The Open Road

These days, it's virtually impossible to avoid open-source software. If you're a Web company, don't even bother trying.

That's the message I got from a conversation Friday with Raju Vegesna, evangelist at Zoho, a leading competitor to Google Docs. According to Vegesna, the company--formerly known as AdventNet, now called Zoho Corp.--has been around for 13 years, and has always used free, but not necessarily open-source, software as part of its strategy. The company has released software under open-source licenses before, including the somewhat controversial vTiger project.

With 1.8 million users of Zoho.com, growing at roughly 100,000 new users per month, and profitability expected in 2009, Zoho's use of open-source software offers a glimpse into the development strategies of the next generation of software companies.

As Vegesna explains it, "In 2003 we were trying to determine whether to go open source or SaaS. We opted for both." Expect to see a lot more "both" software strategies going forward: open-source software inside with a cloud delivery strategy, and open APIs to give external developers access to that cloud.

Q. Tell me about how and where you use open source at Zoho.
Vegesna: We are completely open-source at the core of Zoho, from the operating system (CentOS) to the database (MySQL) to the application server (Tomcat) to Hadoop for scaling our systems.

Do you modify any of these projects and, if so, do you contribute back those modifications?
Vegesna: Yes, at times we modify open-source software to meet our needs, but often, like with the operating system, we don't modify the source code. We simply strip it down to the essential components that we need, thereby improving performance and security. But for other areas, we may modify a project like MySQL to improve scalability.

As for contributing back, it depends. If our changes help us but likely won't help the community, we won't contribute them back. But if it's code that would help the general community, like a security improvement, we contribute that back, unless it's something proprietary to our business. Whether the community accepts and incorporates it, however, is up to it.

Could Zoho.com exist if it were built with proprietary software?
Vegesna: Technically, we could do the same thing with proprietary software but the cost would be prohibitive. Imagine Google trying to run 600,000 servers on Windows. Could it do so technically? Probably. But it's doubtful that it could give so many different services away for free if built on pricey, proprietary software.

Without open source I can't imagine SaaS [software as a service] taking off. The economics simply wouldn't work.

Open source gives us flexibility so that we can add our own layers of business logic. For example, we use OpenOffice for document conversion. There are some conversions that OpenOffice doesn't support, however. Because it's open source, we can split the code to allow our proprietary software pick up the slack where OpenOffice can't handle transformations.

Most of our applications are built from the ground up by Zoho. Ninety-five percent of our employees are engineers. We use open source strategically but we need to be able to understand our code intimately, so writing it ourselves is important.

We use the best of open-source software, contribute back strategically, and write our own software where it makes sense.

Follow me on Twitter @mjasay.

Here's some comfort for the software industry, innocently offered up as advice to the media industry in an excellent Andrew Savikas post. Savikas challenges media companies to think beyond media-as-product to think of a media-as-service, just as restaurants look beyond "food" to sell "meals" and a complete dining experience.

It's a great idea. It's just too bad that 90 percent of restaurants fail within their first few years of existence. Media companies apparently have the choice of failure or...failure.

Software companies, which also have the problem (and opportunity) of easily replicable goods, are in the same boat. The good news is that the software industry, more than the media industry, has recognized for years that it's in the services business, even if it sticks to the "software" nomenclature. Open source, Software-as-a-Service (SaaS), and Web companies like Google are all indications that software has moved beyond peddling bits, even if we like to pretend that we haven't.

Don't believe me? Just look at Oracle. Almost half of its business now stems from maintenance revenue, which is effectively services revenue disguised as license revenue. Oracle had an open-source subscription model before it became cool.

Who is to blame for this? Thieving teenagers downloading music? Rapacious enterprises taking open source without giving anything back?

