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December 8, 2009 8:00 AM PST

Google, open source alter who gets paid for what

by Matt Asay
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Open source, like digital media, doesn't suck money out of hitherto profitable industries. Instead, the opening up of software and information simply changes where the money gets made.

This is obvious to the Googles of the world. It's probably equally obvious to the Microsofts of the world. The difference is that the latter can see the train coming but is powerless to stop it, and the former is driving the train.

The evidence for this is increasingly clear and is driven by a shift in how content is sold and consumed. The problem is neatly summarized by Google CEO Eric Schmidt in a Wall Street Journal op-ed piece directed at the newspaper industry:

[T]he Internet has broken down the entire news package with articles read individually, reached from a blog or search engine, and abandoned if there is no good reason to hang around once the story is finished. It's what we have come to call internally the atomic unit of consumption.

That newspaper was "the package," but is increasingly too slow and out-of-sync with how people prefer to discover news content. New packaging is rising, including Google News, that will shift who makes money on news content.

Reporters will still get paid. They'll just have a new employer on their payroll check. Maybe it will be Google.

Newspaper
News isn't dead. Paper is.

Think about what is happening in music. I could download New Order's "Regret" for free using LimeWire, but I bought it on iTunes because of the "packaging" which makes my experience easy, high-quality, and legal.

Still, the primary drivers are ease and quality.

Such packaging is worth a lot of money--and to an entirely new breed of vendor--as a quick look at Google's latest income statement suggests.

It's happening in software, too, particularly in open-source software. Red Hat is an example of a company that does a great job of turning software license into an ongoing service contract that enterprises buy. It does this by packaging the power of others' development in the form of a subscription, as Red Hat CEO Jim Whitehurst recently highlighted.

But Red Hat is just Open Source 1.5. Open Source 2.0 looks more like Google or IBM. For every dollar Red Hat makes selling subscriptions to use open-source software like Linux and JBoss, both Google and IBM make multiples of that dollar using open-source software to sell something else, something they've packaged in hardware or Web-based services.

The hardware is running open source. The services are based on open source. The money is made in the packaging of open source.

... Read more
December 1, 2009 9:43 AM PST

Why Microsoft should open-source Internet Explorer

by Matt Asay
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In the past week, the open-source business community appears to have reached consensus: making money from open-source software is a bad model, but making money with open source is golden.

This can't be good for Microsoft.

Microsoft has long maintained that as the open-source industry has matured, it has become more and more like the commercial world it sought to leave behind. Fundamental freedoms of open source, like the right to modify source code, are signed away to secure a support contract with Red Hat or another vendor.

In many ways, Microsoft was right. Unfortunately for the Redmond giant, however, the new consensus should lead to less commercialization of open source, and more commercialization around open source. There's a big difference, and it's one that threatens to seriously undermine Microsoft and every other traditional software vendor.

That is, unless Microsoft responds in kind.


The new consensus

This consensus has been articulated by TechDirt, Redmonk's Stephen O'Grady, GigaOm, and here on The Open Road.

In fact, it's a drum I've been beating for over a year as Tim O'Reilly's wisdom on the topic finally caught up with my 33MHz brain.

There are fundamental, strategic benefits to open source: ease of distribution, friction-less adoption, costs, etc. There are also serious downsides when it comes to selling it: people chafe at paying for something if they can get it, or something similar to it, for free.

Such problems don't plague companies like Google, which distributes open-source software to drive more adoption of its proprietary advertising or SaaS services. Even Red Hat isn't really in the software business: not with its Linux distribution, anyway. It's in the business of providing certification and update services; of managing the complexity of an operating system.

It's a great business, but if you had to choose between Google's sales or Red Hat's, it's a no-brainer.


Microsoft's response

As this lightbulb goes on across the industry, companies like Microsoft, which insist on direct monetization of software, with little in the way of open-source complements to fuel adoption (or simply undermine competitors), are going to struggle. More and more companies will give away Microsoft's core business as open-source complements to their own.

