Why on Earth …

Information Weeks Larry Greene-Meier raises a fundamental questionWhy on Earth Would Big Companies With Lots of Choices Use Open Source. Lets highlight the clearly qualifying phrase “with lots of choices”. According to many pundits, the IT industry is cooling down, commoditizing, and consolidating. More than less, the argument is being made that in the IT industry, “lots of choices” is also becoming a scarce commodity in the IT industry.

In another posting , we have examined this notion that widespread consolidation/cooling down is taking place in the IT industry and instead have found the situation to be richer and more complex than first assumed. True, in computer chip technology the world is converging on two major arhitectures – Intel ARM in small devices and AMD/Intel x86 in desktop and servers with some notable but niche market exceptions in the complex world of servers. And in software for key large market segments monopolies have been in place and oligopolies are forming. But we argue there could be reversals of fortune in key segments.

But in communication, storage, and related fields, IT innovation is flourishing despite the unrelenting efforts of major players to transplant their dominant-to-monopoly positions into complementary but emerging markets. If these ever so predictable monopoly transplant methods are identified as a “cooling down” in business and management innovation, then yes, I can aggree that the IT industry is suffering a case of the Big Chills. There is no question that monopoly extension is being used in a amore widespread fashion. For example, Google (search dominance), Microsoft (desktop dominance) and eBay (online auctions dominance) all are trying to put their stamp on a now rapidly emerging VOIP+IM marketplace by various translations from their monopoly positions.

It will be our argument that Open Source is the counterplay to the constantly used monopoly game card. There is no better example than in the BI industry. Here Microsoft, IBM, and Oracle are trying to translate their dominant positions in the database and broader software development markets to enable them to gain competitive advantage over entrenched butpure-play BI vendors such as Hyperion, Cognos, Microstrategy, Business Objects. Microsoft is setting the monopoly card standard by giving a way for free a complete and reasonably competent BI stack while making up the difference by charging for a tied database product which Microsoft knows its smaller competitors cannot match.

Quick aside. We know that the US Antitrust division of the Department of Justice has been emasculated when a)the EU leads the current antitrust parade and b)this obvious “cutting off the oxygen” move which Microsoft was previously found guilty of in DOJs antitrust case now can be so incompetently ignored by the DOJ and the courts who act as Microsoft antitrust agreeement administrators. Also the buiness and computing press also fastidiously avoids discussing the issue. But perhaps this observer is really naif and simply has not understood that the Bush Administrations final DOJ-Microsoft settlement was after all, nudge nudge, wink wink you stupid dolt – a greenlighting of such excesses and infractions while the Grand Old remains as the Party in Power.

The Open Source Defense

So what is a startup or even small scale incumbent to do in the BI industry where there is still perceived to be opportunities to innovate. Well organizations as diverse as Actuate, Jaspersoft, and Pentaho are prepared to apply the Open Source Defense. The Open Source Defense for a startup is simple – instead of pricing way down the cost curve, just give away the product for free. Charge for support, consulting , training and other services such priority on extensions or complimentary products.

Now this Open Source Defense strategy will only work if there are enough users willing to pay support fees and or get start up plus ongoing consulting fees. Extensions and complimentary product revenues will only work if the product gets some sort of acceptance in the marketplace. Thus the burden of the start up is not only to develop a superior product but also to bring along a support and service /training consulting group that can maintain revenues from the get go – hardly an easy proposition. Yet 3 companies are trying to do so right now in the BI market.

Actuate has related commercial BI products and is tying to break into the intensely competitive report writing market. Jaspersofts roots are in Open Source and they are seeking to establish a desktop reporting presence that will enable their move to commercial products in broader server based reporting arena. Pentaho is a pure start-up trying to bring together a clutch of Open Source products as a complete and unifed BI Stack. It will be most inetresting to watch how these ventures progress especially after November 7th when the Microsoft SQL 2005 launch unleashes a compete BI stack for free on the market.

Now Why on Earth would Big Companies with Lots of Choices be interested in these OpenSource Ventures ? For two reasons. First they would not oppose them – there is no reason to. Second, there are also the advantages of low start up costs and an Open Source organization committed to service, support and training and active updates as their bread and butter. They better be able to deliver because this is the only source of revenues. No Software Assurance revenue streams , regardless, allowed here.

Finally big companies in oligopoly and monopoly markets (where there are not lots of choices) might very well welcome a Open Source start-up that promised new price-performance choices, especially if the monopolists have been cash-cowing and otherwise taking advantage of their monopoly position. But that is emphatically not the case in the BI marketplace and the big companies for now do have lots of choices(some argue too many). So the Open Source BI companies have two strikes against them. First they are only marginally the lowest cost of licensing providers. Second, big companies will still see many choices in the BI space and not be inclined to support them on monopoly relief basis.

So in particular, when big companies have lots of choices – they will be less inclined to use open source. Thus Larry Green-Meier has raised an intriguing question but has largely left it to be answered. In the second part of this posting we shall return to this question – when there are lots of choices what advantage does Open Source provide big organizational IT shops. We have already suggested a clear commitment to better support and training services. But that is not always available from Open Source shops to exactly fit corporate needs. So we shall look for additional attractions in Open Source.

(c)JBSurveyer 2006