I don't know, and it doesn't matter. It may be that wrong-headed business models are the cause of piracy, as European Union telecommunications chief Viviane Reading suggests, or it might be that people are simply amoral. It doesn't matter. Savikas is right to point out that it's not the consumer's job to figure out the right business model for media companies (or software vendors):

You don't get an "A" for effort just by spending time and money creating content (and you are not entitled to your business model--you have to earn that money every day by doing something that people find worth paying for--and they decide it's worth paying for, not you). Content only has value to the extent that someone will pay for it because it accomplishes something they'd rather exchange money for than do themselves--and when was the last time you said "Gee, I really need some content. I could write some of it for myself to read today, but I'd rather pay someone else to do it."

Google and other aggregators haven't stolen any value from the creators of the content they are aggregating--they have done what intermediaries have always done, which is create new value based on doing for customers what those customers cannot or do not want to do themselves--the service of sorting through all that content to find the thing that solves their problem.

This is happening in software, too. Red Hat is an intermediary for a growing array of open-source infrastructure projects. As mentioned, Oracle is already in the practice of buying up maintenance revenues from competitive and complementary products.

That's where software is going: services. The key as you start up your next software vendor is to stop fixating on software and think beyond it to the services--delivered as support, proprietary add-ons, or whatever--that will make you money. If you're in the software business, you're almost certainly in the wrong business.

Follow me on Twitter @mjasay.

Some have described Google as an advertising company. This might have been accurate at one time, but given the sheer breadth of Google's ambition and product mix, it's far too limiting a description.

Google is a search company. It's a cloud company. It's a subscription services company. And, as is becoming increasingly obvious, Google is the world's largest open-source company.

Tim O'Reilly has been telling us this for years, but it wasn't until I read this brilliant Keir Thomas article that I appreciated the clarity of O'Reilly's vision.

As Thomas writes, Google is the antithesis of Microsoft. Where Microsoft is closed, Google is open. Where Microsoft is limiting, Google is expansive. Where Microsoft is desktop, Google is the Web.

Microsoft has a problem, and it's this: Its entire business model is built around discrete computers running discrete applications....

The key thing about online applications [like Google] is that they are platform agnostic....Open source doesn't require licensing fees, and is like a double-jointed Russian gymnast: It's flexible. Really flexible. This puts it in a far better position to provide a platform for the new platform agnostic online world.

Chrome (technically Google Chromium) is open source because it makes no sense for Google to lock-down software to one hardware platform or architecture. The platform no longer matters in the Google universe, and this perhaps is the biggest difference between the Microsoft and Google philosophies. Microsoft needs you to keep you using Windows and an x86 platform.

Google [doesn't] care what computer or platform you use, and is actively encouraging you to be eclectic in your choice. Microsoft's approach is all about restriction. Google's approach is all about freedom.

In short, Google can afford to give away everything that makes Microsoft valuable. Everything. How can Microsoft hope to compete, except by trying to tether the online experience to its legacy desktop?

This is a good strategy...for now. It takes a lot of time for industries to change, and it's very possible that not all enterprise applications will successfully migrate to the cloud, as Dan Woods posits.

As such, enterprises will stick with Microsoft and on-premise deployment of software for many years to come.

But that phase in our industry's history will end. Already, as Chris Nuttall notes in the Financial Times, "the inevitable primacy of the browser and web applications is becoming clear."

Google, creator of some of the best of such Web applications, is the quintessential open-source company. It can afford to open all of its code, even if today it does not, because Google isn't selling code, and it can derive significant benefit from extensions to its online services through open-source development. Open platforms, as venture capitalist Fred Wilson suggests, are the future.

Google, in short, is what open source wants to be when it grows up. It illustrates what a true services company looks like: not support and other old-world services, but instead Web services. Most open-source companies only strive toward this goal. Google has fulfilled it.

The writing is on the wall, and that writing says that Microsoft and its model is dead. Google has killed it. Unless we're careful, however, Microsoft won't be the only casualty. Anyone hoping to monetize software directly is at risk.

Follow me on Twitter @mjasay.

Who would you work for if not for the company that currently employs you?