So, here's a suggestion for Microsoft as just one good way to respond: open-source Internet Explorer.

Fight Firefox with fire

Forget Office. Forget Windows. Forget all those other billion-dollar cash cows. Microsoft has no revenue directly tied to Internet Explorer, but IE is the gateway to the next phase of Microsoft's growth. Open-source it.

Cut Google's Chrome and Chrome OS off at the knees. Undermine Mozilla Firefox's raison d'etre. Give the European Commission a reason to love you.

More importantly, give developers something to embrace and extend. Microsoft has been steadily losing browser market share as Firefox eats into it. In some countries, like Germany, Firefox has even surpassed IE's market share.

Fight fire with fire. IE is still the world's most popular browser. Make it the world's most open browser, too.

Every Microsoft business could benefit from this move. Even if one assumes that Microsoft isn't ready to take the plunge and fully open up the development process around IE, here's some comfort: neither has Google around Chrome. Microsoft can still steer the IE ship, even if it were open source.

Microsoft needs a proactive open-source strategy, rather than the reactive policy it has had to date. Open source is a threat, yes, but it's a threat to everyone, especially as the industry collectively comes to grips with open source as a business enabler, rather than as a product to sell.

If Microsoft wants to win big in the new world of Web-based software, it needs a bold strategy. Open-sourcing IE is the starting point.


Follow me on Twitter @mjasay.

November 23, 2009 1:51 PM PST

The 'wisdom of crowds' loses steam

by Matt Asay
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If something seems too good to be true, it probably is. That popular aphorism never seemed truer than today when reading The Wall Street Journal's analysis of Wikipedia's declining volunteer base. Despite countless articles extolling the virtues and seeming omnipotence of "community" over the past several years, the technology industry seems to be settling back into old habits:

Command and control.

It's not that the "wisdom of crowds" idea hasn't influenced the way technology is developed, or how news and information are gathered and distributed. It has.

It's just that the promised sea change has proved to be far less disruptive than we expected.

Take Wikipedia. As the Journal calls out, volunteerism has declined as the ease of contribution has waned. The easy topics are taken. Rules for upping the quality have proliferated. Wikipedia is becoming...corporate.

Nick Carr has been pointing this out for years, but it's only now becoming self-evident. Wikipedia has grown up and, in so doing, is looking more and more like the encyclopedic world it sought to displace.

Nor is it alone. Open-source business models increasingly look like proprietary software models, as the Software Freedom Law Center's Bradley Kuhn suggests.

Even uber successful open-source communities like Joomla have discovered that reliance on volunteers falls short of what a few good paid developers can do.

That's a positive discovery by Joomla. A more worrisome discovery is that Mozilla remains far too dependent on Google to fund development of Firefox. Mozilla has lots of community, right? Yes. As Mozilla CEO John Lilly has said, 40 percent of Firefox's code comes from developers not employed by the foundation.

But that still leaves 60 percent, and virtually all of the core development work, that relies on "company," not "community," which is how much of the world's best open-source software is developed: funded by IBM and other "community" members.

For those who think "community" is a euphemism for "everyone else doing my work for me," think again. It just doesn't work that way.

Of course, companies can go to the opposite extreme, too. Apple, for one, gets beat up for a heavy-handed approach to its App Store approval process. Apple, in other words, doesn't seem to care one iota what "the community" thinks.

But then, this is the same App Store with more than 100,000 applications and 2 billion downloads to date. No wonder Apple isn't apologizing: it's clearly benefiting most people most of the time, or the application developers would take their complaints to a different platform.

But they haven't, and this calls out the problem with deifying "community." It's accepted wisdom that one shouldn't "anger the community," as if it's some unknown god that demands the occasional virgin to be thrown into the volcano. But the truth is, "community" is not really much different from the "customers" and "partners" the industry has sought to satisfy for decades.

So, yes, by all means seek to work with your community of users and partners, but don't expect "the community" to do your work for you. Guess what? "The community" already has a day job, and can't afford to work full-time for you unless you pay it.

