The Open Road

Net Applications has finally published its browser market share numbers for July, and the results are surprising. Given European summer holidays and Mozilla Firefox's large user base in Europe (35 percent market share), Firefox should be seeing a significant decline in market share through the summer months.

But it isn't.

Instead, as detailed below, Firefox market share continues to hold steady at 22.47 percent, while Internet Explorer also treads water at 67.68 percent. Only Safari (4.07 percent) and Google Chrome (2.59 percent) show appreciable, sustained growth over the past few months.

Browser Market Share Data, July 2009

(Credit: Net Applications)

With Firefox recently surpassing its one-billionth download, we should see rising market share in the fall, unless back-to-school PC sales give IE a bump.

But I don't think IE will win over the student crowd, which is more likely to be a Mac (Safari) crowd than a Microsoft one. And so I suspect we'll continue to see Firefox (along with Safari and Chrome) rising against IE.

After all, eventually even the Griswalds come home and get back to work. When they do, more and more will be using Firefox.

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Given the momentum behind open source, and how it has grown through the economic downturn, it's not surprising that more and more vendors are getting involved to commercialize open-source projects. What is perhaps surprising, however, is how early in the open-source project lifecycle that commercialization is emerging, as Gartner indicates in a December 2008 report ("Predicts 2009: The Evolving Open-Source Software Model").

Gartner suggests that by 2012, "50% of direct commercial revenue attributed to open-source products or services will come from projects under a single vendor's patronage." What this means, however, is open to interpretation.

Here's Gartner's:

Driven by expanding mainstream IT adoption, open-source usage profiles are shifting to more-conservative, risk-versus-reward dynamics. As a result, new adopters now place an increasing premium on commercial support channels to establish service-level agreements on par with closed-source alternatives.

In response to commercial open-source demand, many new projects are being commercialized early in their maturity phases--often by a dot-com startup, and before a broad community "network effect" is firmly established. These projects are often under the patronage (if not authoritative control) of a single vendor that employs nearly (if not entirely) all key code contributors.

While Gartner suggests that this trend will lead to cost parity with proprietary solutions 50 percent of the time, the facts don't bear out this assertion. For example, Forrester finds that 87 percent of enterprises surveyed reduced costs through open source.

In part, this is due to commercial open-source vendors charging dramatically less than their proprietary peers. We can pass on sales and marketing cost savings in the form of maintenance savings.

It would be nice to discount this cost savings as transitory--a near-term phenomenon that dissipates once vendors control open-source projects--or related to community-based open source. But Forrester's Jeffrey Hammond, supported by IT executives from Virgin Mobile and San Francisco International Airport, argued at OSCON in July that open source, commercial or community-based, saves money in deployment costs, acquisition costs, and ongoing maintenance costs (if any).

Pixie dust comes and goes
Still, Gartner has a point. It's true that there are trade-offs that come with commercialization of open-source projects. Some of the magic pixie dust arguably evaporates when a company is behind a project.

But other "magic pixie dust" appears. Polish. Documentation. Enterprise acceptance. And more.

Was Linux hurt by Red Hat's involvement? Hardly. Linux has thrived in tandem with Red Hat's prominent role in developing the Linux kernel.

For those that think community-based support is the way to go, consider CentOS, a clone of Red Hat Enteprrise Linux. CentOS recently had its leader go AWOL. While the situation was eventually resolved, a serious vendor like Red Hat mitigates the vagaries of community whims, like Red Hat's Alan Cox deciding to stop working on tty development.

But it's not just Linux. Is Drupal adversely affected by Acquia? Lucene/Solr by Lucid Imagination? MySQL by MySQL? Jasper Reports by JasperSoft? And so on.

In every case, I'd argue that the projects have been significantly blessed by vendor involvement, not cursed. There are downsides to company involvement, but those are primarily the vendor's issues, not the customer's.

Regardless, Gartner is right to highlight the significant benefits of open source that transcend price tags.

Adopters will continue to receive benefits from open-source solutions, but these benefits will be increasingly realized by advantages in investment protection, innovation and technology alignments, rather than by simple cost savings alone.

Forrester, too, called this out at OSCON, articulating that while many companies adopt open source to save money, and do, they discover a myriad of other benefits along the way. Increased flexibility, higher quality, and more.

(Credit: Forrester)

For example, the U.S. Federal Aviation Administration argues that "Being able to look at source code is a huge benefit, instead of just getting a black-box executable we can't even look at....[I]t's always nice to be able to modify something on our own. We count on [open-source vendor] Progress to do the heavy lifting, but we do keep our own options open." The FAA depends on Progress, without being dependent on Progress, and gets a great deal of benefit from both the open-source software and the open-source vendor.