For many right now this is a somewhat pointless question: with so many people unemployed, the answer is, "I'd work for anyone that could cut me a paycheck every other week."

Bad as things may be at present, however, they will get better. As the economy heats up, and it eventually will, which software companies are poised to make the biggest impact on the industry for the coming five, 10, and 50 years?

I asked this question over Twitter on Monday, and received some interesting replies. Google, Amazon, Canonical (Ubuntu), Red Hat, Mozilla (Firefox), Adobe, and Cisco were some of the replies.

Interestingly, a few of the companies I recently listed as the "most relevant" software vendors--Oracle, Microsoft, and IBM--didn't make the list. I understand why Microsoft and IBM might not make the cut, but Oracle?

Oracle is far more interesting than its image as the quintessential market consolidator suggests: its new foray into "software as a service" applications to challenge its upstart neighbor Salesforce.com is but one demonstration of its boundless ambition, and its apparent continued commitment to open source make it a hugely disruptive vendor.

But maybe people are more focused on the new kids on the enterprise block? If so, Google is an interesting choice. Everyone knows how successful it has been in the search market, but Google also stands to make a deep and lasting impact on the enterprise software market, as TechCrunch recently pointed out.

Not that Google has a free ride ahead of it. It's already starting to feel the pressure posed by private clouds, and might discover that not every CIO is willing to outsource its computing to the Google cloud. Even so, I expect Google to make big noise in the enterprise.

But the other company that I think gets little attention here, and perhaps because it feels more like a foundation than a corporation, is Mozilla. Given the importance of the browser to computing, Mozilla, which sits at the heart of Firefox development, arguably has the potential to impact consumer and enterprise markets more than any other company.

But first it has to want to do so, and it's by no means clear that Mozilla has this particular ambition.

As described in an internal presentation, Mozilla CEO John Lilly identifies a growing tension in Mozilla's mission to "promote choice and innovation on the Internet" as its employee base scales up and its impact on the market scales out.

In his words, Mozilla needs to determine the appropriate balance between "pragmatics" (how Mozilla functions) with "poetry" (why Mozilla does what it does). Mozilla today functions mostly as a foundation that develops an exceptional Web browser, among other things. How will that mission change once its current market share of 22 percent rises to 50 percent? Which new markets will it enter? Office productivity, perhaps, or something else?

Whatever it chooses, Mozilla will increasingly step on more toes than Microsoft's, including, perhaps, that of its own community, as suggested in the recent "extension war" between AdBlock Plus and NoScript, and in the process could become both more and less interesting as a disruptive force in software.

This leaves Canonical, Red Hat, Amazon, Cisco, Adobe, and others that you no doubt believe should be on the list. Who do you think will transform enterprise software most over the next 10 years? 50?

Follow me on Twitter @mjasay.

It's perhaps no secret that the enterprise sales model is broken. Software-as-a-Service (SaaS) and open source have picked the lock on the enterprise, enabling CIOs to try before they buy, disrupting the old model of paying far too much for demoware and roadmap dreams.

It's a welcome shift of risk from the buyer to the vendor, as Geva Perry highlights:

We're now witnessing an increasing trend of bottom-up sales. A casual decision made by developers on a day-to-day basis, not a grand strategy laid out by the CIO. Try-and-buy is the norm, and so are subscription payments and other models that take off the financial burden from the customer and places it on the vendor.

But it's not only a matter of a shift to subscriptions, as CMS Watch's Kas Thomas details: CIOs want pricing greatly simplified:

These days, buyers of enterprise software are looking for simplicity -- simplicity in licensing, simplicity in accounting, simple APIs, uncomplicated UIs. If IT experts have learned anything in the past five years (years that have seen fast/simple technologies like Ruby on Rails, REST, and AJAX overturn a lot of apple carts), it's that complexity is costly. And in the current economic environment, there's no room for excess costs.