All of which leaves us largely where we started. The most successful software companies don't rely on some vague "community" to build their products. Microsoft, Oracle, IBM, Google (Android, anyone?), and even, increasingly, Red Hat (JBoss, KVM, etc.) build great software based on their own, internal plans and expertise and "the community" buys it (or resells/embeds/etc. it).

The big shift, however, has been in the transparency of the feedback loop, which has been a welcome change in the industry. So, to the extent that "community" simply implies a more open way of developing and distributing software, then, yes, it has been significant.

But it hasn't changed the world. It has only changed the way the dominant technology companies...dominate.

November 20, 2009 11:01 AM PST

Microsoft's embrace of MySQL could kill it

by Matt Asay
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For those who have fret about Microsoft fighting against open source, I have news for you: Microsoft's impact on open source may be worse as a friend than as an enemy.

Now with MySQL inside! Yes, we can.

(Credit: Microsoft)

Over the past few years, Microsoft has steadily warmed to open source, to the point that it now hosts its own open-source code repository and has seen its Microsoft Public License used more often than venerable licenses like the Mozilla Public License or the Eclipse Public License, according to new data released by Black Duck Software.

The open-source world should be worried.

After all, as IBM's Savio Rodrigues points out, an open-source-friendly Microsoft no longer has qualms about embedding open-source software like MySQL into its products. In particular, Microsoft supports MySQL as part of its Azure cloud service...without paying Sun a dime for the privilege.

It's a completely legitimate way to offer open-source value to Microsoft customers, and is very similar to what Amazon is doing with MySQL.

However, as Rodrigues notes, it's not necessarily good for MySQL, or other open-source projects that could be used this same way:

The larger point is if Amazon, Microsoft, IBM, HP, Google, Cisco, EMC/VMware, or Oracle/Sun offer a simple and supported cloud service for running MySQL, Tomcat, JBoss, Mule, or Apache HTTP instances, what reason do customers have to acquire "enterprise subscriptions" from the vendors developing these open source projects? Until now, the value of an open source "enterprise subscription" has largely been access to support and access to administration and management tooling. In the case of MySQL, the former is provided by Amazon RDS and Azure SQL as part of the per-hour service. Again in the case of MySQL, the latter is rendered unnecessary or replicated through Amazon RDS and Azure SQL tools.

Consider it a super-friendly, and super-dangerous, bear hug.

For those who think that this affects commercial open source and not community-led open source, think again. Money and open source don't grow on trees.

The explosion of open-source development has directly correlated to the explosion of cash investments into open-source projects, starting with IBM's $1 billion commitment to Linux. MySQL, the database, would be a pale shade of what it is today without MySQL AB, the company that has funded the overwhelming majority of its development.

So, is this cause to castigate Microsoft? No. After all, it's really no different from what Amazon, Google, Apple, and others do with open source.

Rather, Microsoft's move should serve as a reminder to open-source companies that they need to upgrade their business models or risk being rendered irrelevant by the cloud and all that it enables vendors to do with open-source software.

After all, the protections that the GNU General Public License (GPL) and other open-source licenses offer in the traditional software world are essentially meaningless in the networked world, where software is used to create services, but isn't actually distributed.

This is as true for Red Hat as it is for open-source start-ups like Openbravo and Talend. Imagine if Amazon decides to start offering JBoss as a cloud service. Or Red Hat Enterprise Linux, for that matter (minus the trademarks).

It could happen. Actually, I'll go one step further: it will happen. It's just a matter of when.

This is why companies like IBM, Google, and increasingly Microsoft strategically invest in open source, but don't try to directly monetize open source. It's also why the "open-source companies" need to figure out a Plan B before Plan A gets taken from them.

November 19, 2009 3:21 PM PST

Apple: 'Enterprise' is as enterprise does

by Matt Asay
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Is Apple an enterprise software or hardware company? That's the question Gartner's Nick Jones asks, ultimately answering with "you have to have a pretty relaxed definition [of enterprise] before Apple fits it."