I'll buy that. Frankly, whether it ultimately costs me more or less is somewhat immaterial. I don't buy Macs because they're cheaper. I buy them because they're better. In like manner, I buy open-source products because they are often much better, in several ways, than proprietary alternatives. Not always, but often enough that if you're not at least considering open-source alternatives, you're missing out.

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Microsoft's Internet Explorer's market share is absolutely falling. The question is, by how much?

I've reported before that Internet Explorer (IE) drops 5 percent market share points each year, while Mozilla Firefox gains 5 percentage points per year. But what is becoming increasingly clear is that IE's market share may be dropping more precipitously than previously reported, falling to 60 percent share in June 2009 instead of the 68 percent share expected.

Or is it?

The answer may depend on the source of the information, and the reliability of its data. Mozilla's Asa Dotzler uses StatCounter data to discern a 60 percent share for IE but, as ZDNet's Larry Dignan points out, this data may not hold up.

For Microsoft's sake, it had better hope not, as this chart compiled by Dotzler shows:

Internet Explorer market share falling faster than reported?

(Credit: Asa Dotzler (Data from StatCounter))

That's not the sort of chart with which Microsoft CEO Steve Ballmer likes to sweeten his coffee in the morning.

Net Applications, the other big source of browser market share data, still hasn't posted its results for June 2009, noting that it is trying to make sense of "some significant variations in browser and operating system statistics."

Given that market share data isn't a one-month phenomenon, it's not necessarily helpful to celebrate or fret over the June data, especially since much of the market share share data is going to get skewed in the summer months, anyway. For example, given Firefox's disproportionately large following in Europe, coupled with Europe's disproportionately long holiday season in the summer, I'd expect to see Firefox drop some percentage points against IE through August, only to rebound strongly in September.

Regardless of short-term variations, one thing seems clear: Firefox is gaining on IE. Microsoft spent too long enjoying its browser dominance, and not enough time innovating. It's starting to pump R&D dollars into IE again, but it's not yet clear whether its monolithic approach to browser development can compete in the long term with Mozilla's community-developed Firefox.

Microsoft needs to compete again, or risks seeing even StatCounter's data understate just how quickly it's falling.

Mozilla, for its part, faces a host of new challenges. It can't afford to waste much time with back slaps and high-fives. The browser has become the center of computing. Microsoft isn't going to give up easily, nor will Google or Apple.

Game on.

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The GNU General Public License (GPL) used to dominate open-source licensing, but its hold appears to be slipping according to new research from Black Duck Software. While GPLv3 has seen a 400-percent increase in adoption, and though the GPL and its variants still claim over 65 percent of all open-source projects, Black Duck reports a 5 percent decline in GPL adoption.

Top 10 Open-source Licenses

(Credit: Black Duck Software)

This drop makes sense, given the GPL's decreasing relevance to the modern world of network-delivered software and the increasing value of data over software.

ZDNet's Dana Blankenhorn points out that there are no clear replacements arising for the GPL, and he's right. But I'm not sure that's the point.

Peter Vescuso, executive vice president of marketing and business development at Black Duck Software, argues that we're starting to see greater diversity in licensing approaches, as "many developers are selecting licenses that are less restrictive, a move that underscores the broader adoption and value of open source in today's multisource development environments."

Perhaps. Or perhaps developers simply don't care that much about open-source licensing qua licensing very much any more. The real value in open-source software is no longer the software, but rather the resultant services that are delivered over the Web, a theme that Tim O'Reilly has been hitting consistently over the past six years.

The GPL was highly relevant in the Software 1.0 world because it was a great way to protect software assets. In effect, the GPL became the preferred way to replicate the copyright regime, except under the banner of free software.

Today, the GPL (and open-source licensing, generally) is irrelevant.

It's irrelevant because the GPL protects nothing in a world where software is delivered over the Web, because the GPL's "distribution clause" isn't triggered. The GPL becomes BSD/Apache, in short.

Because of this, Web developers long ago stopped worrying about open-source license requirements and instead are focused on data-driven lock-in. Open-source software becomes a way to build free services that encourage adoption, which adoption yields valuable data. That data is the crown jewels in a networked world, as O'Reilly suggests.

Because Web developers don't necessarily need to protect their software, we're seeing more adopt licenses like BSD, Apache, and other permissive licenses in order to foster community, rather than protection, around their software. Those who persist in seeing the world through the Software 1.0 lens continue to try to protect the software, which is why we're seeing a four-fold increase in AGPLv3 adoption. (AGPLv3 extends the definition of "distribution" to include network-based delivery of software.)

The GPL isn't dead, and perhaps it's not even dying. But that isn't the point. The point is that the real question is Web-based delivery of software, and current licensing has almost nothing to say on that topic.

