The open-source mandates are coming
Jeffrey Hammond, principal analyst at Forrester, just Twittered something that is about to hit the traditional software world like a ton of bricks:
Just got off the phone with a client who's been mandated to use [open-source software] because licensing costs are killing them.
Call it the beginning of the end, if you like, but it's coming. The last few decades of software have been an aberration, built upon the historical accident that is digitization. Or, rather, not the accident of digitization, but rather that for a relatively brief period of time, we've made believe that digital goods can be treated like physical property. Companies like IBM, Microsoft, Oracle, and SAP have made billions in the process.
Guess what? Party's over. Ultimately, every software business will transition to a maintenance business, where software is charged on a subscription basis and looks suspiciously like services revenue, because buyers now realize that software products that can be developed and distributed cheaply should also be sold cheaply.
In fact, the transition to maintenance revenue is already well under way. Oracle, a paragon of the traditional software industry, already makes most of its revenue through maintenance. Its peers are much the same.
The next phase in the transition comes as IT buyers start to question the value of the maintenance contracts they sign with software vendors. Oh, wait. That phase has already begun, as reflected in the recent uproar over Oracle's and SAP's attempts to raise maintenance pricing without actually delivering much value for the base maintenance cost or the price uplift.
Next phase? We're already there, too. It's called open source, and it forces software vendors to provide ongoing value to justify CIOs spending money with them. Red Hat has led this shift, but it's a movement that is accelerating as open source permeates all areas of the software stack, from applications like Openbravo (ERP) and MindTouch (collaboration) to core infrastructure like Lucid Imagination (search) and MySQL (database).
In the past few weeks I've had a range of Fortune 500 companies choose Alfresco to replace Documentum, Oracle (Stellent), IBM FileNet, Vignette, and more. In those same weeks I've heard from peers at other open-source companies that they've been actively replacing HP, IBM, Tibco, Oracle, etc. in customer deployments, too.
In fact, the only enterprise software vendor that has remained somewhat impervious from open-source encroachment is Microsoft, as it has been lowering prices and improving ease-of-use in its technology for some time. But Microsoft, too, will have to face the open-source music, as Microsoft CEO Steve Ballmer has noted recently.
As enterprises get squeezed by the recession, they're going to squeeze their vendors for cost savings. At some point, those vendors' cost structures and business models won't support the squeeze, and the business will go to open-source vendors.
It's already under way.
Disclosure: I am an adviser to Lucid Imagination, Openbravo, and MindTouch, and an employee of Alfresco.
You can follow me on Twitter at mjasay.
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 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. You can follow Matt on Twitter @mjasay. 
A lot of these companies, and not just the large ones, also have requirements for which a proprietary package will meet 80 - 90% of their needs. If the company wants more compliance than that, it's best to go open source where they can modify it to their liking or take their pick from a group of consulting firms able to modify it for them.
The difference now is that in many companies CIOs' delusion that they belong in the executive suite were punctured. CIOs now report to the CFO. When the CIO is a baron defending his fief, perversely expensive proprietary software becomes an argument for preserving budgets and headcount that equate to prestige in the corporate hierarchy. All of that is gone now.
I believe the single biggest advantage of open source products in the enterprise is not so much the negligible to nil acquisition cost as the fact you can make support organizations compete for your business and thus not be at the mercy of price-gougers like Oracle. Then again, it mystifies me how Red Hat can get away with charging $2K a pop for RHEL (including at my company) when superior alternatives are free as in beer.
While that's not always the case, when you have a perceived value of something and you see another company with a much lower price, you start to wonder why that price is so much lower. It's unfortunate, but it's true.
Besides that, Red Hat has bought a name for itself. While other companies may offer service at the same quality, the suits simply haven't heard their names.
Open source is good for companies like Microsoft, Oracle, IBM, SAP, etc it forces them to create more and more beneficial software and think long and hard on how it will present higher ROI at lower TCO. Fact of the matter is, Open Source needs commercial software... why? Because that's where the money is going - developing new ideas and new ways to do things. Sure - you have a fantastic community creating ideas but honestly... what exactly is new and exciting about Open Office versus say Office 2007? The argument is it is free... not that it interfaces with active directory, a robust messaging server, and a document management solution to extend collaboration, document revision control, and presence technology. People are looking at better ways to communicate and having a bunch of ad-hock, disjointed, patch solutions that require serious consulting work to get it right from the start is not saving anyone any money. More "best of breed," "free solutions" with no standards leads to higher support costs. I have seen several organizations cannibalize this mentality and they pack the house with $100,000 a year developers and no standards. The costs overrun, the projects drag on.... They spend more time spinning around in circles than actually getting things done. CFOs aren't stupid... they may not understand tech but they do understand the cost of bodies versus the cost of software. If you can get it 80% out of a box why in the heck would you spend countless hours building it?
Sure - free is great but what business objectives is Open Source trying to creatively address? I see more "we can too" versus actually creating compelling reasons to switch. I see more, "we are free" upfront... low entry point with a high support cost in the back and no real long term vision. As IT budgets shrink it'll be interesting to see more and more people seeking to replace standards with pie in the sky "just good enough" mentality. "Just good enough," doesn't hack it when the competition is partnering and looking at ways to be creative about how they grow.
Why do Fortune 500 companies run software by companies by SAP, Oracle, Microsoft, and IBM? They want to focus on the business versus building software.
I'm also wondering, if I'm running all open source software, why do I give a monkeys if it can't connect to AD. I'm not running Windows Server am I?
So that about covers "Hello World". How about all the other software you use day-to-day? Do you *really* think it can be "developed cheaply"? If so, perhaps your definition of "cheaply" differs from many of the people who will read your article?
The great irony, I have often thought, of Open Source (or its close relation Free Software) is that much of the development work is actually funded?whether directly by software companies or indirectly via the salaries of their employees?using money derived from the sale of proprietary software. This of course exposes the greatest flaw in your argument, which is that without the profits from proprietary software, it is highly likely that a great deal of Open Source development would simply never happen. So if, as you postulate, Open Source were to come to dominate in all markets, it is quite likely that it would stagnate as the number of people working on it would, necessarily, fall.
Even in the case of your own company, Alfresco, the fact is that many of your customers will be software companies or related businesses, and that many of the tools that you have used to implement your company's products will have been funded, as I said, using money derived from the sale of proprietary software.
Essentially I think you're failing to see the Big Picture here.
Linux lives off of proprietary revenue?
Mysql?
Apache?
It is a nasty treadmill where the customer is completely dependent on the maker of the proprietary software.
It is not that way in open source, the customer is on equal footing with the vendor.
- by Dango517 February 6, 2009 2:37 PM PST
- I suspect and "open source" user around here somewhere. Wonder where he/she is? Anyone smell a bias? I would swear I smell bias.
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- by pentest February 6, 2009 4:31 PM PST
- Your bias smells worse because it has no basis in reality. Just talking points.
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(22 Comments)Anyway, here's the point...... (A quote from article above) "because licensing costs are killing them.".
Some FYI. Microsoft recently [u]removed[/u] a web site that was used to tout it's PC produces over the use of "open source" and replaced it with one for "open source" server/business products. (Hmm , could this be phase one of an "open source" rebuttal? )
Wonder where we, the Internet and all of the computing world would be if it used nearly all volunteer developed "open source" .products?
Here's how well the open source community is doing with there current distribution efforts of PC OSs.
http://marketshare.hitslink.com/operating-system-market-share.aspx?qprid=8
A good guess might be ............ they're being about as successful with the business community.
The real deal here is ........... "the economy stupid". Yep, and you thought your vote didn't count.