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Best Presentation on Software Business and OSS
stephe writes "Brent Williams presented 'Open Source Business Models: A Wall Street Look at a Wild 2006 and the Prospects for Even More Fun in 2007' at EclipseCon last Tuesday. Brent is (temporarily) an independent equity research analyst, who moved to Wall Street after 20 years in the software trenches. He starts with a tear-down of the Oracle Linux debate and the Microsoft Novell deal. I especially like his taking apart the commoditization myth and his observations around interface standards versus standards of implementation. He graciously allowed me to post the slides on my blog. They're getting a lot of interest from the open source business crowd, and I thought the Slashdot crowd would want to see them as well. Enjoy."
Its either that, or they realized that what they had already was not keeping customers coming back as people were moving to OSX and Linux which both sport different gui's and decided to try a gamble on going with a new appearance.
*Disclaimer: This is somewhat of giving them the benefit of the doubt, and I have not looked at Office anything past XP.
09:F9:11:02 - 9D:74:E3:5B - D8:41:56:C5 - 63:56:88:C0
Can I really take the guy seriously when he's using a hotmail account?
FTA:
"What price changes did Red Hat make immediately in the wake of
the Oracle announcement?
- None. Zero, zip, nada.
- We're not hearing of any individual deal discounting.
- Red Hat knows that they have a premium brand, so ignoring people
competing on price is the right strategy.The role of a premium brand
- Lamborghini ignores price competition between Hyundai and Kia.
- Oracle ignores price competition between MySQL and PostgreSQL."
This is not the case at all. In the last few years, MySQL has matured and more people have found out about PostgreSQL (in fact, PostgreSQL is probably the best kept secret OSS has to offer - it has a kick ass feature set and it's completely and utterly free). For a large amount of enterprise stuff, PostgreSQL is more than adequate and as a bonus, does not treat your data as garbage.
Anyone considering building some sort of database application has the option of spending a couple months (with change left over) from the money they would spend on an Oracle license, and invest it in learning PostgreSQL. At the current rate of developement, it will in all likelihood solve any future problem they could have. For free. No worries about licenses. Anyone in a startup where money is tight and time is cheap should be considering PostgreSQL.
This has had direct ramifications on the strategy of all the big database players. At the very least, they all now have a free entry level option to compete with OSS competitors.
If I have seen further it is by stealing the Intellectual Property of giants.
The magic happens on Slide 35, where he argues against the "myth" that commoditization will destroy all profits in the open source software market. (This is related to the more general argument that OSS vendors are trading on nothing but fad in a bubble, that will eventually burst once people figure out that this stuff is available for Free and that there is no barrier to entry in this market.)
Specifically, he claims that the open source software marketplace is unlike a generic commodity marketplace and more like the proprietary enterprise software marketplace... but half of the six points on that slide (4, 5 and 6) amount to nothing more than the argument that, if the OSS market were a commodity market, firms wouldn't be making any money, would they? A circular argument if I ever heard one.
His only substantive point is the first bullet on that slide, where he notes that in a generic commodity marketplace, there are "no switching costs to buy from a different producer," but in the OSS marketplace, "customers are loyal to incumbent distribution vendors."
On Slide 39, he explains this behavior: the OSS market "exhibits aspects of a branded consumer luxury good," much like the consumer market for "perfume" or "mineral water," even though "they can't pass a blind taste test half the time."
That's reassuring. For a minute, I thought this whole OSS market was a fad built on hype. But now that I know that people are buying Red Hat like a fashion accessory, now I get it. Where do I sign up to invest?
P.S. The OSS community/software has nothing to lose from a growing/bursting OSS market bubble and everything to gain. The end result will be better software for you and me... and smarting investors.
When I moderate, I only use "-1, Overrated". That way, I never get meta-moderated!
I do believe you meant page 43. Page 48 is the last slide.
Weird, you're right that 48 is the last slide, but I see the pic of two car interfaces on page 40....
There are shills on slashdot. Apparently, I'm one of them.
There are chairs on both Page 40 and Page 43. That might have confused him although I believe the chair on Page 43 is not designed to be comfortable.
I went through the slides and looked at what business models there is for Open Source. The slides do not make the point that there is a business model. Yes Redhat makes money, but to me Redhat is a peanut gallery company. Sure people know them, but they do not have a serious revenue stream.
Let's compare. Redhat and Google started in the same era of the Internet bubble. Look at both companies today. Google is a gorilla making oodles of money. Redhat, well, they make money, but billions? I think not. And this is the crux of the open source business model in that it is a revenue stream. Does this mean open source is not useful? Far from it. Open Source is extremely useful and people are proving it everyday. Though what people need to realize is that these days it is not about building a software business model, but about building an information business model. The Google's, Amazon's, EBay's, Flicker's, etc use open source, but their business is data, not software. People need to get that through their noggen...
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
Where is a mirror, please !?!
I believe the chair on Page 43 is not designed to be comfortable
... !
Unlucky you, I have no mod points
Perhaps the editors could have taken the slides from the source, rather than an opportunistic blogger who couldn't handle the bandwidth?
Tech Session
PDF slides
"Open Source?" - Press any key to continue
For instance claiming that there are a large number of producers and consumers in the commodity market.Eh what? How many commodity producers are there? Flower mills, power generators, oil producers etc etc. Not all that many and they are merging all the time.
He also claims that it is easy to go into that market, yeah right. Isn't it exactly other way around usually, hard to get into a commodity market?
I think we got the wonders of reverse logic in a powerpoint presentation at work here.
The trick is to put your conclusion on a slide and then keep inserting pages in front of it to make sure that you arrive there.
