Despite all the nifty, gee-whiz technology that the Web 2.0 craze brought the software industry, it's still stodgy enterprise software that continues to command a significant price tag.
That's because however much we may enjoy Facebooking, Twittering, etc., ultimately we pay for what helps us get our jobs done.
Even so, just a few years ago, if you were a start-up focused on enterprise IT, VCs treated you like a leper, preferring to invest in something with a name like Bungabooboo.com over something that could shave 10 percent from a CIO's operating costs. The one way to get funding for enterprise software was to approach the market in a decidedly Web 2.0 way: open source. With the recession still in full bloom, open-source companies like Red Hat are cleaning up.
In fact, open source has become such an essential ingredient to software success that Gartner's Brian Prentice is now predicting that "we are rapidly moving to the point where all software companies will, to some extent, be an open source company."
Perhaps it has already happened.
Nowhere is this more apparent than in enterprise IT, a market famously expensive to target due to the inflated cost of acquiring customers. Open source turns this cost equation on its head by making the acquisition of new customers relatively cheap, as SugarCRM CEO Larry Augustin tells NetworkWorld.
More importantly, as Augustin calls out, open source puts CIOs, not vendors, in control of their destiny:
Now people understand software and they understand that many applications have matured. I think we'll see over time the software industry reach a point where it is not proprietary vs. open source, but the shade of how much control you want, how much do you want to do yourself, and how much do you want the vendor to do.
Given its subscription model, open source forces vendors to innovate in order to earn renewals. And because open source comes with a built-in "recipe" (read: source code), it provides the "ultimate insurance policy," as Glyn Moody writes, for enterprises that want to rely on a vendor but not become dependent upon it.
You can see this in the most recent IDC numbers on Linux deployments. While Red Hat, Novell, and other Linux vendors are growing comfortably, nonpaid Linux adoption is outpacing paid deployments. A sign that enterprise IT is going it alone?
Today these are almost entirely those enterprises with savvy development teams, but it could prove to be an unhealthy trend for commercial open source. It's one reason that Red Hat's foray into cloud computing may prove a tough slog: the kinds of companies running clouds are precisely the sort that don't need much vendor hand-holding. The Googles of the world don't buy much software: they build it, and they use a lot of open source in the process.
Ultimately, it could be the studiously "un-cool" companies like IBM that make the most money from open source, principally because they are best positioned to monetize it with additional layers of proprietary hardware, software, and services. This breaks the open-source oath of absolute transparency, but it's a price many CIOs seem willing to pay.
It's this lack of religious devotion to open source, with an emphasis on its tangible cost benefits over its freedom benefits, that continues to make open source palatable to the enterprise but also less distinctive. The reason that enterprises buy from Red Hat in droves has precious little to do with source code access and everything to do with the superior value (read: cost and performance) Red Hat offers, as Red Hat CEO Jim Whitehurst recently noted.
It's not a race that open source always wins. Notice, for example, that in Linux's easiest market--the market for Unix-to-Linux replacements--it's proprietary Unix vendor IBM that arguably is cleaning up the most.
Still, open-source vendors like Red Hat will win often enough to ensure that open source remains big business, and big for business, for many years to come. The risk is that while open source has transformed enterprise IT, enterprise IT is in turn putting its stamp on open source, making it more attractive to adopt and far less compelling as a competitive differentiator.
Open source is becoming more like the market that gave it birth.
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