Standalone OSS revenue to reach $4.8B by 2012

Dave reports that IDC’s latest report “Worldwide Standalone Open Source Software 2008–2012 Forecast: A Preliminary View” estimates that the standalone OSS market will grow from $1.73B in 2007 to $4.83B in 2012. That’s a 23% annual growth rate to 2012 vs. 7.7% annual growth for the overall software market.

Interesting to note that $4.8B represents 1.3% of the overall software market. The previous version of the IDC data suggested that standalone OSS spending would come in at 1.8% of the total 2011 market spending. (Don’t try to reconcile the two figures as forecasting is difficult and usually +/- a wide margin).

But as the report’s author, IDC’s Matt Lawton highlights:

“However, we need to also provide some context. Standalone open source software is an important but small segment of open source software. Large vendors are realizing significant revenues indirectly from their activities with and support of embedded and complementary open source software. In addition, unpaid open source software adoption is significant but not included in our revenue estimates.”

Matt Lawton is a very bright guy and “gets it” when open source is the topic of discussion.

Good to see that the data continues to support the idea of OSS becoming an aspect of the software market, rather than “the beginning of the end” as some had predicted.

 

The Open Source Census gets a shot in the arm from Microsoft

I was pretty excited when OpenLogic announced the Open Source Census. A key aspect of the census was a tool that scanned respondents’ servers to determine which open source products/packages were actually being used. Anonymous data from these individual scans was going to be shared with the public in order to revolutionize our understanding of OSS usage. This would be very important for companies whose IT leaders don’t know that they are using OSS.

However, to date, only ~1300 machines have been scanned.

News from InfoWorld today that Microsoft has also sponsored the Open Source Census is great as this will attract attention to the Census.

If you’re reading this and have not participated in the Open Source Census, why not? What will it take to change your (and your company’s) mind?

 

Forrester survey finds lack of interest in OSS?

When a Forrester Research representative emailed with the following survey highlights, I was more than a little surprised:

“Forrester released data today analyzing trend lines in enterprise open source usage in 2007. Among the key findings:

• Seventy percent of decision-makers responded that they don’t have interest or have no plans to adopt open source software;
• Only 23 percent of respondents said expanding their use of open source software was a priority;
• Security is the main concern around adopting open source software. Eighty-eight percent of respondents said it was an important or very important concern.”

The data is from 1,017 decision makers in North America & Europe. The survey was conducted in Q3 2007.

But here are two data points that puts the 70% “not using or don’t have plans to use” in perspective:

The pie chart on the left was asked to decision makers who had already stated their company is using open source frameworks such as Spring or Hibernate. The pie chart on the right was asked of decision makers who had already stated that their company is using PHP, Ruby, Python or Perl.

As the Report’s author, Jeffrey Hammond, writes,

“Open source frameworks such as Spring and languages such as PHP are better known by name than license model.”

OSS vendors face an uphill battle to sell anything (support, as is the case today, or a product as I suggest) if the top decision maker doesn’t believe that his/her company is using OSS. It’s not an insurmountable battle, but it is uphill. The following finding from Forrester is promising for OSS vendors:

“Among those using open source, security, availability of service and support, and TCO are the primary concerns.”

Once the decision maker becomes aware of their company’s use of OSS, they want to ensure that the product is secure, supportable and has low TCO.

It would have been great to ask respondents “do you plan to acquire support?” if they were in fact using an OSS product and had responded that they were not using OSS. Tough to administer this question in a survey as you’d have to convince the respondent that they were in fact using an OSS product. But that would have been great data.

Contact Forrester to get a copy of the results and/or speak with Jeffrey Hammond.

 

Fixing the broken OSS business model

In response to my previous post, Matt Aslett aptly asks: Does open source have a glass ceiling? In a word, yes. But it doesn’t have to be this way.

The “OSS business model” is a misnomer as there are many variations. But the business model that the majority of large and leading OSS vendors utilize has one common aspect. These vendors are all selling support and “other stuff” (indemnification, additional testing, better management, etc) around a product that is indistinguishable from what a user can get freely from the related open source project.

