For years, Red Hat sat unopposed at the top of the CIO Insight Vendor Value study. In 2008, however, Google pushed Red Hat aside with its low-cost, easy-to-use enterprise applications. This year, Red Hat has come roaring back to share the top ranking with Google.
Could this be a sign of CIOs' restive relationships with traditional vendors and an increasingly insatiable appetite for the cost and ease-of-use advantages of open source and software as a service/cloud computing?
The answer is almost certainly "Yes." It is telling that old-school vendors like IBM (ranked 20th overall), Microsoft (25th), Novell (29th), and Oracle (35th) are so far down the CIOs' list.
It is equally telling, however, that it is with these apparently less-preferred vendors that CIOs spend the vast majority of their IT budgets. Or perhaps that's the point? In other words, CIOs spend with such vendors today because they have to, but given their druthers, they're going to invest more money in Red Hat and Google going forward.
Red Hat and Google are still rounding errors in the overall IT spending picture, but CIOs seem to be signaling an appetite for more. It's not about reducing lock-in and other colorful marketing phrases, either: it's about great, easy-to-use software at a compelling price.
You know, the very thing that Microsoft used to win CIO plaudits for delivering.
From the report:
CIOs are more likely to try software as a service (than traditional, packaged software), which is better understood and simpler to use and requires no upfront investment in hardware or software.
This is the heart of the CIO uprising. And it's why low-cost, high-value companies like Intel (ranked first overall), Cisco/WebEx (ranked sixth and 11th, respectively), and Sun (sixth) are climbing the charts.
For now, however, Google and Red Hat rule the roost in the Software category of CIO Insight's annual study:
Both Red Hat and Google essentially offer the same thing: great software on a subscription basis. While this model often offers lower prices than competitors, it's important to note that "free" is not the value proposition here. (If it were, for example, Red Hat customers would be leaving in droves for Red Hat Enterprise Linux clone, CentOS. They aren't.)
No, the value proposition is customer control via the subscription model that enables less costly ways to buy into the software, and to turn off maintenance costs, if desired.
It's a winning formula, one that more vendors should consider adopting. Today IBM, Microsoft, and Oracle command the majority of IT dollars, but this survey suggests a rebellion is underway. Inertia can only support the traditional vendors for so long.
I loved this post from CIO.com, reviewing an AMR Research report on the similarities between the big ERP vendors (SAP, Oracle, etc.) and Detroit's rusted Big Three: Chrysler, Ford, and GM. Money quote?
"Executives from one of the best-known ERP vendors recently talked to us about their 2009 product plans and strategy," writes Richardson. "At the end of the call, I expressed my astonishment that there were no plans to offer any part of their company's product line as software as a service."
As Richardson expected, the vendor's executives first response was to emphasize the advantages from an integrated suite versus a hybrid on-premises or on-demand strategy. "This quickly segued into a discussion of the challenges in making money with software as a service," he adds. "While I continue to agree with them on SaaS economics, they are missing the larger picture."
That larger picture, Richardson contends, is this: SaaS is for real.
I'm guessing that this same vendor would argue that there's no money in open source, either, and so pooh-pooh open source...to its eventual detriment. It's no longer a question if there's money in SaaS or open source to the extent of the go-go days of the 1990s.
Rather, the question is how to compete with vendors and communities that are sucking money out of the market through SaaS and open source. Eventually, SaaS and open source will create much larger markets as lower costs and lower risk will pave the way for increased adoption. But for the near term, incumbent vendors that refuse to compete on the economic terms set by subscription-based models are in for one heck of a ride...down.
TechDirt tries to put a pretty face on vendor-financed software/hardware deals, but let's be clear: if you have to borrow from the vendor that is overpricing its software (or hardware) in the first place, you can't afford to buy it. If you can't afford to buy software (or hardware) with cash or bank financing, you can't afford to buy software.
I'm not sure why this is complicated for some. The last organization you want to borrow from to buy software is your software vendor. This lets the vendor completely control your destiny, not to mention the fact that it creates serious conflicts of interest for the vendor (e.g., it can charge maximum price since it is financing the deal). This is the sort of muddled thinking that put the global economy in the toilet in the first place.
Valleywag is right to call out that such arrangements usually end badly for technology shareholders. Defaults on loans are a fact of life, whether for bank loans or vendor loans. The difference is that vendors have to not only back out of bad loans, but also the revenue.