"Enterprise" is defined by the company you keep.

It strikes me, however, that "enterprise" isn't something you define. It's just what gets used within the enterprise.

With this definition in mind, Apple clearly fits the "enterprise" moniker, whether Apple wants it or not. As BusinessWeek reported back in 2008, the Mac is finding its way into enterprise computing, with or without the IT department's blessing. Ditto the iPhone.

Is it somehow less enterprise because the CIO didn't issue a policy giving permission?

Maybe "enterprise" means something more than "gets used a lot within the enterprise." In fact, Jones points out a few reasons he, personally, doesn't feel Apple is an enterprise vendor:

Apple does the bare minimum for enterprises, they aren't deeply committed to security, management, road maps, low TCO and so on. And they don't open up the architecture of iPhone enough for third parties to fill the holes.

But, again, is this really how we should define "enterprise?"

It reminds me of the criticisms leveled at open-source software early in its adoption. Originally Linux, for example, wasn't considered "enterprise grade" or "enterprise ready," presumably because it didn't meet Jones' hurdles above.

Now, however, Linux is considered an essential enterprise technology. What changed? Nothing...except adoption.

Here's a test for Jones: while Gartner pooh-poohs Apple's iPhone as an enterprise mobile device, perhaps for a variety of good definitional reasons, will it hold to such a rationale once the iPhone's market share within the enterprise dwarfs that of Windows Mobile, which has lost a third of its market share since 2008?

Seriously, at some point it won't be enough to listen to Microsoft's Ray Ozzie deprecate the iPhone's enterprise credentials because its 100,000-plus applications are "not very deep" and lack the "thousands of man years" that have gone into the applications that run on Windows. It won't make sense. Why? Because no matter how "enterprise grade" those Windows Mobile applications are, few within the enterprise are using them.

Enterprise is as enterprise does. Would you rather work for the company that builds software for the enterprise, or would you prefer to work for the company whose software gets used by the enterprise?

If you can have both, great. But it's silly to say Apple isn't an enterprise company simply because it sells to the enterprise without even trying.

November 18, 2009 4:16 PM PST

Microsoft's Web business spurring development of IE

by Matt Asay
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There was a time when Microsoft could skimp on Internet Explorer innovation. Having trounced its Netscape rival, Microsoft rested on its IE laurels for years, barely updating the browser.

Today, Microsoft can't afford to rest on any laurels, least of all with IE.

In part this is due to rising competition. The open-source Mozilla Firefox browser, for example, now tops 24 percent market share and it, along with the Google Chrome browser, and Apple's Safari browser, regularly push well beyond IE's comparatively glacial development.

However, the biggest challenge to Microsoft's IE development inertia is Microsoft itself. As Mozilla's Asa Dotzler posits:

That [IE] team has some really strong people and they're not going to let another release go by where they're still seen as badly trailing. Not with Office moving to the Web. Not with Search and other web services becoming huge revenue opportunities.

Falling short with IE 9 would be the last straw for Web developers' little remaining faith in Microsoft and so they won't miss this opportunity.

The browser used to be a sideshow to Microsoft's Windows and Office cash cows. In the future, however, the browser is the gateway to the next generation of Microsoft dominance...or irrelevance.

As the world moves online, how well Microsoft delivers an innovative browser experience will largely determine the future of the company.

At the same time, how well Mozilla delivers a neutral, innovative Firefox is the industry's best defense against Microsoft and Google too tightly coupling their browsers to their Web services.

It's therefore time for Facebook, IBM, Oracle, Salesforce, and others with a vested interest in an open gateway to an open Web to put their development resources where their mouths are. Contribute to Firefox. Microsoft (and Google) has an interest in building a better browser, yes, but to ensure that browser runs others' services as well as Microsoft's, Microsoft must be kept honest.

Firefox is the best way to accomplish this.

November 16, 2009 6:18 AM PST

The convenient fiction that Microsoft is evil

by Matt Asay
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It's a convenient fiction that Microsoft is the source of all evil in the technology world, particularly for a vocal minority within the open-source community.

