Microsoft must really love open source and want to see it succeed. Recently, Microsoft's open-source team lead, Sam Ramji, urged open-source vendors not to compete with Microsoft on price, but instead focus on "value."
While I'm sure Ramji meant well, I'm equally certain that Microsoft would like nothing more than to not be reminded of how expensive its products can be compared with open-source solutions. After all, Microsoft was the company that turned the software industry on its head by introducing lower-cost solutions years ago to undermine the Unix businesses of IBM and Hewlett-Packard, and the database businesses of Oracle and IBM.
If anyone knows the importance of pitching the market on low-cost, high-value software, it's Microsoft. And if anyone knows how to stick its finger in the eye of more expensive rivals, it's Microsoft, too, which has recently been blaring a "We're cheaper! Buy from us!!" message to combat Apple's in-roads against its Windows dominance.
Now Microsoft is being out-Microsoft'd by open source and doesn't much like the feeling. I weep for it.
Open source, in many ways, is doing to Microsoft and the rest of the proprietary software industry what Acer is doing to the personal computer industry, as highlighted recently in BusinessWeek:
(Acer CEO Gianfranco) Lanci's strategy? He has used Acer's bare-bones cost structure to get extremely aggressive on price. He moved faster than HP and Dell in marketing a broad selection of the inexpensive portable computers known as netbooks. By selling basic machines for $300 to $600, Acer swiped chunks of market share while the rest of the PC business tanked..."To run a business with lower costs is good when the market is growing," he says. "It's even better when the market is not growing."
...(Acer's move into higher-end machines at low price points) may be good news for penny-pinching shoppers, but it will create new challenges for Lanci's competitors. HP and Dell will have to face down Acer not just at the low end of the portable market but with higher-end products too..."They're changing customers' perception of what you should pay for a computer," says Richard Shim, an analyst with the research firm IDC.
That's a perfect way to describe what open source is doing to the industry, and, yes, price is a big component of that. Open source can lower the price of running e-mail (Zimbra, Open x-Change), CRM (SugarCRM), ECM (Alfresco, Drupal/Acquia, Joomla, KnowledgeTree), ERP (Openbravo, Compiere), IT management (Puppet, Hyperic, Zenoss), and other systems to $0.00.
Why shouldn't the open-source companies competing for market share trumpet their lower-cost offerings?
Gartner recently reported that:
Lower TCO and flexibility to launch and develop cost-prohibitive projects continue to be top reasons for using OSS (as open source helps) organizations cater to new opportunities for improving productivity while maintaining costs.
This is something to be heavily marketed, not hidden.
It's also something that has worked for some of the industry's most successful companies, a fact pointed out by Zack Urlocker, vice president of Lifecycle Marketing at Sun Microsystems:
While competing on price isn't the only way to run a business, it's worked well for Intel, Dell, Wal-Mart, Salesforce, JetBlue, et al.
That's good company to be in.
No, price isn't everything: it's simply a fruitful way to start a conversation. The reason that commercial open-source companies are thriving in the downturn is precisely because they can make healthy profits while charging a lot less.
Microsoft may not like that but, well, this is competition, not charity.
Follow me on Twitter @mjasay.
Directions of Microsoft is a quality analyst firm that does excellent work on Microsoft. It's no credit to Microsoft, however, that Directions on Microsoft is promoting a soon-to-be-released report called "Microsoft Volume Licensing Programs," with this marketing:
Microsoft investments inside enterprises have a big target on them, simply because they are so large. But organizations trying to scale back face a delicate three-way balancing act: Hitting the right mix of license price, administration costs, and software audit risk.
We at Directions On Microsoft can help navigate license purchasing decisions with our new "Microsoft Volume Licensing Programs" report, which will be released Wednesday, April 22...It also explores Microsoft's volume licensing programs in detail, highlighting similarities and differences across the programs, as well as their benefits and pitfalls.
Microsoft is a big company with a wide range of different products. So perhaps a certain amount of pricing complexity is to be expected.
But needing an analyst firm to navigate the pricing for you? I'm not suggesting that Directions on Microsoft's report is unnecessary; unfortunately, it's probably all too necessary, which is a sad statement on Microsoft, not the analyst firms that follow it.
Microsoft makes software that is relatively easy to use. Why can't it license that software with pricing that is relatively easy to understand?
Follow me on Twitter @mjasay.
Dennis Howlett at ZDNet reports that SAP is reversing its earlier maintenance price hike, at least in Germany and Austria. While it appears that SAP was prodded into the move due to legal reasons, I imagine that the customer backlash in such a bleak economy might have prodded SAP to reverse course, anyway:
This is a major victory for SAP customers who, despite SAP management's protestations to the contrary have continued to lobby for reconsideration of SAP's maintenance package pricing. According to the FT, some 50-60% of SAP customers in Germany and Austria were deeply unhappy with the measures, citing economic pressures contributing to difficulty in justifying what was already a tough budgetary sell. Computerwoche confirms that SAP had only managed to persuade 25% of its customers to changeover from standard to enterprise support.
The pricing changes won't kick in until 2010, but by then I suspect we'll see the same policy find its way to other markets beyond Germany and Austria. Maybe SAP and its ilk don't have quite the level of pricing power we thought?
SAP is a great company, but were it able to increase prices at will we'd have serious cause for concern.
Disclosure: SAP Ventures is an investor in my company, Alfresco.