Giving away all the value that a product provides and expecting that customers will pay for the “other stuff” is a mistake. This decision prioritizes short-term benefits at the expense of long-term growth. Yes, this decision reduces barriers to user adoption. But it constructs significant barriers to customer conversion. By the time an OSS vendor needs to sell into Category “B” users, the product has been in use for 2-5 years, plenty of time to form habits. One habit that Category “B” users form is how to get by without paying the OSS vendor for the value received. As a customer, I like this. As a vendor, not so much. And in the long run, this habit hurts all users because the OSS vendor has less revenue with which to fund ongoing innovation.

As Matt writes, to further complicate matters:

“….the better the software is, and the more expertise a customer’s IT department has with it, the less likely a customer is to pay for a support subscription.”

My solution to these problems is simple. Sell products. From day one, offer two options. Offer an open source and freely available product ABC and a commercially licensed product ABC*. Differentiate the two on the product features delivered. Let’s look at the example below for version 1.0:

If the user only needs features #1-5, then they can adopt ABC. If the user really needs feature #7, they have to purchase product ABC*. If the user has adopted ABC and seeks support, sell them product ABC*. Do not offer support around product ABC. Standalone support has no role in the Product Driven OSS Business Model (PDOSS-BM).

When version 2.0 comes along, you’ll notice that product ABC delivers features that were previously only available in ABC* and even includes new features not previously available in ABC or ABC*. Note that product ABC* version 2.0 has progressed up the feature value chain and there is still a gap between ABC* and ABC.

In order to simplify life for the customer, the product architecture should easily allow the customer to go from ABC to ABC* without a complete reinstall. Should ABC* be available under an OSI-approved license? I don’t know. I can make a case for both and will leave this topic for a future post.

It is important to know where to draw the line between what gets into ABC and what is held inside of ABC*. These incremental features should be things that the average enterprise requires, because you’re trying to encourage purchases (not just usage). This is clearly a balancing act between giving away some value (i.e. features in ABC) and seeking compensation for some value (i.e. the incremental features in ABC*). Will the balancing act be easy? Absolutely not. Is it required? I definitely believe so.

I know that all of this sounds like heresy to some OSS purists. It is. We need a dose of heresy to break through the glass ceiling that some of us see ahead. Let’s look forward and leave the purism to someone else.

Next up: How leading OSS vendors can lead us into the future

 

Risky Business - Predicting that open source vendors will ultimately win

I wrote this a few weeks ago and held it back until now. I decided to publish this somewhat in response to Roberto’s post. While Roberto is trying to find a band-aid to the problem, I think we need to re-think the root cause of the problem.

I’ve been blogging about OSS for nearly 2 years now. My in the trenches experience with OSS goes back to early 2004. The constant drumbeat of “proprietary software is dead, open source is the only path forward” has been deafening at times. I’ll admit that I too used to espouse similar words. But, I am fortunate enough to work with colleagues who’ve been in the software industry since day one. They’ve challenged my thinking on open source and made me ask the difficult questions that OSS proponents don’t seem willing to ask. That’s why I’ve been writing that OSS will not kill the software industry as we know it. Rather, OSS will be a component of every software vendor’s strategy.

Like you, I read OSS proponents claim that the lowered marketing, distribution and sales costs associated with OSS would ultimately convince all proprietary vendors to open source their products or perish. These proponents could only hope to be as correct as one can be in predicting a winner based on the score after two innings.

Yes, OSS lowers marketing, distribution and sales costs. And yes, OSS is a great way to drive revenue from $0 to $X. The value of $X differs based on the software segment in question (i.e. operating systems vs. business integration vs. databases vs. content management). I’d put the value of $X at $100M for most software segments. Once an OSS vendor approaches $X, their business dynamics, and more importantly, customer dynamics, change dramatically. These changes were not wholly understood by OSS proponents making the “repent or perish” claims, simply because virtually no OSS vendor had run into their $X figure at the time.

