The market is clearly racing toward a bottom when we start looking to Monty Python for business advice and the most lucid (if profane) analysis of Google's announced open-source operating system, Chrome OS, comes from Fake Steve Jobs.
At least, not according to a survey of 200 IT executives by Computer Economics, which finds:
- About 49 percent of the IT executives surveyed plan to make further budget cuts in 2009.
- Almost 50 percent will spend less than what is allocated in their IT operational budget.
Not good, right? Well, it gets worse...
Forrester and Gartner are duking it out to see who can be gloomiest in their assessment of 2009 IT spending, as Baseline reports. Gartner sees global IT spending dropping 6 percent from 2008, while Forrester one-ups Gartner with a projected 10.6 percent decline. (Forrester had earlier projected a 3 percent dip for 2009.)
Actually, the economy being as rotten as it is, some companies are going against the economic grain by offering compelling open-source alternatives to traditional, proprietary software, as reported Wednesday. And it's intriguing to watch companies like Lockheed Martin get into open source as a way to shift costs and improve development of their software.
Yes, there are still open-source holdouts like Orange UK which has allegedly banned Firefox and anything more modern than Internet Explorer 6 from its call centers. The company is still accepting smoke signals as a form of communication, so we're trying to get the message through that open source can drive down costs and improve productivity.
That's OK. According to Forrester analyst Jeffrey Hammond, open source is "infiltrating the enterprise" on a grand scale now. What starts out as an interest in penny pinching turns into something much more, he says.
So, while I'm not cheering for ever-gloomier forecasts of IT spending, I will admit that I like the result: more open-source adoption.
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In May, I reported on the rising fortunes of Funambol, Mozilla, and other open-source companies. Signs of "green shoots" notwithstanding, the economy doesn't seem to be getting any better, but open-source companies continue to log impressive growth as open source pervades the enterprise, as Forrester analyst Jeffrey Hammond (@jhammond) recently noted.
Importantly, according to Hammond, while open source starts as a cost-saving exercise, it often morphs into something far more strategic:
[O]rganizations tend to start [with the goal of saving money with open source]. And then what tends to happen is the more that they become comfortable with using open source, and the more that they apply it successfully, the more they start to realize that there are benefits other than cost savings that they can take advantage of. And that's when you start to see them turn from open source opportunists into open source advocates.
Those "advocates" are funding the payrolls of a range of open-source companies. Here are just a few examples of those benefiting from this enterprise shift to open source:
- The VAR Guy (@thevarguy) reports that both xTuple and Sopera are profitable. While he doesn't comment on how much they're doing in sales, profitability is, in itself, a significant achievement. (Alfresco, my company, is also profitable, and I'm sure there are others. Please let me know.)
- Likewise, an open-source authentication and identity management company, announced that it is on track to record 100-percent sales growth in 2009. We'll call that a "pre-announcement."
- MuleSource, an open-source Service Oriented Architecture (SOA) company, reported "another record for the company, with a 140 percent year-over-year increase in quarterly bookings and over 100 percent growth for the year-to-date period."
- MindTouch, not to be outdone, also issued a release highlighting its revenue growth (without giving any gee-whiz statistics but did us the favor of providing a pretty graph). More interesting, however, is MindTouch CEO Aaron Fulkerson's (@roebot) review of the various things the company has done right and wrong in commercializing its open-source collaboration project (Spoiler: favoring an enterprise build over a "community build" via stability and support is a bad idea).
(Credit:
MindTouch)
- Meanwhile, though not financial reports, it's encouraging to see Kuali adoption take off in earnest within higher education. "The colleges involved say they have the potential to achieve millions in savings while gaining more control over technology systems that are essential to the smooth functioning of their institutions." Nice.
- Also, a member of the Perl community looks to Canonical's Ubuntu in search of a solid revenue model for Perl. Interesting read, though I'd probably look to foundations that have proved their financial mettle like Mozilla and Eclipse before I'd emulate Ubuntu, however much I may respect what Canonical is doing with Ubuntu.
Unfortunately, most open-source companies are private so the "earnings" reports are somewhat self-serving and mostly unverifiable. Still, it's good to hear of growth in the midst of a weak economic climate.