On October 13, 2008, Hewlett-Packard (HP) sent a complaint to an open-source competitor, GroundWork, asking GroundWork to stop revealing HP's "confidential" pricing. I have posted the letter below. What HP isn't correcting is GroundWork's contention that HP's IT monitoring software is considerably more expensive than that of its open-source competition.
Does HP think its pricing is really a secret? It's publicly available at GSA Advantage (albeit most GSA pricing actually reflects discounting of roughly 10 percent). Guess what? HP software costs a lot of money. Is anyone surprised?
GroundWork has been highlighting its cost advantages over HP's Operations Manager and Network Node Manager offerings for some time, declaring an 82-percent cost advantage over HP's products. This isn't news.
So why is HP sending letters to GroundWork (and InformationWeek, which hosted a webinar on the subject), demanding that its pricing be buried? According to a source familiar with the matter, it was apparently GroundWork's live webcast (registration here) on September 30, 2008, which roughly a dozen HP employees attended, that seriously rankled HP.
Why? Perhaps because the data presented starkly reveals just how pricey software like HP's can be.
... Read moreOne of the advantages to being a large, enterprise software company is that it can provide your sales people with a wide array of products to sell to new and existing customers. Upsell and cross-sell opportunities abound.
As a customer of such a vendor, however, this selection can be as confusing as it is appetizing.
Such is the case with Microsoft and its bewildering licensing forest, according to The Register. As Microsoft adds another layer of complexity to its offerings - that of "cloud-based services" - its licensing complexity is poised to become even more Byzantine, a headache-in-waiting for Microsoft's channel partners, which sell the majority of its software:
Resellers can expect to contend with a different biz model to simply punting software...Now it's not just about software but hosted services, migration and integration, business process consulting and desktop managed services as well. That's a fact that could prove a big headache for some.
[Microsoft] sees it more as an "opportunity for partners to see revenue growth in a number of areas"....[but] Ovum analyst David Mitchell, a guest at Microsoft's central London event, said the firm had presented its resellers with "too many logos and too many questions".
... Read more
Oracle is a shrewd, shrewd company. As reported by Sarah Lacy in Businessweek, Oracle long ago recognized the potential for Software-as-a-Service, both to liberate customers and to decimate its profits. Noting that the two may very well go together, Oracle has demurred from jumping into SaaS:
On-demand software has turned out to be a brutal slog. Software sold "as a service" over the Web doesn't sell itself, even when it's cheaper and actually works. Each sale closed by these new Web-based software companies has a much smaller price tag. And vendors are continually tweaking their software, fixing bugs, and pushing out incremental improvements. Great news for the user, but the software makers miss out on the once-lucrative massive upgrade every few years and seemingly endless maintenance fees for supporting old versions of the software....
Why isn't Oracle a bigger player in on-demand software? It doesn't want to be, Ellison told the analysts and investors.
... Read more
And you thought Oracle was already pricey...
In a demonstration of what can happen when a company consolidates the industry such that there's far less competitive pressure on it, Oracle has significantly raised its prices. Many of its products saw a 15 to 20 percent price increase.
While the rest of the industry sees price declines through pressure from open source and SaaS, as well as a shift away from license revenue toward maintenance revenue, Oracle is happily raising prices and, presumably, its customers are (un)happily paying. Dave Rosenberg suggests this is a good move since Oracle discounts so much, this is a way to keep discounting but make 15 to 20 percent more.
He may be right, but then, why is Oracle beating on the Unbreakable Linux drum (somewhat feebly these days, to be sure)? Oracle wants everything in the software stack to be cheap...except for its own software. This isn't a criticism, but it's telling that Oracle started slapping Red Hat around when it couldn't get the Linux vendor to drop the price of RHEL to make Oracle database prices appear lower.
It will be interesting to see if Oracle buys into various parts of the software stack in order to effectively drop the price for its databases, applications, etc. Make the infrastructure free so that everything else Oracle sells...is not. Anyone surprised as to why Red Hat wasn't jumping up and down with glee at this prospect?
I've commented on Oliver Alexy's research on open source's effects on stock prices before, but was gratified to see it featured in today's Wall Street Journal.
It turns out, as per Mr. Alexy's research, that open source can have a salubrious effect on one's stock price, but only if done right:
Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue. Companies that clearly communicated a short-term revenue model saw an average stock-price increase of 1.6 percent. Companies that didn't saw an average decline of 1.6 percent. This means companies can't rely on vague long-term assurances.
Ironically, this betrays a woefully naive view of open source by the market. Open source is a marathon, not a sprint. It's not a quick fix for any business.
In other words, the very thing that the companies most need to do (i.e., take a long-term view of open source's benefits for their businesses) is the thing most likely to punish them in the market. Who said markets are rational?
Microsoft is cutting the price on its Vista between 20% and 40% from its price as of the beginning of this year. While most copies of Windows aren't sold via the retail channel, Microsoft is apparently hoping to reduce the disparity between hardware costs and its software. When you can buy a new PC for $400, it hardly makes sense to drop another $400 for an increasingly irrelevant operating system. (All operating systems, not just Windows, in terms of perceived customer value.)
But the bigger reason appears to be an effort to make Windows more appealing to emerging markets, as Mary Jo Foley notes, where customers should expect to see bigger price cuts than in more established markets.
This isn't really about the United States and Western Europe, in other words. It's a battle for the emerging markets which aren't droning after Microsoft just yet. Outside the saturated markets of the United States and Western Europe open source is a much bigger threat in the short term.
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