominate their market space. But it does indicate that license software in the enterprise is under some server pressure as customers move to freeze their capital expense budgets, which in turn has an adverse effect on new software licenses that usually require new more powerful hardware to run effectively.

The end result of all this freezing of capital expense spending has been an increase in interest in software-as-a-service applications that can be paid for as an operating expense and open source software that is mostly free.

Traditional enterprise application vendors can confront the former problem by creating their own software-as-a-service offerings. But the whole open source model creates a revenue stream problem that is not easy to overcome. But surmount it they must, so the only real question is how.

If the downturn persists long enough, how long will traditional enterprise software vendors be willing to lose market share to open source rivals? How many of them can actually hold out long enough not to get acquired by cash rich rivals such as Oracle or IBM? The business challenges facing the executives at these companies are nothing short of immense.

What that may mean is that some of them may have to embrace the concept of creating an open source version of their software just to stay in the game. Or at the very least, they may have to come up with licensing and funding terms for deals that are just too attractive to ignore.

It will be interesting to see how all this plays out. But one thing is for sure. After years of watching the open source software trend be confined to operating systems and middleware software, it's pretty certain that open source software at the application software is now here to stay.