Open Source Commentary from Navica's CEO,
Bernard Golden
January 2007
In This Issue
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Open Source in 2007: What the Future
Holds
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Navica News
Open Source in 2007: What the Future Holds
It’s a cliché of January that people make New
Year’s resolutions that expire well before spring. More
promising is taking the start of the year to look forward
and predict what the next 350-odd days are likely to deliver.
I think this latter exercise is particularly promising with
respect to open source, as it seems that the momentum that
has gradually been building over the past several years is
now turning into the proverbial irresistible force.
Based upon my own idiosyncratic perspective, here are four
milestones I think we’ll see during 2007.
IT organizations finally recognize the open source revolution
is upon them
It’s curious, but many IT organizations have dismissed
open source as uninteresting, or, even more damning, irrelevant
to their operations. I recently spoke at CIO Magazine to a
group of writers and editors, and Chris Koch, one of their
most insightful editors, asked “why do CIOs not care
about open source?” He explained that, in survey after
survey, in terms of CIO interest, open source ranks just above
cable rot and just below artificial coffee creamer choice
with respect to CIO involvement. (For my take on this issue,
see the blog listings at the end of this newsletter).
I believe 2007 will be the year that mainstream IT organizations
finally recognize that open source isn’t a fad or a
harmless dalliance, but is front and center a strategic issue
that must be addressed. For most of them, this recognition
will come in the traditional way: seeing peer IT organizations
using open source successfully, laggard companies will, lemming-like,
fall in behind and begin implementing open source.
While this seems like a harsh assessment (and, to be fair,
it’s not very charitable), it reflects a beneficent
reality – when open source bleeds into timid IT organizations,
its universal adoption is a matter of when, not if.
Of course, moving into mainstream organizations will cause
discomfort for open source projects. All the product elements
they’ve been able to laugh off in the past, like useful
documentation, easy-to-comprehend sample code, and intuitive
interfaces, will be the rallying cry and demand of these new
users.
Of course, oftentimes demand brings supply to a market, and
I expect that entrepreneurs and existing companies will work
hard to mitigate these shortcomings of open source –
for a price (see prediction #3 below for my take on the prospects
of open source startups).
Everyone finally sees the lack of clothes on the enterprise
software kings
Yesterday brought a blizzard of press releases from the two
top dogs of enterprise software, Oracle and SAP. These releases
heralded “New initiatives,” “Transforming
results at Customer X,” “Achieving breakthrough
in Category Y performance,” and on and on.
All very reminiscent of the kinds of propaganda one used
to see from behind the Iron Curtain. Very much the same in
terms of the underlying reality, as well.
These press releases serve as window dressing, trying to
cover up the true facts: neither of these companies is performing
very well. While their profitability is good, their license
growth (the truest measure of how well their products are
being adopted) is anemic.
Both companies trotted out the oldest, most tired excuse
in the enterprise software world: results would have been
good, they told us, but “several large deals slipped
into the next quarter,” thereby reassuring us that everything
is really all right with the world – after all, those
deals really are happening, they’re just a few days
late.
This excuse reminds me of the annual autumnal reason proffered
by the BritRail to explain why trains were running late: the
wrong kind of leaves had fallen on the tracks. I mean, really.
Even if a generous allowance for these “delayed”
deals is added back into the reported results, the final outcome
indicates that these companies aren’t growing. In other
words, no one wants to buy their products.
Over-credulous observers offer different rationales for this
poor performance: the companies are so large that expecting
significant growth is out of the question; enterprises are
holding back on purchases of software; there aren’t
any new exciting products coming out of the vendors to drive
purchases; and a host of others.
We live in the information age and I find it difficult to
believe the repeated “wrong leaves on the tracks”
excuses regarding customer spending, new product introductions,
or inability to grow due to vendor size. In a time of multi-year
good economic growth, with no evidence that buyers are unwilling
to spend money, it’s time to face reality: these vendors
aren’t garnering IT budget dollars.
A much more likely explanation is that these vendors’
time has slipped into the past. IT organizations are spending,
just not with them. In terms of Oracle, their big market (databases)
is being undermined from below by open source databases. Customers
are choosing SaaS in preference to both Oracle and SAP.
This year will be the year that financial and industry analysts
finally break free of their co-dependent relationships with
these vendors and proclaim their discovery: the threadbare
excuses of vendors have fallen apart, and they’re proudly
marching down the street in their birthday suits.