As the vendor reaches $X, they have saturated Category “C” users (i.e. those with cash and willing to spend cash to save time). Now, the OSS vendor must try to win with Category “B” users (i.e. those with cash, but who have been trained by the OSS community to expect value for free). This is no small task. It is however a task that requires significant marketing and sales expenditures. The only way that you can convince these users to pay is through the same route that proprietary vendors have been using for decades; sell proprietary products. Sounds vulgar, I know. I’m sure many OSS vendors will try novel tactics instead. It won’t work. Selling proprietary products, while sure to draw fire from “the community”, is truly the best way forward.

I’ve had conversations with several leaders at large(r) open source firms who have all expressed that, contrary to published reports, selling open source products is, simply put, difficult and gets more difficult as the vendor grows. It’s not surprising that their employers are all approaching their individual $X. This is why I believe that a fresh look at the OSS business model is required. Nobody seems willing to acknowledge this. Strategies that work from $0 to $X aren’t necessarily the right strategies to grow beyond $X.

Next up: The OSS business model is broken - here’s one potential solution

 

Red Hat exec named EnterpriseDB CEO

Former VP & GM of North American sales for Red Hat, Ed Boyajian, has been named CEO of EnterpriseDB. Current CEO, Andy Astor, will be shifting roles to lead EnterpriseDB’s business development as EVP.

Very interesting that EnterpriseDB was able to attract Ed. I’d guess this move speaks more to the potential at EnterpriseDB than anything amiss at Red Hat. A quote from Dave Power, a member of EnterpriseDB’s board, and from Ed both point to taking EnterpriseDB to the next level. For instance, Ed states:

“The Postgres open source community is active and robust, and the company has a talented and enthusiastic team and a compelling roadmap for the future. I am thrilled to have this opportunity to lead EnterpriseDB in its next phase of growth and success.”

Well, kudos to Andy for a job well done to date, and all the best to Ed in his new role. BTW, would you be surprised if Red Hat acquired EnterpriseDB at some point? ;-) Sorry, couldn’t help it.

 

Auctions vs. fixed price buying

Very interesting post from Nick Carr re. eBay’s auctions vs. fixed price selling. In a nutshell, Carr, and BusinessWeek, state:

“…eBay’s auctions are “a dying breed.” Buyers and sellers are reverting to the traditional retailing model of fixed prices…”

BusinessWeek goes on to state:

“Sales at Amazon.com (AMZN), the leader in online sales of fixed-price goods, rose 37% in the first quarter of 2008. At eBay, where auctions make up 58% of the site’s sales, revenue rose 14%.”

Economic theory suggests that auction pricing results in the most efficient prices for a given product. Throw the auction on the Interweb and the price efficiency should benefit from more buyers and sellers and more transparent information. In eBay’s prime, the end of fixed price product sales was predicted more than once. (Readers on the ball may notice the parallels between this and the oss/software market.)

The fact that we’re seeing increased interest in fixed price auctions is a natural result of human nature. We want the best price, but most of us are able to make pricing trade-offs for some other benefits (i.e. the time saved via a fixed price sale). In certain situations, I’m willing to enter into an auction-based sale. In other situations, I just want to buy the widget and move on. Both forms of selling have their place (again, note the parallels to oss vs. proprietary software). To suggest that one form will (nearly) always win out over the other form ignores human behavior.

 

OpenLogic and SourceLabs should merge

I haven’t really followed SourceLabs for a little while now, and yet, strangely enough, they’ve been doing new and interesting things even without me watching ;-). SourceLabs “Self-Support Suite for Linux and Open Source Java” caught my eye, so I thought I’d learn more about it. I watched a demo that began with the slogan: “We’re IT people…we don’t call support”. Made me laugh out loud…

The useful thing about the Self-Support Suite is that it adds diagnostics to your applications. When developers have a support issue, the diagnostics results are used to search for the similar problem *and* the solution from within 16 million data points in the SourceLabs support repository. The repository is constantly updated with information from mailing lists, bug databases, code repositories, security bulletins, etc. There’s only one catch; what if there isn’t a solution available yet?