I have a better idea: spend less on IT. Buy open source.
Furthering my recent focus on de-risking IT investments for the chief information officer, a thought occurred to me while reading CMS Watch's analysis of portal usability testing: open source offers the most comprehensive way to ensure software actually works before you pay for it, and to tweak it to make it work how you want it to work.
This should be an obvious benefit to any CIO used to listening to endless rounds of demos from a vendor's sales engineers...only to discover that the difference between a PowerPoint and implementation is often stark, painful, and costly.
Enter open source.
It's not that open-source software is necessarily better in its features. Often it's not. But an open-source software package with equal or even slightly deficient functionality, when compared to a proprietary offering, is still a safer and likely better bet than the proprietary offering. Don't believe me? You don't have to. With open source, you can try before you buy.
One key problem with the traditional enterprise software sales process is that it depends on faith, faith driven by inflated expectations born of demo-ware (and vendor-sponsored "research"). For this and other reasons, up to 62 percent of IT projects fail. Open source offers enterprises a comprehensive way to do a dry run (or many dry runs) on a technology decision, and thereby reduce risk.
Such a trial process is not free, as enterprise IT will need to pay with its time. But it's much better than buying on a promise only to discover that what you got was...a promise.
On Tuesday The Wall Street Journal ran an interesting story on Honda's flexible manufacturing strategy (subscription required), and how it's helping the company stay ahead in a bruising economy. Today, chief information officers should be scratching their heads to figure out how Honda's manufacturing excellence can be applied to their IT operations.
While not exactly the same, Honda's "manufacturing dexterity" is similar to savvy CIOs' use of open source to keep IT flexible, avoiding long-term investments on proprietary software that has yet to demonstrate even short-term value:
The manufacturing dexterity of Honda's plants, now the most flexible in North America, is emerging as a key strategic advantage for the company. In an era of volatile gasoline prices, Honda can adjust production to inventory levels faster than its competitors. Earlier this year, when gasoline prices reached $4 a gallon, the company slowed production of its Ridgeline pickup truck at its Canada plant and increased output of better-selling vehicles.
The U.S. General Services Administration (GSA) understands this, with its CIO stating last year that open source lowers costs and boosts IT flexibility:
By using open source, the agency won't be locked in to using a proprietary software program, at least for the duration of the contract.
Not having sunk costs in a commercial software program also means the agency can move to a new program more quickly should its needs change. The general openness also means the agency could become a collaborator in the further development of the software itself.
... Read more
I really liked this Ina Fried interview with Microsoft's new CIO, Tony Scott. It gives good insight into how Microsoft "eats its own dogfood," and how it can improve in understanding customer requirements.
On this last item, Scott's commentary was intriguing:
What I am trying to do is improve our world in all three areas. On the dogfood side, I think this is where maybe I bring some value as an outsider. I've been going to Microsoft for years...What I was always disappointed in was the relative degree to which Microsoft could talk to us as external CIOs about what the upgrade experience was like....
Microsoft used a very different process than what customers would use. We never historically went from production bits to production bits in terms of the upgrade process. We went through a series of betas.
One of the changes I am trying to bring is...we are going to take some segments of the company and use them to experience what customers experience and go through the normal upgrade process. I think by doing that we can be more relevant to the ultimate consumers of Microsoft's products.
This is a great move on Microsoft's part, and a testament to the innovative role a CIO can have, particularly at a software vendor.
Now Microsoft's customer base just needs the company to also experiment with seriously mixed environments: open source, proprietary, and different blends of proprietary software. Scott acknowledges in the interview that Microsoft "predominately" uses its own software internally. This is appropriate, but it would be useful for Microsoft to see how the other half lives, as well.
By the way, I'm very interested in having a fishbowl debate at OSBC in 2009, involving the CIOs of Red Hat, Google, and Microsoft. I've been trying to reach Ben Fried at Google, with no luck. Can anyone help gather these people? It would be fascinating to have them talk about the relative strengths and weaknesses of their respective approaches in front of a live CIO audience.