Disclosure: I am an adviser to MindTouch and MuleSource. I'll gladly report on other financial successes in the open-source world if you care to send them to me....
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Like begets like, and in the software world, open-source purchasing begets even more open-source purchases.
At least, that's the lesson I take from a recent Piper Jaffray report that suggests JBoss customers plan to invest heavily in Red Hat technology.
Independent software vendors that are gaining/losing IT budget share
(Credit: Piper Jaffray Research)Not only are JBoss customers more likely to buy deeply into Red Hat, which is not surprising (though for Red Hat, it must be gratifying), but they're also more likely to buy MySQL and less likely to buy from Microsoft.
This can't be good news for Microsoft, and it probably is one reason the company has become so aggressive with its intellectual-property portfolio.
The data also underscores IT's natural inclination to buy into open source in ever-increasing degrees. Once an enterprise has one good experience with open source, it wants to have many more, as this chart from IDC suggests:
This corroborates Forrester's more recent data, which suggests that widespread plans to adopt open source within enterprises.
Back to Red Hat. It appears particularly well-positioned to benefit from increasing interest in open source, as Piper Jaffray notes:
The strong showing of support for Red Hat from a broad sample of large, sophisticated IT vendors is highly noteworthy....Red Hat's unique ability to leverage advancements from the open-source community creates a superior price-performance equation for customers. In turn, this superior price-performance experience drives Red Hat's ability to become an increasingly pervasive layer of enterprise-computing infrastructure.
We believe that Red Hat's message is resonating well across its core Linux operating system, its JBoss middleware offerings, and its early-stage virtualization capabilities. Finally, the survey results show existing customers plan to spend more with Red Hat, and in combination with recent Q4 customer deal metrics, (all top 25 deals renewed at 132 percent of prior year's value, and 2 of the top 30 deals involved free to paid migrations) support our thesis that Red Hat is gaining market share during this downturn.
It's a good time to be Red Hat, or to be affiliated with Red Hat's open-source ecosystem. I've talked before about the possibility of an industry duopoly between Microsoft and open source. Perhaps that duopoly really will be between Red Hat and Microsoft.
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SAN FRANCISCO--A bad economy is good for open source, declared Red Hat CEO Jim Whitehurst in his keynote at Open Source Business Conference 2009, but open source's value proposition should play well in any economy.
Jim Whitehurst @ OSBC2009
(Credit: Matt Asay/CNET)At OSBC 2008, Whitehurst suggested that enterprise IT needs to join the open-source conversation, contributing code back to derive greater benefit than mere consumption of open source can offer.
This year, Whitehurst moved beyond this meme to focus on why enterprises should buy open source in the first place, never mind contribute open-source code.
Whitehurst pilloried the traditional proprietary sales model, a theme the Red Hat team has raised before, which basically forces customers to re-buy the same software over and over again through pricey maintenance contracts. Open-source models like Red Hat's differ in that they depend on continuous delivery of value to the customer: if the customer doesn't like what Red Hat provides through its subscription service, they cut the subscription.
For this reason, Whitehurst noted, "Red Hat's biggest competition is not Microsoft or Novell. Our biggest competition is customers not renewing and continuing to use our software without a subscription."
Bad economic times prod people to change. Fortunately for the open-source world, that change favors its adoption and proliferation as enterprise IT seeks to cut costs while ensuring superior performance and equivalent or better functionality. Red Hat, for its part, "is hearing from CIOs that before wouldn't return our calls, but now are asking 'to sit down and work something out with Red Hat'."
Open source, said Whitehurst, conditions customers to expect more for less, and disciplines vendors to deliver it. Open source does not provide an easy business model, but it does enable various business models that align customers' interests with vendors', which proves to be a winning combination in a recession.
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SAN FRANCISCO--In case you weren't able to attend the Open Source Business Conference today, or simply arrived too late to hear my opening remarks, I shared this video to illustrate how open source is rising...even as the economy falls.
Enjoy.
OSBC2009 - Welcome Video.
In the process of pillorying the intelligence of buying Macs in the recession, Microsoft CEO Steve Ballmer may have admitted defeat in fighting Linux-based Netbooks. Ballmer said:
Paying an extra $500 for a computer in this environment--same piece of hardware--paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be.
