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EOS Editorial — The End of an Era

How software-as-a-service and open source are reducing our licensing costs

The other day I was driving down the highway when I passed an American classic, a 1965 Ford Mustang. As I waxed nostalgic, I realized that there will never be another era in history where we will appreciate automobiles like those produced in the 1950s and 1960s. No matter what their merits, I don't foresee automobile aficionados 50 years from now tooling around in a Toyota Prius, Honda minivan, or any of today's plastic-covered modes of transit.

This realization saddened me to a degree. I spent the years up to my 16th birthday in my father's car dealership admiring these gas-guzzling steel monsters. At the same time I had my first dedicated access to a computer, a 286 model that was used to keep the accounts for our swipe-card gas pumps. It was a time before Microsoft Windows, and computer users were in a minority in comparison to automobile drivers.

Times have changed; the golden era of the automobile has passed. Today I would suspect that there is more parity in those who own an automobile and those who own a computer. Now we are paying for the smog-spewing sins of our past as we look at more efficient economy cars and those powered by hydrogen cell batteries. I think the time is coming for software companies to pay the piper too. They have delivered for too long their own brand of inefficient product at a premium price.

During the past 20 years, I also observed another evolution. While car companies have seen many ups and downs, information technology companies have grown into huge multi-national corporations that have dwarfed the car manufacturers. For example, Microsoft has a market cap of over $310 billion while Ford Motor Company is somewhere between $14 and $15 billion.

Just as the auto manufacturers have seen their best years come and go, I believe that software companies like Microsoft and Oracle are part of an era that has passed. These companies have risen to become industry leaders as the PC desktop and the server has become omnipresent. They have benefited from a model where you build software once and sell it millions of times over. There was nothing wrong with that either as long as the market would bear it. For these to continue their leadership roles, they will have to adapt.

That industry is changing. Consumers of technology are getting smarter, more demanding, and value-conscious. There are too many choices for the software users to be held hostage by one vendor. The new "software" giants like Google offer hosted software and services to millions of users every day, compensated not by users but by advertisers. The reason they have been able to scale is an infrastructure built on open source and customized to their needs. Six years ago I would have asserted that Yahoo! had already won the search engine race, but Google provides evidence that there is still plenty of competition for the number one spot in that industry. Salesforce.com evidences another business model where users don't pay for software but subscriptions for software that they "rent" for a period of time. Their success probably gives the folks at Seibel heartburn. The former has a market cap of $156 billion and the latter almost $5 billion. These are the Microsofts and Oracles of tomorrow and they don't sell software, they sell software-as-as-service.

Next-generation technology companies are decidedly different; many are focusing on industries that have matured. They are leveraging open source software to realize efficiencies that established leaders have not. In some cases, they are innovators but in many cases they are taking the fat out of the software delivery model. For example, it is common for software users to invest upfront in a software package that entitled users to perpetual use and some degree of support. But more and more users are adopting software without an upfront investment other than their time. MySQL users, for example, can download and deploy a database without even contacting the Swedish vendor. Sun users can download Open Solaris, without contacting Sun. When they are ready to buy, they are signing up for updates, support, and value-added services. Since these software vendors haven't had to pay for a BMW-driving, Rolex-wearing sales guy to wine and dine you, you aren't obligated to help them recoup that part of the sales cycle.

The ability to do-it-yourself is well and good but even those who chose to deploy systems on their own realize in a crisis they will want the backing of a corporation that can help them quickly resolve a problem. That's where the open source vendor will add the most value - in the way that they service their software. In this model you aren't tethered to a solution; if they don't deliver, you haven't sunk a huge chunk of your budget into a solution that you must recover. It also puts the onus on the vendor to deliver a level of service that continues to win your business.

I was recently relayed an anecdote by a managed services provider who had bought a costly systems management solutions a few years back. He was upset that after he installed the solution, the vendor was unresponsive. His take was that once they had bought the software, the vendor felt little need to keep winning his business. He was looking to replace the proprietary software with an open source solution, but his primary concern, past the features and functions, was the level of responsiveness and ability for the open source vendor to provide service.

The point is that because of increased pressure by open source providers who focus on service rather than licensing, they increase their value to you; you pay for what you need, their service and expertise. In many cases they won't be able to continue to operate on a model that focuses on licensing without a high level of service or at least the availability of a higher level of service. By creating this pressure your established vendors will likely increase their efforts to provide what you need. This new model probably won't spawn another software superpower because the economics for service-based businesses are quite different but it will allow for many mid-tier value-oriented software vendors who are striving to provide you with not only useful software, but exceptional service. As you look at growth in 2007, I suggest you consider the following things. Do your current vendors delivery a good value? Are they servicing your needs or just licensing your software? Maybe it's time to consider looking for a vendor whose business is service.

More Stories By Mark R. Hinkle

Mark Hinkle is the Senior Director, Open Soure Solutions at Citrix. He also is along-time open source expert and advocate. He is a co-founder of both the Open Source Management Consortium and the Desktop Linux Consortium. He has served as Editor-in-Chief for both LinuxWorld Magazine and Enterprise Open Source Magazine. Hinkle is also the author of the book, "Windows to Linux Business Desktop Migration" (Thomson, 2006). His blog on open source, technology, and new media can be found at http://www.socializedsoftware.com.

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