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.
Microsoft expects to lose margins as "cloud" competitors start to eat away at its core businesses.
Kudos to Microsoft for calling out the obvious. But the software maker still has a lot to learn, if it thinks it can charge more under its own cloud model because "the customer will pay Microsoft a larger fee, since Microsoft also runs and maintains all the hardware," as Nick Carr notes:
Capossela's assumption that Microsoft will be able to charge companies more under the cloud model seems optimistic, given the different economics of providing software as a Web service and the aggressive pricing strategies of cloud pioneers like Google, Zoho, and Amazon.
Put more bluntly, there's not a chance in Hades that Microsoft will be able to charge more for its cloud-based offerings--not when its competitors are using the cloud to pummel its desktop and server-based offerings. This is something that Microsoft (and everyone else) is simply going to have to get used to. The go-go days of outrageous software margins are over. Done.
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Mi amigo Dave Rosenberg has a thoughtful post on why open source wins against SaaS (Software as a Service). The answer, in a nutshell, is "community." SaaS sets up a one-way relationship with consumers, whereas open source breeds both consumers and producers, and so sustains itself better.
Dave writes:
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