Floss for economic health. That's the conclusion of a newly released European Commission study on the impact of Free, Libre, and Open Source Software (Floss) on the European IT sector.

The EC study, conducted by UNU-Merit, a research institute of the University of Maastricht in the Netherlands, finds that the use of open source software adds 263 billion Euros to the European economy and "the number of employees among firms contributing code to Floss projects is at least 570,000."

It also says that open source software programmers, nearly half of which are based in Europe, volunteer least 800 million Euros (roughly $1 billion U.S.) worth of labor.

The report calls for "correcting current policies and practices that implicitly or explicitly favor proprietary software" by offering fairer R&D incentives, supporting standardization, avoiding vendor lock-in in education settings, equitable tax treatment for open source contributors, and encouraging partnerships between businesses and the open source community.

The report estimates that the Floss-related share of the economy could reach 4% of European GDP by 2010.

"By providing a skills development environment valued by employers and retaining a greater share of value addition locally, Floss can encourage the creation of [businesses] and jobs," the report says.

That's a perspective shared by Richard Gorman, a venture partner at Silicon Valley VC firm Bay Partners, which invests in open source companies. "Open source is clearly a major trend and is clearly an economic stimulus for the economy today," he said. "The reason we like the open source business model is that it's a way of entering markets and solving customer problems in a very effective way, both from a control and an economic perspective."

Some of the report's findings and recommendations may rankle leading proprietary software makers such as Apple and Microsoft.

One policy recommendation seems particularly applicable to Apple and the ties between the iPod and iTunes Music Store: "Explore how unbundling between hardware and software can lead to a more competitive market and ease forms of innovation that are not favored by vertical integration."

And one of the report's findings is that users of Microsoft Office are no more productive than users of OpenOffice. "We also investigated the productivity of the employees in using Microsoft Office and OpenOffice.org," the report says. "Office suites are widely used and are a good test bed and representative for a comparison on issues like effort and time spent in the daily routine of work. Delays in the task deliveries may have a bigger impact than costs on the organization's management. Our findings report no particular delays or lost of time in the daily work due to the use of OpenOffice.org."

The report, however, stops short of recommending businesses switch to free applications such as OpenOffice because "employees may perceive that their work is under-valued using 'cheap' OSS products." It says organizations should consider that migrating away from proprietary software might have implications beyond cost.

Microsoft maintains that the total cost of ownership for Windows software is less than Linux and continues to host dozens of case studies, white papers, and customer testimonials to that effect on its Get the Facts Web site.

But Gorman insists the open source software makes economic sense. "It's a very good business model for entering large, existing markets and taking significant share, and creating significant customer and investor value," he said. "If you're an incumbent competing with a new company that's an open source company, it's very difficult to adjust or change your business model to be competitive. Usually by the time they end up adjusting, it's too late."