For such people, Microsoft hate is an excuse for a distinct lack of introspection, and credits Microsoft with far better execution and strategy than it actually possesses.

Microsoft CEO Steve Ballmer has a goofy laugh. I'm not sure it's an evil one.

I mention Microsoft because some within the open-source community quickly pounced on the company's inadvertent violation of the GPL in its Windows 7 USB/DVD Download Tool. Microsoft's Peter Galli was quick to acknowledge it:

[The license violation] was not intentional on our part. While we had contracted with a third party to create the tool, we share responsibility as we did not catch it as part of our code review process.

As conspiracies against open source go, it sounds pretty harmless--because it probably is. Open-source licensing is complex enough and the process for acquiring open-source software is loose enough, that there is room for all sorts of error, both nefarious and benign.

Guess what? People--and corporations filled with people--make mistakes. Even Microsoft. If it was as evil as some suspect, the devil himself would be out of a job.

As open-source adoption dramatically increases, we should expect to see errors of this kind increase, and not out of any sinister plan to pilfer open-source code. Errors are natural and are evidence that adoption is spreading beyond the inner sanctum of open sourcerors.

We shouldn't expect open-source adoption to be flawless or painless.

Consider Symbian. The foundation decided to aggressively embrace open source as a way to guide it to an optimistic future, but the process of open-sourcing its code is taking time. A lot of time. As Rich Sands suggests, Symbian may actually be taking too much time, frustrating its community and allowing Google Android to assume the leadership position in open-source mobile platforms.

Who knew that giving away things for free could be so hard?

It's tempting to think that open source should be an automatic reflex for companies and individuals alike. It's not. It takes time to learn how to do it properly, and even then mistakes are possible. Perhaps likely.

In the case of its Windows 7 tool, Microsoft screwed up. It's not the first time, and it's not the last.

But error is not evil.


November 9, 2009 12:55 PM PST

Google shifts software value to operations, away from IP

by Matt Asay
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Google CEO Eric Schmidt argues that competition is just a "click away." By opening up Google's access to personal data as well as the software that collects it, Google is adding substance to that claim.

Google's secret sauce? Operations.

It won't work to write better software than Google, because Google is not a software company. The only way to beat Google is through superior execution; through better operations.

The way to lose to Google? That's easy: try to sell software that Google is shoveling out the door as free (open source) software.

This thought hit me last week as Google announced the open-sourcing of its Closure tools. These are JavaScript compression tools that Google uses to build its own Web services like Gmail. Basically, Google was saying, "Here's how we build our software services. You can, too."

This follows on the heels of Google open-sourcing other software like Android ("Here's a free mobile operating system to help more people connect to our services"), Gears ("Here's how to run Google-like services offline"), and more, each opening up windows into the software that runs Google's services.

In many ways, Google is giving away the recipe to those that would like to build a Google clone.

The problem? Google is so much more than software.

In fact, one of the primary reasons that Google can write and open-source so much software is that it isn't a software company. Not even remotely. I could have every line of Google's software, both open source and proprietary, and I couldn't hope to compete with Google.

Google is what Google does with the software, and not the software itself.

Ditto for Red Hat. The company used to retain significant chunks of proprietary code in its Red Hat Network offering, but it has released that software under and open-source license in the last year. Doing so hasn't had any effect--positive or negative--on Red Hat's sales, because Red Hat isn't in the business of selling software anymore.

Red Hat, like Google, is in the business of providing services to customers, services enabled by software but which are much more dependent on IT operations and overall efficiency of execution.

And while both companies rely on open-source software to fuel those operations, Google, more than Red Hat, realizes that the conversation has moved on from open-source licenses to higher-order value, a theme that is going mainstream. Cloudera CEO Mike Olson captures this theme well:

The license terms attached to products have become secondary to the value it offers. People now are much more rational about how they adopt technology across the board. Open source is a detail, not a defining characteristic. At Sleepy Cat, we were proud to be an open source company. At Cloudera, I think of us as an enterprise software company that happens to be built on open source software.

