Today I stumbled across Phil Wainewright's "How to get return BEFORE investment" post from 2005, and am surprised by how aptly it describes not only Software as a Service (SaaS), Wainewright's subject, but also open source:
With on-demand applications, customers don't start paying until they begin using the application, and they typically pay on a per-user per-month basis. So it's quite easy to imagine deploying a procurement application, for example, which achieves enough savings per user in the first month to more than repay the monthly fee. If the fee is billed on net 30 day terms, then the customer achieves the return before the investment has even been made. That's the essence of rBi [Return before investment].
In the case of open source, it's very likely (indeed, probable) that an enterprise will start paying for support or add-on functionality before going into full production, as the development stage requires the most hand-holding by the vendor.
But the principle remains: an enterprise can make full use of the software before paying a dime to the vendor, thereby de-risking the IT investment. No need to pay until you're relatively comfortable with the software in question.
This is the new enterprise software model, whether it manifests itself as open source or SaaS. I suspect that it will roil many an incumbent enterprise software vendor, as they struggle to make the economics pay for them, as CIO.com recently noted in its review of ERP vendors' SaaS strategies. but ultimately customers and vendors will benefit from a switch to subscription-based models that keep vendors honest and customers happy.
Barack Obama won the U.S. presidency for one very good reason: he presented himself as a credible leader. McCain offered little in the way of hope that he had the intelligence or risk profile to make real changes to the way this country works. This isn't a slap at conservative principles (as a conservative, I hardly feel inclined to do that). It's a slap at conservative leadership.
That's politics, but what about business? Reading through The Wall Street Journal and the Financial Times today, I almost became physically ill reading non-stop headlines that evidence hand-wringing and resignation: job cuts, various industries begging for Papa Government to bail out their own mismanaged businesses, etc. Pathetic.
The one ray of light in the midst of the gloom-and-doom tripe is Daniel Henninger's article, "America Needs Its Frontier Spirit":
The greatest danger in the current economic crisis is that the United States will lose its historic appetite for risk. The mood now is that risk-taking got us into this mess. Risk, though, is the quintessential American trait that built the nation--from the Battle of Bunker Hill to the rise of the microchip. If we let risk give way to a new ethos of commercial reserve and regulatory restriction, the upward arc of the US ascendancy will flatten. Maybe it already has.
Daniel Boone, the famed American frontiersman, went belly-up speculating on Kentucky land. He moved on in 1788 and paid his debts. So should we, without losing sight of the American frontier,w here we discovered the rewards of risk.
Amen. An emphatic amen.
People are rightly worried about job losses, but there's a very good way to overcome them: create new businesses and new industries to employ people. This isn't something that we should do with government: I'm talking about technology-driven businesses, not the CCC of the 21st Century.
Alan Frazier suggests that that the venture capital model is broken. Yes, IPOs have dried up, but perhaps a the model needs tweaking to fund companies that pay back investments in earnings, not stock-market explosions. Having said that, who says the IPO market is closed forever? If we can create new businesses that create new wealth, why wouldn't the market cheer for these counter-trend crusaders?
Oliver Marks writes over on ZDNet of open-source companies that are thriving in the downturn, but we are not alone. SaaS, Web companies, and others that drive inefficiencies out of old markets will do well, even in a recession (or, perhaps, particularly because of the recession). These are our latter-day frontiersmen and frontierswomen.
Let's not give up. The financial meltdown has one clear message: stop spending debt, and return to profitability in our homes and businesses. It does not tell us anything about the need to regulate away risk. Risk is what justifies reward. In this environment, we need leaders who will boldly push forward into taking intelligent risks.
Will you be one of these leaders? Will I?
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.
I laughed when I read Network World's headline: "Wall Street Becoming Linux Stronghold." Is it 1999 or 2008, I wondered? Linux has long found a warm reception on Wall Street, where enterprises view IT as a source for competitive advantage. Network World cites one analyst's estimate that "Linux adoption among the 14 biggest investment firms this year will reach more than 72 percent of the installed operating server base vs. 60 percent in 2006."
That's big.
But the article goes beyond the "Wall Street uses a lot of Linux" argument and hones in on the next round of debate: Now that Wall Street has adopted Linux for technology benefits, are there licensing downsides?
To date, the answer has been 'No.' But this may well be because people haven't thought enough about the requirements open source may impose on Wall Street adoption:
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