This is where OpenLogic comes in. (Remember that OpenLogic provides support for hundreds of OSS projects in one convenient support package).

While developers may not (like to) call support, it’s more than likely that their manager or their business would much rather that the support issue is dealt with ASAP. The combination of SourceLabs and OpenLogic would provide compelling value to developers, managers and businesses. The merger (or acquisition) would address the needs of developers wanting to solve problems themselves and managers wanting to ensure there is a safety net for the business when a solution isn’t easily found.

Seems like a win-win-win for OpenLogic, SourceLabs and customers.

 

The path towards a language specification for Ruby

I’ve been a little out of touch lately - crazy accounting project for school - but was able to carve out a little time to chat with the guys at Engine Yard who are doing some cool things with Ruby.Engine Yard employs Evan Phoenix, the founder of the Rubinius project. The project aims to deliver a virtual machine for Ruby and will be previewing Rails running on Rubinius at RailsConf 2008 later today.

According to Evan, Rubinius is an implementation of a Ruby platform, just like the standard Ruby interpreter, IronRuby, MacRuby, JRuby, or countless other implementations. What’s interesting is that since Ruby doesn’t really have a specification, it’s difficult to say that platform xyz is not a compatible implementation of a Ruby runtime. In response, Rubinius decided to create a test suite that could help standardize Ruby as a language across the growing number of VM implementations for Ruby. The test suite is available at RubSpec.org. According to Evan, many of the other implementations are using the test suite. I can see this leading to a formal standards body (a la the JCP, but without one vendor with overwhelming control) to guide the Ruby language. A standardization process would be good news for enterprise customers that want to reduce vendor lock-in.

As an aside, an interesting thing about the Rubinius project is that anyone can get commit access after submitting one patch. While the project is sponsored by Engine Yard, they don’t appear to be controlling commit access (ah, this would make Josh happy ;-). As a result, there are over 150 committers to Rubinius, some of whom are very active and others who have submitted only a few patches.

It’ll be interesting to watch the Ruby community mature and see if Rubinius’ truly open governance model will catch on with other early OSS projects (or rather, with the companies that back these projects).

 

Is open source really a more disruptive competitor than Google to Microsoft?

I just read Mary Jo Foley’s post titled: “Ozzie: Open source a more disruptive competitor than Google”. In it, she quotes Microsoft’s Ray Ozzie as saying:

“Microsoft has built up a culture of crisis,” Ozzie told conference attendees.

Competitors like his former employer, Lotus, and now, Google, have spurred the company to make changes to its business to stay ahead, Ozzie said. But while Google is a “tremendously strong competitor,” Ozzie acknowledged, “open source was much more potentially disruptive” to Microsoft’s business. (He noted that, unlike Google, many open-source programmers aren’t beholden to shareholders.)

Open source a larger threat to Microsoft than Google? I’m not buying it. (I keep thinking about FJS’s comment on 3 good days for Microsoft.) I’m not even buying that OSS is a threat; it’s a huge opportunity (more on this in another post).

I am buying that Ozzie would make this statement in order to elevate the focus on OSS inside of Microsoft. As Ozzie states, “Microsoft has built up a culture of crisis”, so when your Chief Software Architect says xyz is worrisome in public, the internal implications are profound. Depending on the press that this (simple) statement from Ozzie gets, it would seem that the lives of Sam Ramji et al just got a little easier. As much as Sam et al work to convince the market that there is a role for Microsoft in the OSS world, the other part of their day is spent driving change internally. I think Sam’s team should buy Ray a few drinks for making this comment ;-).

I’ve always been of the opinion that the OSS community underestimates Microsoft too much. It seems that Microsoft isn’t making the same mistake (anymore). As Mary Jo states:

Ozzie said that competing with open source “made Microsoft a much stronger company.”

Fun times ahead.