Such sentiment would resonate well within the walls of Google's Mountain View headquarters, I suspect.

Even within their respective open-source communities, neither Google nor Red Hat company is particularly saintly. Red Hat has never waited on the Linux Standards Base or industry efforts to coordinate Linux distributions (like United Linux), but instead forged ahead with its own efforts...until the LSB simply adopted Red Hat's distribution as the standard.

Google, for its part, takes flak for dominating its open-source project communities like Android. Google's contributions (or lack thereof) to outside projects, like Linux, don't always mesh well with others in the industry.

To open-source community critics of Red Hat and Google, some advice: get over it.

The companies that spend the most time chumming around, talking up interoperability and the need for everyone to work together are usually the ones losing the race, a race whose rules may be written in software but whose victory depends upon execution.

Google and Red Hat have moved beyond software. Software enables their operations, but software doesn't define such operations. Google, for its part, is open sourcing Microsoft, one line of code at a time, and Microsoft hasn't a clue as to how to respond, because it only knows the old world: competition through better IP.

That world is gone. Open source has killed it. The new world is built on execution and superior IT operations. Google gets this. Red Hat gets this. Microsoft? Not so much.

November 4, 2009 6:05 AM PST

The difference a few years makes to open source

by Matt Asay
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For those new to open source, whether on the business or development side, it's hard to appreciate just how far the movement has come in the past few years.

In 1998, when I had my first taste of open-source software through my company's investment in Cobalt Networks, virtually no one knew what open source was, including now-common projects like Linux. Things were a little better in 2000, when I joined a Linux start-up (Lineo), but I spent much of my time working with prospective customers to ease their concerns over open-source licenses like the GPL.

The world is open source's oyster.

By 2004, when a group of friends and I founded the Open Source Business Conference, there was significant, growing awareness of open source, but its adoption was still stymied by Fear, Uncertainty, and Doubt, much of it fomented by Microsoft (Steve Ballmer in 2001: "Linux is a cancer") and the SCO Group (lawsuit over the provenance of Linux code in 2003).

Today, SCO Group, once a high-flier, is struggling for existence. Meanwhile, Microsoft has committed another $100,000 to Apache Software Foundation, has started its own open-source foundation, and has embedded significant bits of open-source code within its proprietary programs, among other things.

Linux, for its part, struggled to get noticed in data centers back in 2003. It has since become essential, mission-critical infrastructure across the Global 2000 ranking of public companies

We've come a long way.

This progress reflects itself in the job market, where Linux-related jobs have seen a 6 percent rise in 2009 alone, while Windows-related jobs have plunged by 8 percent, according to data from Dice.com.

But it's also evident in enterprises' willingness--even eagerness--to discuss open-source adoption plans. Virgin America CIO Ravi Simhambhatla tells The Register that his need to do more with less drove the company to adopt open source and suggests that the open-source philosophy is a positive, disruptive force:

Our company doesn't need just another IT team, the more and more we get entrenched in the...way of doing things the less and less room we will make for ourselves to be innovative.

In 2004, when I was trying to find an IT executive to speak at OSBC, it was a lost cause. No one wanted to paint a legal bull's-eye on themselves for SCO or Microsoft. Today, company executives line up to talk up how they're differentiating through open source.

Open source has "arrived," and the signs are everywhere, from the U.S. Defense Department's efforts to boost its open-source adoption further to patent-rich Qualcomm's foray into open source.

Open source is no longer a question of "why" but rather one of "how." It's the way the industry does business, and the way it does development.

No, not everyone in the industry, all of the time. But for those of us who have been involved in open source for even the past five years, it's amazing to see how much things have changed, which suggests they'll evolve even further.

For some within the open-source world, this is unwelcome news. They defined themselves as freedom fighters, battling the forces of proprietary darkness. And as far as good-and-evil metaphors work in technology, they were.