Open source provides that simplicity. It enables enterprises to pay for only the value they need, something which Red Hat has been highlighting lately. SaaS also provides this simplicity, though it leaves out the customer freedom that open source affords.

In either case, however, they demonstrate where software sales are going: smaller, incremental deals rather than big upfront commitments based on little more than slides and vague promises.

Follow me on Twitter at mjasay.

The blog Confused of Calcutta recently raised an interesting topic: Should software vendors take more responsibility for their software? Should we sign up to "tenancy agreements" by which we agree to stand by our code and ensure it works well with others?

It's an intriguing proposition, one which I'm sure enterprise IT buyers (or, rather, their legal departments) would welcome.

I doubt it will ever happen, however, and I'm not sure there's much incentive for a vendor to introduce such licensing commitments. No one buys software because it comes with a kinder, gentler contract. They buy because the software is expected to solve a business problem. The legal contracting is secondary, an afterthought.

Liberalizing license terms would likely have marginal impact on sales, and could have serious, negative consequences post-sale. There's a good reason that software contracts start with a disclaimer of warranty and go downhill from there. The world has become so litigious that it's best to start from a position of, "Hey, we told you to run screaming from the room before the software explodes."

No, it doesn't help anyone get their jobs done. Yes, it's probably a necessary precaution.

While I like the idea of software vendors standing behind their products, I don't think the contract is necessarily the best way to achieve this. The reality is that any company that consistently delivers poor software is going to end up in bankruptcy. That's the customer's best warranty.

It becomes even stronger if the vendor is an open-source or SaaS vendor that sells with a subscription model. The vendor goes out of business if it doesn't deliver ongoing value. In this model, the vendor has every incentive to solve problems, warranty or no, because its next invoice depends upon ensuring the software works.

In short, don't look to liberalize license terms. Look to buy from vendors whose business models comport with customer interests. There is no better way to ensure warranty and indemnification protection.

Follow me on Twitter at mjasay.

One of the most disruptive aspects of the Internet is that it makes all content cheap and disposable. Though various industries--from music to software--have resisted the Web's commodity urge, none have managed to escape it. Whether music, journalism, or software, the Internet makes distribution and replication cheap which, in turn, makes content somewhat transitory and, hence, less valuable in itself.

As iTunes, Google, and Red Hat indicate, the best business models for the Internet age are those that focus on services around content, rather than on monetizing content directly.

Speaking of software, in particular, we've reached the end of an era that treated software as a packaged product. Software is a process, and so demands that it be monetized through subscriptions or other service fees. We spent decades pretending that digital goods like software are the same as physical goods like tables or televisions, wrapping digital goods in copyright and patents in an attempt to make them feel like permanent products, but it's increasingly clear that digital goods really are different.

Enterprises don't buy software, install it, and run it. They license software, heavily (or lightly) customize it, run it, then upgrade/update it, and customize further. Software never really reaches stasis within an enterprise deployment. It's in a perpetual mode of change.

This is why open source has emerged and done so well: it treats software as a process and prices on a subscription basis. Most open-source models charge customers for support, updates, or other ongoing services, including access to proprietary extensions or add-ons.

In this way open source embraces the Web, rather than fighting it, and makes software development and delivery an ongoing process, fitting it to how enterprises actually consume software. Novell's SUSE Linux Studio groks this, enabling ongoing customization of Linux distributions. So does Red Hat's RHEL distribution, which lets customers subscribe to ongoing, updated software. So, too, does Zimbra, which adds to the subscription commercial extensions.

Not that open source has a lock on subscriptions. Just look at the Software-as-a-Service world, which includes Salesforce.com and its ilk that make software applications available via the Web on a subscription basis, but also includes Google, which treats software and other content as means to sell advertising, a micro-subscription of sorts.

Microsoft, of course, has been the biggest winner in 20th-century software, because it has been phenomenally successful in productizing software, making it hard for the company to adapt and embrace software's 21st-century imperative: subscriptions. But adapt it must if it wants to embrace the Web rather than be bowled over by it.