But if this reasoning is sound against the Mac, doesn't the same apply to Microsoft in its competition with Linux? Glyn Moody thinks so:
This is a very frank analysis of the problem for Microsoft: after all, who's going to pay extra money just to get the Windows logo on a Netbook, when they can get the same features for less with free software?
What goes around, comes around. Indeed, Canonical's Ubuntu distribution already claims fealty from a host of OEMs (original equipment manufacturers) like Dell and Hewlett-Packard, with more signing on, and Novell also has scored some considerable points on the Netbook.
Even if consumers and businesses don't opt for Linux on their Netbooks, the Windows they're choosing is not very profitable for Microsoft, and getting users to upgrade to a pricey Windows 7 could prove to be a fool's errand, as Microsoft admits. Microsoft may well end up winning the Netbook war against Linux and losing at the same time.
Why pay a few hundred dollars for Windows on a device that costs only a few hundred dollars and drops all the time? The economics of the recession may help Microsoft against Apple, but they're no help against Linux-based Netbooks.
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Microsoft CEO Steve Ballmer, speaking to the technology heads of U.S. federal agencies on Wednesday, suggested that the global economy is in for significant change, as TechFlash reports.
While this suggestion is not surprising, I found his comments about a "resetting" of the economy, a theme he has been discussing a lot lately, interesting in that it would likely favor open source:
Essentially, the economy is going to reset to a different level, and then again be propelled by what really should be, and typically are, the fundamental drivers of economic growth--which are really productivity and innovation.
(The) things which are really productive and really valuable and really make a difference, they'll either get funded at companies like ours and our competitors (or) get funded by the venture capital community. We may not get the eighth, ninth, and tenth start-up in every area, but we'll get the first four, five, or six that make sense, and we'll get plenty of good competition.
(When) I tell you the (Microsoft R&D) budget was over $9 billion and is going to remain over $9 billion, it speaks to this fundamental faith and belief and excitement that we have about the things technology will do, and we've got to be at that table.
Actually, all it tells us is that Microsoft may be spending far too much to develop its products, R&D spending which, to date, has yet to demonstrate much market value for Microsoft. It also suggests that Microsoft must put a higher price tag on its products to ensure that it recoups its R&D costs. Guess what that means? It means that Microsoft may not be able to accommodate the "resetting" of price tags that buyers are already demanding.
In that environment, open source wins. Microsoft and every other proprietary vendor are going to struggle to compete with open source, which has an initial cost of nothing. As Ken Starks notes on his blog, this isn't making those dependent on the proprietary ecosystem very happy, but eventually, the ecosystem will reset toward open source, too.
CIOs are also looking to open source to drive innovation: one CIO told me that for any projects that have the potential to competitively differentiate his company, open source is the innovation platform it'll use every time.
It's no wonder, then, that Gartner finds 85 percent of enterprises adopting open source to drive efficiency through code reuse, lower costs, and more. The economy is in the process of resetting, as Ballmer speculates, but it's not necessarily going to reset in his company's favor, though I suspect that Microsoft, with its comparatively low price points and integration, will do well.
My own company has seen a dramatic increase in our pipeline, and in conversations I've had with the CEOs of Pentaho, RiverMuse, and other open-source companies, it's largely the same.
The economy is resetting for open source. It's open source's game to lose.
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Reading through an excellent essay in Saturday's Wall Street Journal entitled "Will this Crisis Produce a 'Gatsby'?", left me remembering the title of a book I once read, Hemmingway's The Sun Also Rises.
We've spent the last decade spending like prodigals. Perhaps we shouldn't be surprised, then, that so many of us now strain to simply get by. In many ways, as the article points out, we just relived the 1920s and American idealism is now being harshly battered by 1930s style depression, which simply illustrates just how uneven the promise of American mobility actually is:
...[T]he United States actually became less equal and less fluid in the 1920s, as the era's prosperity increasingly benefited the wealthiest. By the end of the decade, the top 1% of the population received nearly a quarter of the national income, an historic peak that would not be approached again until this past decade. Indeed, the term "social mobility" was coined in 1925 by the sociologist Pitrim Sorokin, who used the phrase to identify a phenomenon in apparent decline. "The wealthy class of the United States is becoming less and less open," Sorokin wrote, "and is tending to be transformed into a caste-like group."