But as that world embraces open source, they're largely left bereft of bogeymen, like old soldiers still struggling against an unseen enemy.

Winning can be a bit disorienting.

All the same, it's time to move on. There are no more vampires to slay, but simply further open-source education to undertake. Enterprises need open source now, more than ever, and they're adopting it now, more than ever.

What a long, strange trip it's been.

November 2, 2009 10:40 AM PST

Open source as an antitrust strategy

by Matt Asay
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The day open source became big business is the day that open-source development exploded. Yes, open source predates the moneyed interests hankering to use it to competitive advantage, but it really wasn't until IBM dropped $1 billion on Linux that companies began paying employees to write free software that the movement saw broad adoption.

That's when open source became more than an efficient way to develop software, and also became a great way to build a business.

However, adding open source to one's business is not magical pixie dust that guarantees its viability. As IBM's Bob Sutor explains:

The basic principles around revenue, profit, loss, taxes, payroll, overhead, accounting, sales, incorporation, health care, and human resources all apply. You can be a starving open source software entrepreneur as easily as a starving proprietary software entrepreneur. No one will excuse basic business failures and screw-ups just because you use open source. Make sure that you will produce a product that people want and in some way will pay for, no matter how indirectly.

Sutor's counsel applies to any company or individual that wants to build a business around open-source software, but arguably some of the industry's best projects are not the product of any one company, but rather of several. Linux, Mozilla, Apache Software Foundation, Eclipse, and other collaborative communities represent an interesting way to use open source to competitive advantage.

In many ways, open source has become a critical component of the software industry because the market has largely moved from vertical businesses (i.e., companies controlling all aspects of production, distribution, etc.) to horizontal markets (i.e., companies focusing on their core competencies and depending on others for complementary functions).

Linux: Peace, love, & squeezing Microsoft

As Gartner's Brian Prentice astutely points out, however, horizontal markets have a flaw:

But this business control system has a inherent risk. Should an organization monopolize a specific segment of a value chain system they can extract a higher percentage of its total proceeds. If the product, or service, in question is price elastic than those additional proceeds will come from other participants in the value chain system.

Case in point? Windows. By owning the operating system, Microsoft threw a wrench into the collective cogs of horizontally oriented software firms like Intel, IBM, and others.

The industry's response--Linux--is a classic example of the open-source approach to mitigating individual choke holds within an industry, as Prentice goes on to write:

What then does a CEO do when facing a squeeze on their profits because a direct, or downstream, supplier is dominating a segment of the value chain system? Besides negotiating a better deal - if they can - they've been left with little choice but to get directly into that segment of the value chain system themselves. But by doing so their organization is distracted from focusing on its own core competency.

The risk of such an undertaking can be mitigated if there is a collective response by similarly affected members of the value chain system. After all, it is usually a shared problem. But collective responses have always had an inherent, and often fatal, flaw. Who owns the resulting assets? Either organizations enter into complex joint venture agreements to sort this out or run the risk of shifting the distortion in the value chain system to another organization.

Again, Linux offers the perfect example. IBM, Intel, Red Hat, and others aren't investing in Linux because they're all chums at the country club together, but rather because they're looking for ways to reduce Microsoft's hold on their own businesses through its control of personal computer and server operating systems.

As an added benefit, it's a great way for companies to collaborate without running afoul of antitrust laws. It's collusion without the collusion.

Intriguingly, even Microsoft is getting into this game. Microsoft's partnership with open-source ad serving company OpenX indicates that Microsoft, too, is figuring out how to use open-source complements to loosen strangleholds competitors like Google may be hoping to throw in its way.

This is why open source is growing so much faster than the rest of the industry, as IDC finds. It's not because we love each other more. Quite the opposite. It's because proprietary vendors have figured out that open-sourcing key complements to their core businesses can be strategically decisive in hurting competitors while helping themselves.

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About The Open Road

Matt Asay brings a decade of in-the-trenches open-source business and legal experience to the Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is general manager of the Americas division and vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure.

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