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For those searching for an IT spending recovery in 2009, new data from an Information Systems Audit Control Association survey offers some reason for hope...and confusion.

On the positive side, the survey of 500 IT professionals suggests that 25 percent of enterprises surveyed will be investing through the downturn.

This is great, especially when coupled with other data from the survey that suggests:

• Only 16 percent will make "sweeping cuts" in IT spending.
• 14 percent will keep spending at the same rate.

This is good, right?

Well, it might be, except the survey, which was released Friday, also reveals a very disjointed IT decision-making process across the organizations surveyed. So, 66 percent of the organizations surveyed "do not share an understanding of IT value across different departments," only 51 percent even have a way to prioritize IT investments based on IT value, and barely 29 percent fully measure the value of their IT.

In other words, it is doubtful that this (or any) survey captures any particular organization's IT spending outlook. It is equally doubtful that vendors that actually deliver significant value will get the credit they deserve within enterprises, given this groups' inability to measure and then prioritize that value.

This isn't cause for despair, of course, but it may be reason to pause before celebrating any alleged uptick in IT spending based on CIO surveys, or any IT spending surveys. The CIOs probably don't know what is going on at the frontline of their organizations, and the frontline apparently doesn't coordinate very well, either.

This has worked to the advantage of open-source companies that find their way into organizations through the casual downloads of the frontline of enterprise developers and architects, but it doesn't bode particularly well for spreading the message of success (or failure) of those open-source evaluations and purchases throughout the wider organization.

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Red Hat stands alone as the only significant public open-source company. Is this a testament to its execution, or is it a hint that open source is not well-suited to big business?

While I believe that open source will increasingly be the heart of many big technology businesses, it will almost certainly feed new entrants to markets, not incumbent vendors.

Looking at Red Hat's report on its most recent fiscal year (FY 2009), however, suggests that for these new entrants, open source can be a very profitable business indeed. I've already reported on the high-level financial results.

What is particularly intriguing is the data behind those results:

• Red Hat is forecasting $720 million to $735 million in FY 2010, an annual growth rate of 10 percent to 13 percent over 2009.
• 40,000 new Red Hat Enterprise Linux customers in FY 2009, the "vast majority of which are...customers that are starting off small." Lots of room to grow, in other words.
• Nearly half of Red Hat's top-100 renewal customers upgraded to or increased the number of RHEL advanced platform servers in their Data Centers. (In its fiscal Q4 2009, Red Hat renewed each of its top-25 contracts up for renewal at 132 percent of the prior year's value.)
• 30 percent of Red Hat's largest 30 deals included a Middleware (JBoss, usually) component.
• Average contract lasts 23 to 24 months, with pricing remaining "consistent for the last several years."
• Channel bookings grew 23 percent in FY 2009, while Red Hat more than doubled its number of partners to 4,500.
• In fiscal Q4 2009, Red Hat closed two large deals, one of which was a multi-year, multi-million dollar deal that represented its largest conversion from free-to-paid (a key initiative for FY 2010) as well as a six-figure conversion deal with another customer.
• 57 percent of bookings came from the Americas, 28 percent from EMEA, and 15 percent from APAC.
• The recession has not "changed the length of [Red Hat's] sales cycle in any meaningful way."
• Subscription gross margin improved 60 basis points over the year to approximately 94 percent while training and services gross margin improved approximately 280 basis points from Q4 last year, driven mainly by better utilization and higher gross margins from the Amentra business.
• Red Hat ended its fiscal year with $846 million in cash and investments and is now debt free.

One of Red Hat's big initiatives for FY 2010 is to increase the rate of adoption of its for-fee products from prospects still using for-free versions of its software (Fedora, CentOS, etc.), a process it only started in late 2008. As Red Hat CEO Jim Whitehurst notes in the earnings call, enterprises often find it "very expensive" to support themselves. As the data above suggests, Red Hat is getting better at convincing them to move to Red Hat's subscription offerings.

As the economy continues to sour, it's likely that Red Hat, and not its proprietary peers, will disproportionately benefit, especially as Red Hat learns to upgrade accounts from "free" to "fee." Whitehurst notes:

We've seen a lot of interest from customers in open source as their budgets have gotten tight. We see that interest continuing and a lot of discussions started then are just now coming to fruition. So, I haven't seen real reduction in tight budgets, maybe there is not the same quiet level of desperation in people's voices but budgets are tight this year, Budgets are set and we think that's good for us at open source.

Or, rather, it's probably particularly good for those vendors that treat open source as core, not complement. Like Red Hat.

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It used to be so easy to be a proprietary-software vendor.

That is, until the open-source neighbors moved in. As noted in a Gartner analysis from late last year, proprietary software is on the wane within enterprises while open source is gaining:

Open source gaining at proprietary's expense

(Credit: Gartner)

That's not the sort of chart that Microsoft CEO Steve Ballmer likes to wake up to, but it's a message to which CIOs are increasingly warming.