That's the bad news. The good news, as Peggy Noonan calls out in "Remembering the Dawn of Abundance," is that there is much for which we can be grateful. "In hard times we should not forget the magic of life, and the mystery." She was referring to WiFi as she flew across the United States, but she could have been referring to the many other wonders our industry produces.
Things will get better. The 1930s gave way to the 1940s and the idyllic 'Happy Days' of the 1950s. The sun also rises.
Today a friend emailed me to let me know he had secured a job with Canonical, the company behind Ubuntu. What a great place to land, and what an opportunity to change the world! There are more Ubuntus out there, even in the midst of all this creative destruction. It's mostly destructive today, but the creativity will emerge from it and build greater opportunity and greater wealth than before.
In the meantime, keep in mind that most good things don't cost a dime. Family and friends are free.
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Silicon Valley was late to the recession "party," but the global financial crisis is causing companies to tighten their belts, leaving a stretch of Highway 101 relatively traffic-free and out-of-work entrepreneurs with some difficult choices.
A new report from the Joint Venture Silicon Valley and the Silicon Valley Community Foundation, as The New York Times details, indicates a 1.3 percent drop in Silicon Valley employment. That may not sound like much, but if you've driven in Silicon Valley lately in rush-hour traffic, you can see a real difference.
Not everyone, however, is being hit equally:
The report also showed that the gap between the wealthiest and the poorest residents continued to grow. The percentage of households earning more than $100,000 a year rose to 42 percent in 2008, from 35 percent in 2002, while the number of households earning $35,000 or less rose to 20 percent, from 19 percent in the same period.
In other words, venture capitalists and successful technology executives are likely to weather the recession in comparative style, but the fire fighters, janitors, and rank-and-file technology workers are going to feel significant pain.
Importantly, such people really have nowhere to go: many live at a considerable distance from Santa Clara and other primary places of employment, commuting an hour or more to get to work each day. There are few alternative industries in Silicon Valley to absorb technology's outcasts.
This has always been a problem with Silicon Valley's technology-fixated economy, and it's about to get worse. Hope springs eternal in Silicon Valley, however, and clean technology and other cutting-edge technologies will almost certainly spur investment and, hence, jobs. In the long term, Silicon Valley will also benefit from a trend toward the creative class congregating in urban centers.
But that's later. For now, Silicon Valley won't be the land of opportunity for too many that support, but don't commensurately profit from, the technology economy. Move on, Tom Joad. Move on.
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The Financial Times points out that many technology companies are cash-rich and intend to stay so in order to ride out the recession. Apple sits atop nearly $26 billion in cash, while Microsoft keeps $19 billion in its pocket (and is probably grateful that its bid for Yahoo was declined, given how that would have decimated its bank balance).
Surprisingly, IBM is relatively cash-poor, with only $3.3 billion in the bank, and Oracle? Well, let's just say Oracle needs its acquisition strategy to start feeding it fat profits because its bank balance is $700 million underwater.
As for open-source companies, Red Hat holds roughly $677 million in cash, and another $450 million in short-term investments and receivables, which compares favorably to its proprietary peers, when considering the small size of its employee base and funding requirements. Novell is much the same, while Sun Microsystems has more cash on hand but also bigger outlays it must service.
Private open-source companies demonstrate the biggest, if diffuse, saving power. My own company, Alfresco, has much of its venture capital investment dollars still in the bank, allowing us to ride out the recession, while companies such as Hyperic, SugarCRM, and others share this fiscal prudence.
When the recession recedes, and it will, those with cash will be best-positioned to manage their options. For the big technology companies, there will be greater leeway to take risks on research-and-development investments and acquisitions. For the smaller companies like mine, well, we'll have the option to grow at our own pace rather than having to sell to a larger company simply to finance operations.
In this economy, cash brings peace of mind, but it also brings options. Ironically, given that Apple and Microsoft have two of the biggest cash hoards, it may well be that money earned on the desktop will provide these vendors the best options for extending that dominance to the cloud.