With SAP and Oracle raising prices in an effort to test the limits of price elasticity, CIOs are devoting an ever increasing share of their IT budgets to feeding bloated technology vendors. As CIO.com's Bernard Golden suggests, however, such devotion to the old guard of IT is making it easier and easier for disruptive SaaS and open-source vendors to "ooze" into the enterprise:
...[J]ust because most of your budget is tied up feeding legacy vendors doesn't mean that the rest of your company isn't going to pursue new IT-enabled offerings, it just means they're not going to look to you to deliver them. You're the folks stuck in the big vendor hairball. The other parts of the company will find money to do new things; it just won't go into your budget.
You can hope that the big vendors will deliver products and functionality to get you out of the box, but that won't solve the problem [as it forces the enterprise to accept the vendor's priorities and walk in lock-step with its other customers]....While IT is apparently willing to live with big vendor decisions, the rest of the company can't afford to, because it threatens their ability to compete....A stability-focused, risk-averse stance based upon big vendor dependence forces non-IT organizations to look elsewhere for innovation.
As the Bank of New York told me, open source is the new innovation platform. More enterprises look to open source to provide cutting-edge IT solutions. They also look to SaaS because they can afford to skirt the CIO's pet vendors to get things done, as Asurion's R0ml Lefkowitz suggested at OSBC last year.
The big vendors are forcing enterprises to look elsewhere for solutions through high prices, high lock-in, and high complexity. Thank you!
CIO.com addresses the souring economy with this counsel for CIOs:
When IT directors take the time to build a business case demonstrating the ROI for these kinds of projects [training, etc.], they tend to get funded. Businesses aren't really interested in cutting costs for the sake of doing it, they just want to eliminate waste and get the most from every dollar spent on IT services. It falls to the CIO to demonstrate the value of IT initiatives to the business in real economic terms, and to counter the image of IT as a cost center.
Given that the CIO is generally the last person to know about the rising tide of open source within her walls, perhaps the savvy CIO should get out of her corner office a bit more and talk to her architects and developers more in this recessionary period to find out what open-source initiatives are going on, and which should be fed (or killed). I suspect there's a heck of a lot of efficiency gains to be had by dumping BEA for JBoss, Oracle for MySQL, etc.
In a bull market, it's easy to overspend on technology that you don't really need, and which never realizes its potential (or perhaps does, and there's the problem...). In a downward cycle, it's a good time to make some calculated bets. Open source should be one of them.
I wish I saw Billy Marshall, CEO of rPath, more often. His post today on new technology pervading an enterprise long before the CIO knows about it is spot on. It's how we get goofy survey data that suggest that open source is far away on the distant horizon...despite it being widespread and heavily adopted already.
It just doesn't show up on the CIO's multi-million dollar check stub. Not yet.
The CIO is always the last to know about new technology. The head of engineering brought UNIX into the enterprise for CAD/CAM and analysis applications, and the CIO was the last to know. Department managers brought in PCs and Windows for personal productivity and desktop publishing, and the CIO was the last to know. System administrators brought in Linux for network services, and the CIO was the last to know. The sales force brought in salesforce.com and introduced the enterprise to SaaS, and the CIO was the last to know. Developers in the business units will use cloud computing, and the CIO will be the last to know.
It's not that the CIO is clueless. It's just that she's not directly responsible for rolling out new technology. That happens at the rank-and-file level as needs arise and budgets get squeezed. The CIO buys from IBM; the architect and department IT lead buys from everyone else.
The CIO will probably say "No" to the latest open-source software investment, but that's because she doesn't realize it's already spreading like wildfire throughout her enterprise. By the time she does, she'll be there to negotiate the enterprise license/subscription agreement. Her timing, in other words, will be impeccable.
I really like Simon Phipps' comments about CIOs who eschew open-source software because of a perceived lack of support. The problem is not a lack of support. The problem, as Simon indicates, is a lack of understanding about the quality and availability that open-source vendors provide:
Phipps claimed that the "commercial strength support" available for open source is comparable with that provided by proprietary vendors. He also explained that administrators have the option of "hiring experts to train their staff".
"The reason that open source works well for businesses is that it puts you back in control of what you spend money on and when; it doesn't mean that you don't spend money and doesn't mean that you're solely responsible for support," he said.
Amen. How many years has open-source been around? It's shocking to continue to see unmitigated ignorance of the breadth and depth of open-source software and support thereof. Unfortunately, the ignorance is generally at the top of the IT hierarchy. CIOs apparently have no clue that they're running open source in abundance, and often paying for excellent support thereof.
I wish I knew how to immediately remedy the problem, but I don't. Time and patience may be the only answers....
