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June 7, 2005

Has Open Source found a reliable business model?

The 'Silicon Valley Leadership Forum' recently reminded me that networking is still the road to building business and even friendships outside of corporate life. The event held in Mountain View focused on Open Source, a topic that, by some reports, should have the traditional proprietary software makers shaking in their boots. One prediction has the proprietary software vendors seriously challenged to remain profitable within 5 years. This observer finds that hard to believe, since Open Source link has been around for many years and the only serious challenger observed so far appears to be around operating systems – DOS vs Linux.

The promise is certainly there, but as a basis for actually making serious money – ie. A sustainable business model - has yet to be determined. The Linux variants have rolled out under the guise of a 'free' operating system, but technical support inevitably requires some expertise - outsourced or otherwise - to make it all work. Perhaps it is not a free as we would like to believe. Open Source has made a great many promises, yet few have really tested it. We are still at the stage where a 'product champion' will practically write the specification, code, test and then evangelize it to get customers before the software can really take off. There are few domain experts participating in some of the niche areas, and this can inhibit uptake by knowledgeable buyers. Most successes are modest and are bootstrapped.

But the beginning of the end is at hand some say. Yes and No. Yes, there will be a greater push to reduce the Total Cost of Ownership (TCO), and that will impact the amount budgeted for capital and license costs, as it has affected hardware, but inevitably the installation, implementation, support, and maintenance of Open Source software has a cost and the customer is still looking to meet some basic payback goals. A company choosing to use this method must seriously judge its capacity to 'tinker in the back yard'. I still build my own PCs, but would never counsel a large company to do so. Would I risk my corporate knowledge bases or key business flows to OpenSource? Well, some companies are indeed doing so, and very well thank-you. What characterizes these companies? Strangely enough it is that group of companies that believe in owning their own destiny, which really surprised me. These companies have a culture of innovation and/or self-determination, they want to keep their TCO way down, and are willing to fill in the gaps with their own code where needed. The IT organization tends to be agile and responsive, and make decisions based on deep technical understanding of the risks and rewards.

Where is OpenSource headed? By all reports, it is flourishing, with some 70,000 projects and 70 new projects added daily, and a community of over a million participants. This kind of acceptance can be compared with the traditional models amongst software tools vendors, who deemed that a community exceeding a million developers meant a key acceptance threshold has been reached. Witness Sun's drive to get Java passed a million developers as just one example of this trend and the parallels are obvious. The implications, however, differ. This is a highly fractious community, building many competing products, and the winnowing process has barely started. Do we really need 15 varieties of CRM? How do we judge which are fit for prime time? Where do we begin the process of evaluating what products and components we can reliably use from this vast code pool? We can choose based on a popularity contest, or on whether it meets our specific functional requirements, more on User Interface, or solid technical execution. How do you, as an CIO make a decision? Well, there is help coming, and Bernard Golden of Navicasoft is there to make it easier. The author proffered that a structured methodology based on the nominal costs of various buy vs make vs rent scenarios and some weighting would provide a serviceable basis for an evaluation.

OpenSource is here to stay. It has proven itself resilient over time. Various experiments in business models will eventually result in one or more winning formulae to allow such software products to reach the mainstream IT shops. It shops however, must be open to new options for spreading their risk and hedging their bets against the proprietary software models of today.

Posted by alexfiteni at June 7, 2005 7:15 AM

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