Archive for May 2008
In response to Savio’s post: http://weblog.infoworld.com/openresource/archives/2008/05/is_open_source.html
I have to disagree with you on this one Savio. I do understand Ozzie’s point of view.
Ever read the Halloween emails? http://catb.org/esr/halloween/index.html
Whether or not you agree with all of Raymond James’ commentary those emails clearly show that Microsoft considered open source to be a threat at least 10 years ago. In the last decade Microsoft has actively fought many companies and technologies (PIMs, Netscape etc) with various techniques but the only major open source-related situation was the Novell deal last year.
When it comes to fighting a competitor Microsoft knows that if it can drive them out of business the software/technology goes away. Or they embrace, extend, and then extinguish. Or they acquire and expire. Look at all the anti-competitive issues they have been accused of. In these cases they have been using their might as a monopoly to fight a battle based on primarily on price. These approaches do not work against open source. There is no company to fight and they have no advantage on price.
I’m not being anti-Microsoft here I’m just saying that the strategies they have used in the past to try to maintain their position as market leader don’t work well, or at all, against an open source alternative.
Lets compare business to warfare (The Art of War is on most MBA reading lists). Microsoft vs Google is a conventional war using conventional weapons. Microsoft knows how to go to war in this case. Microsoft vs open source is a non-conventional war. In most cases the ‘enemy’ doesn’t show up for the battle because they don’t have to. The enemy virally and silently chips away at your dominance without ever showing itself. What’s worse in this case is that your customers either like the enemy or are the enemy. Microsoft declare war on its customers? Doesn’t seem like a good proposition. So Microsoft is trying to be more OSS friendly, to be more open itself (shared source etc). In the last ten years the Microsoft marketing machine has been unable to create an effective anti-open source campaign. I certainly see why Microsoft, faced with fighting a battle with no rules and an enemy they can’t see, views this as a harder problem than that posed by Google.
I agree with you that OSS is a huge opportunity. Unfortunately for a company that is large, proprietary, and historically more closed and aggressive than most, taking advantage of that opportunity is not a natural or easy thing to do.
In response to Matt Asay’s post:
This is interesting Matt.
It is a common assumption that a proprietary vendor makes their money upfront with the license fee. In a lot of cases the assumption is not valid. For example I have heard that SAP makes $4 to $5 in services for every $1 they get in license revenue. You can look at the SEC filings of publicly-traded enterprise software vendors to find out where their profit it. In the cases that we looked at they are spending about 35-40% of their overall budget on sales and marketing expenses and get 40-45% of their revenue from the sale of new licenses. In these cases almost all of the upfront license fee is used to fund the expenses of selling the software to other people next quarter. In some cases the sales and marketing teams are authorized to spend over 100% of the license fee in order to make a sale. In these situations the sale person is quite happy to make a sale that is close to (or even below) the break-even point for the company, they’re just trying to make their quota. After the initial sale, in order to be profitable, the vendor will need to augment the deal with services (low margin), training (low margin) or maintenance (higher margin).
So your large enterprise buyer is possibly mistaken. He may be in the situation where he ‘thinks’ the vendor will be happy just making the sale but where the vendor needs to find ways to augment the sale to make any profit at all.
I’d like to rephrase Schwartz’s question: given the different allocation of, and overall reduction in, costs associated with migrating to and between SaaS solutions, are there any long-term implications for the SaaS providers?
I think Schwartz has an interesting point although it is presented in such a way that it is hard to agree with. Personally I disagree with the term ‘throwaway’ if only because you can’t throw away what you never had. With SaaS you never actually ‘have’ the software so how could you throw it away? A niggle on terminology I agree but there’s lots to niggle with here.
I think the point that he’s trying to make is that with less up-front cost and easier set-up it is easier for a customer to switch from one SaaS vendor to another compared with switching from one on-site license-fee based solution to another. The key here is ‘easier’ but still not necessarily ‘easy’. If its easier to switch then the threshold of pain/missed-opportunity that a customer needs to experience before they decide to switch is lower. Most of the other comments on this piece point out that the cost of the solution and the cost of switching solutions includes lots of other costs that might be significant in the decision making process.
I think Schwartz is missing something however: no-one switches solutions just for the sake of it. To be worth switching the cost of switching must be less than the pain caused by not switching. Most IT budgets are stretched thinly so only the biggest pain points get dealt with first. If my existing CRM solution is one of my biggest pain points I might switch to a SaaS alternative, open source alternative, or a different proprietary in-house solution. Once I have switched CRM systems I’m not going to switch again until the new system becomes one of my biggest pain points again. As long as the new CRM system stays off the pain-point radar it will remain as the incumbent – potentially ‘forever’.
SaaS, as with other subscription-based business models, encourages the providers to demonstrate their value-add on a recurring and frequent basis. If they can do this and keep pace with features available elsewhere there should be no reason for their customers to ever switch away.
In response to Mark Madsen’s post:
Doesn’t DW-in-the-cloud suffer from the same fundamental problem as DW-as-a-Service in that you have to pump all of your proprietary, strategic, highly sensitive data outside of the firewall onto someone else’s hardware?
In response to Seth Grimes post:
I agree with your points Seth.
I’m not that surprised about the level of confusion amongst the BI folks when the open source insiders seem to be out-of-sync with each other at times. There is a lot of debate, research, and discussion about the various models currently being tried. The spectrum of alternatives is practically a continuum. Different groups, having picked a spot on the continuum, are justifying their choice in part by speaking against the positions on either side of them. The Free Software Foundation does not agree even with the term ‘open source’, some of the open source purists don’t like the idea of commercial open source, the professional-services-only and the single-vendor-software commercial open source companies are positioning themselves against each other etc.
I think until the continuum has resolved into a few commonly-understood models confusion will be hard to eliminate.
It looks like this is very old content but ‘its new to me’ as the saying goes.
This site goes on at length about the Marxist, communist, and idealist nature of open source as described by Raymond James. I’ll refrain from calling it a rant, you make your own mind up.
It is interesting how different people can read the same text and come away with very different impressions. I think CatB is a great work and is quite accurate when it comes to describing the motivations of people participating in open source. My experience of open source (having spent the last four years participating full-time) is that open source participation is driven by multiple motivations.
In order of importance they are:
1) Pragmatism and self-interest
2) Ego and recognition
I have contributed bug fixes to projects because not contributing the fix would mean I would have to merge my fix into future versions of the software. My main motivation for contributing the fix is to lower my future costs. The same applies to documentation updates. When I found a fault in a command line instruction in the installation documentation for JBoss AS I could have either noted the correct version on my machine and remembered where I made that note every time I did the installation or I could (and did) hit ‘edit’ on their wiki page and contribute the fix. Again my estimation was that I would save myself time by contributing instead of keeping the fix to myself.
Some people participate out of ego. Whether you want to call it ‘bragging rights’ or ‘the respect of your peers’ this kind of participation is about ego and recognition. This motivation is self-serving: no-one is egotistical for the sake of others.
I have met hundreds of open source participants over the past few years. None of them has made any ‘I am trying to make the world a free software utopia’ comment. Sorry, I just don’t see this motivation in the people I meet.
I think the power of the open source model is that even when, and in fact because, all participants act out of pure self-interest everybody wins.
It seems to me that the ‘Fighting Raymondism’ group is a collection of people wearing blindfolds and fighting a demon that isn’t there. I hope they at least get some cardio out of it.