Open Source Businesses Figure Out the Underlying Realities
of their Business Models
A ton of venture money has poured into open source startups
over the past couple of years. Every VC firm wanted to place
a bet on this new type of software, one in which the sales
force got downsized, the marketing budget went on a diet,
and engineering outsourced QA to the community.
As many people have noted, however, the open source VC tap
seems to have dried up lately. Part of this is that the firms
most inclined to experiment with open source have placed their
chips on one company or another, and, based on the portfolio
strategy of venture capital, don’t want to bet on any
more open source companies.
Just as likely, however, is that venture capital firms are
more aware of the realities of open source business models
– that the growth of revenues lags the growth of adoption
significantly, unlike the traditional enterprise software
model where revenue typically marches lockstep with adoption.
I’ve written about the reality of open source adoption
and revenues regarding open source twice in the last year:
here and here. This revenue ramp rate aspect of open source
is now becoming obvious to open source companies and their
investors, causing them to reassess their assumptions regarding
growth, valuations, and exit strategies.
Many open source companies were funded based upon the success
of companies like Red Hat and MySQL; one is publicly held
with margins similar to the traditional enterprise software
play, while the other is widely rumored to be about to IPO,
presumably with similar financials as well.
While inspiring as open source models, these companies did
not follow the trajectory of traditional venture-backed companies.
They started small, grew organically, and only after years
of work began to reap the financial rewards of their adoption.
This year will see a reassessment of the role of venture
capital in open source. I predict that someone will come up
with an investment model more appropriate for the different
growth model of commercial open source companies: seed money
to incubate the company over an extended period, with true
venture capital-sized investments following later, when companies
can usefully apply larger amounts of capital.
The GPL3 Backlash Takes Hold
The January release of GPL3 has been pushed back for a couple
of months, undoubtedly to allow the Free Software Foundation
to restrict the conditions of the license in order to preclude
the sort of license-compliant but non-license-spirit (in the
FSF’s view, of course) agreement announced by Microsoft
and Novell late last year.
However, after further tightening the GPL corset, the license
will be released in a couple of months.
What will happen then?
It’s been curious that there has been so little interest
in GPL3 outside of the hard core open source devotees. The
technology industry at large has seemed to greet the upcoming
license release with a big yawn, as if it’s nothing
to spend any time on.
That sleepy reaction will change dramatically when the license
is finally released. The many people who have been standing
(sleeping?) on the sidelines will finally wake up and pay
attention once the license moves from draft to release. At
that time, organizations will begin to pay attention to the
license implications that differ significantly from GPL2 –
most notably DRM and the “SaaS” provision contained
in the license compatibility section of the license.
Once organizations – both vendor and end user –
understand how GPL3 will impact their business operations,
you can expect a huge furor about the license and what they
should do to respond to it. A good analogy would be the levees
in New Orleans: it was well-known within the disaster/emergency
world that the city was terribly vulnerable to certain conditions,
but no one – and this includes New Orleans itself –
was very moved to do anything about the situation, until disaster
actually struck. Perhaps it’s human nature to ignore
dangerous conditions until overwhelmed by them. I should know
– I live not so very far from the San Andreas Fault:
earthquake central.
The difference between New Orleans and the IT community is
certainty. While it was clear that a potential danger loomed
for the city, it wasn’t exactly clear when it would
come to pass. With regard to GPL3, it’s a certainty
that it will be released, and in a form very close to the
current draft.
2007: The Bottom Line
Despite the ebbs and flows of interest, anxiety, celebration,
and apathy, this year will see a continue upsurge of open
source use. As with any idea whose time has come, the masses
will attempt to come to terms with the new reality -- some
more successfully than others. One thing for sure, however,
we’ll exit 2007 with a lot more open source activity
than we entered it.
Navica News
You can hear me speak at these upcoming events:
February 8, 8:00 a.m.: "Virtualization: The Other Half
of the IT Economic Revolution", Motorola Open Source
Organization
March 13, 10:00 a.m.: "Open Source ROI: The Real Story",
HP Linux Advisory Council, Philadelphia, PA
March 20, 1:00 p.m.: "Building an Open Source Business",
SDWest, Santa Clara, CA, joint presentation with Bill Weinberg
May 10, 10:00 a.m.: "Making Your Organization Open Source-Ready",
Red Hat Summit, San Diego, CA
If you are interested in having me speak at your
organization:
Contact me directly via email.
You might be interested in reading my blog posts
at CIO Magazine:
Amazon: Books,
DVDs and ... Infrastructure?
Why CIOs Don't
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