The reason? Well, cost is the primary driver for open-source consideration, as a recent Forrester report suggests, but what is most significant is the overwhelmingly positive experience CIOs are having with open source, as this same Forrester report suggests.

Consider the following responses to the question, "How has open-source software met your organization's expectations in the following areas?":

• Reduced costs...87 percent (met or exceeded expectations).
• Improved quality...92 percent.
• Eased integration and customization...86 percent.
• Quickened the pace of innovation...82 percent.
• Improved support...84 percent.
• Standards compliance...91 percent.
• Decreased time to market...82 percent.

These are numbers that money can't buy. In fact, the open-source world is giving them away...literally.

Open-source software isn't perfect, and its quality varies widely, just as in the proprietary-software world. But unlike proprietary software, open source actively de-risks the IT purchasing decision by enabling you to try before you buy, buy on subscription (i.e., no long-term commitment), and pay a lot less for equal or greater value.

Small wonder, then, that CIOs are voting with their wallets, buying into open source while cutting investments in proprietary software.

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There's a lot of money in free software.

That's good news, because as the recession takes its toll on IT budgets, a new study suggests that companies can save $387 billion in development costs by using open-source software.

Talk about a stimulus.

Black Duck Software arrives at the $387 billion number by applying industry cost estimation standards to the available 4.9 billion lines of open-source code. Additionally, the company:

Estimates that 10 percent of IT application development spending is redundant with existing open-source projects, (which means that) U.S. companies could realize savings of more than $22 billion a year through the reuse of (open-source software) in application development.

These findings are consistent (if a bit inflated) with those from a 2006 study by the European Commission's Directorate General for Enterprise and Industry, which found that it would cost European firms 12 billion euros to reproduce the then-extant (high-quality) open-source code base.

They're also a nice counterbalance, Glyn Moody argues, against the claims that intellectual-property infringement costs the U.S. economy $250 billion each year.

While it is undoubtedly true that some companies lose money to IP infringement, the much bigger drag on the system is all the money wasted trying to protect IP in 20th century ways (digital rights management being one of the classic attempts to treat digital goods like physical property).

Open source frees us from some of these traditional shackles and enables software to spread more freely (as in freedom), yet not without charging for services and software that accompany it. The $387 billion number may be over- (or under)-stated, but it becomes relevant when your own IT group is able to shave licensing, deployment, and development costs by using open-source software.

Yes, you can.

With budgets being cut, now is the time to tap into the innovation and flexibility of open source. Open source isn't solely or even chiefly about reducing costs, but that's a great side effect.

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Venture capitalists have poured $3.2 billion into open-source companies since 1997, according to a new report from The 451 Group. It's about time we started delivering a return on that investment.

(Credit: The 451 Group)

In some ways, of course, this $3.2 billion investment has already been repaid several times over. The Linux Foundation, for example, estimates that that the Linux kernel is worth $10.8 billion in free research and development, and a compelling argument has been made that open-source vendors have already saved customers $60 billion in license fees they'd normally be paying.

Indeed, if you expand beyond just vendor-initiated open source, you quickly get well beyond a few billion dollars in value.

All of this is great, but VCs aren't known for the prettiness of the bows they place on their Christmas presents. They're investing to make a return for themselves, not enterprise IT or developing economies. With few exceptions--including Red Hat, Suse, XenSource, Zimbra, and JBoss--the open-source ecosystem hasn't been fattening the coffers of VCs.

This must change.

I believe we're on the cusp of that change. Here's why:

Alfresco Sales vs. DJIA

(Credit: Matt Asay/CNET)

For my company's last management meeting, I tracked our sales against the Dow Jones Industrial Average since November 2005, when we first started selling our product. As can be seen above, while Alfresco followed the DJIA for the first two years, in the past year, as the DJIA has zigged, we've zagged.

The recession has been very good for open-source Alfresco.

But it's not just us. I've talked with a range of open-source companies that I advise (including SugarCRM, JasperSoft, Volantis, and Openbravo), as well as many that I don't advise (Sun's MySQL, Pentaho, OpenX), and almost universally, every open-source company reports the same thing: economy down, sales up.

This sounds like a perfect storm brewing for impressive VC exits on open-source companies, once valuations catch up with the sales numbers open-source companies are reporting. I would imagine that by late 2009 or early 2010, we'll start to see the economy recover a bit, boosting valuations for mergers and acquisitions. Once that happens, I believe that we'll see VCs start to reap a bountiful harvest on their open-source investments.

Disclosure: I am an employee of Alfresco, an open-source content management and collaboration company.

Follow me on Twitter @mjasay.