The same applies to anyone that wants to build a software business in the Internet age. If your revenue depends upon selling packaged software, rather than access to a more fluid process, you might as well fill out your bankruptcy filing along with your articles of incorporation.

Follow me on Twitter at mjasay.

Reading The Wall Street Journal on Friday, I was struck by an article detailing the changing fortunes of luxury goods manufacturers like Burberry and Emanuel Ungaro, and how much they mirror those of enterprise software vendors. Recent discounting by luxury goods companies has led once-loyal customers to question the price tags they once resolutely paid:

...[M]any fashion-industry veterans believe last fall's steep discounting of European designer goods by 70% or more did lasting damage to the perception of luxury. People now feel like they were ripped off by high prices all along--and they are vowing never to pay full price again. If you can buy a Michael Kors wool dress for $230 on sale,...you may wonder if the original $2,400 price wasn't a bit high to begin with.

Bingo. This is precisely the doubt rising amongst CIOs as they review licensing and maintenance costs with their software vendors. One recent example comes from TechWeb Global CIO writer Bob Evans, who wrote an open letter to Oracle CEO Larry Ellison criticizing Oracle's fat pricing in lean times:

The issue that needs your fresh thinking and attention in today's brutal economic climate is the one-size-fits-all, nonnegotiable 22 percent annual maintenance fee Oracle charges your customers.

As you well know, those customers are desperately trying to cut costs and conserve cash, and are exploring every possible option for doing so. You can help those customers very directly while also advancing Oracle's cause in a variety of ways by being willing to modify your stance on that single-tier, unmodifiable policy....

Mr. Ellison, it's easy to see why you like the current system, where someone pays, for example, $4,000,000 for a software license and then pays you $880,000 every year for "maintenance." And maybe CIOs will continue to find that's a fair exchange of value. But maybe they won't....

To which I'd add, "Let's hope they don't." The current enterprise software pricing model is unconscionable. It shifts all the risk of an IT purchase to the buyer, who must buy on faith with limited recourse if the software doesn't perform as marketed, or even if the intended project dies, leaving the customer with software licenses that it can't use.

Open source and Software-as-a-Service (SaaS) turn this bloated, outdated model on its head, insisting on a pay-for-value and pay-as-you-go model that benefits customers through lower costs, lower risk, and higher performance. It's therefore no wonder that Red Hat, the leading open-source vendor, continues to grow in a shrinking economy, as Forbes recently pointed out.

In my own open-source business (Alfresco), I've seen incumbent, proprietary competitors drop prices by as much 100 percent...and still lose. Why? Because even at a 100 percent discount on the license, Oracle, IBM, etc. charge maintenance pricing that is far out-of-line with the value their software actually delivers.

Luxury goods companies are recognizing the need to lower the cost of their wares, because they simply aren't worth the inflated price tags they've long commanded. Enterprise software is the same. That BMC maintenance contract you're considering renewing? It's not worth it. Go with Hyperic or Zenoss or another open-source provider instead, and save money while maintaining or boosting productivity.

Yes, you can.

Follow me on Twitter at mjasay.

TechCrunch's Jason Kincaid asks, "Since when did my data become a bartering tool?"

Answer? Ever since we started ceding control of our code and our data to the cloud.

One response is easy: demand that the underlying source code behind Web services be open source. No, 99.999 percent of the population won't be able to do anything with it. But .001 percent will, and that's the percentage required to ensure that your data remains your data. The interim response is, of course, competition simply based on data retention policies.

Kincaid's complaint stems from Web mail providers purging user e-mail in order to free up storage and drive the upselling of premium Web mail products. Surely, if Yahoo is wreaking havoc with a user's email, another provider can offer a better retention policy to stick a finger in Yahoo's eye.

But this competition gets teeth with open source, which is why the Web mail providers won't go down that road--and why we need them to do so.