Yes his end conclusion makes some sense, that software is not a commodity and that opensource business model can work, BUT the logic he uses to get there is seriously flawed.
The simple fact is that economics are a lot more complex then he makes them out to be.
Take the product water, getting into the tap water market is next to impossible. Just try it, go ahead, dig up the whole town to install new pipes, find a clean source of water, put installations in place to get it to drinking level and setup up the whole supporting operation. No hope.
Getting into the bottled water market is a lot easier, just find a clean spring and get a cheapo bottle plant and voila, new brand product and watch the millions roll in.
So is water a commodity? No, not by this guys definition, tap water don't count because there is only one supplier and bottled water don't count because it is not massive enough. Brand loyalty is extremely low. How many people do you know that drink bottled water who won't drink tap water (in countries were tap water is drinkable) and remember, the water you make coffee with counts.
But his greatest mistake is this. Red Hat does NOT sell software. It sells support. Read this and understand this. Red Hat is NOT in the production industry it is in the services industry.
Go back a few pages and read his list of products in commodity markets, he mentions wheat, pork bellies, cars, chips nails etc etc.
ALL physical products.
He doesn't mention banking, insurance, support, even labor services. Red Hat doesn't have a physical product, it doesn't BUY a ton of plastic to produce 10.000 RHEL discs. It sells a service, the service of support a software package that you can just as easily get for free.
The service industry is a WHOLE different beast, for instance it is almost always far easier to get into. All you need is a phone line to start a support line after all. Even banking and insurance are easy, all you need is a bit of cash. Loan sharking is excellent proof of just how easy it is to get into banking (easy ain't the same as legal).
The service industry is also different from the production industry in another extremely simple way. Labor.
If Vista had been a physical product MS could have easily finished it on time by just hiring more people, if you want to build a road faster you just have more people working at it, more or less you can just keep upping the labor force to increase production.
Service industry on the other hand can't be automated. You got production plants that are run by one old man while next door the office has hundreds of people manning the phone lines. Luckily scaling this up is easy and relativly cheap. It don't cost that much to install another 100 phones lines for support.
Anyway, I think the article is just plain wrong in its basic logic. THe conclusion might be correct but that is because the author already arrived at that beforehand.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
FTA:
Open source community can get very good at defending against patent
litigation very quickly.
Prior art claims, third-party reviews, using Internet to help "patent
busters" coordinate efforts.
Real possibility that 100% of Microsoft patents will be attacked in
initial counterstrike.
I can't wait!
I also love the Hyundai & Lamborghini "interface standard" comparison. Tres drole that one.
Backward%20compatibility%20is%20over-rated
Anyone considering building some sort of database application has the option of spending a couple months (with change left over) from the money they would spend on an Oracle license, and invest it in learning PostgreSQL. At the current rate of developement, it will in all likelihood solve any future problem they could have. For free. No worries about licenses. Anyone in a startup where money is tight and time is cheap should be considering PostgreSQL. That's only partly true. PostgreSQL is a nice database for small businesses or even in larger companies or corporations for small to medium projects. You can save a bundle on Oracle licenses if you use Postgres wisely just like you can save a bundle on Red Hat Server licenses if you use Centos wisely. I'm not even going to get into the debate as to why I'd choose Postges over MySql since that discussion has a disappointing habit of degenerating into a flamewar. I have seen Postgres used numerous times in the Corp world and where it failed was usually in projects that went from small to very large and highly loaded with great speed. Basically it did not scale well. The problem was not so much the issue of missing features in Postgres since the feature set is growing at a steady pace, the problem was with stability. As the projects grew larger, the traffic went up and it became imperative that the database be available 24/7 with next to 0 down time Postgres didn't work out all that well because of stability issues. This will change as Postgres matures but at the moment developers should think hard about when they use Postgres instead of Oracle or some other high end database. In some situations it will work in others you will end up porting your Postgres system to a proprietary database after getting burned and changing databases in mid stream can be a bitch. You might want to do that because the proprietary product is more stable but even if it isn't the most important reasons would be that it comes with guaranteed vendor support and because there are plenty of Oracle Certified mercenaries you can bring in to help you an emergency. When you are loosing the equivalent of the price of a new server every few of hours or so because your database is down, the idea of throwing hardware, Oracle consultants and Oracle licenses at the problem, becomes less of an issue. In the end I think Postgres and other similar OSS database have the potential to do to the database market what Linux did to the *nix server market, it will eat up the low end niche of the market, especially when it grows the kind of support base Linux now has. At the moment the only support I can get for Postgres databases where I live and work is by advertising for people with experience and hope somebody bites, there are four companies here that hire out Oracle specialists as consultants and all offer 24/7 emergency services. The prices are obscene but it's comforting to know the option is available
As always this is my experience, your milage may vary.
Only to idiots, are orders laws.
-- Henning von Tresckow
It's funny to see that Eclipse logo everywhere on the slides (I've read TFSlides): I'm a happy customer (not employee) of JetBrains. I bought IntelliJ IDEA which kicks the crap out of Eclipse.
;)
;)
It's interesting to realize that while Eclipse is clearly not a bad IDE, there are still people paying $250 to $500 to buy commercial IDEs. And it's not because they don't know better, it is because they do know better.
So apparently there's still some room for commercial software vendors afterall
But it seems true that in the long term for quite a lot of software (including the operating systems), you can't beat commoditization. Which is why companies making nearly all their revenues on software that everybody is using (eg OS and an Office suite) are very afraid of the future.
On the other hand companies producing outstanding commercial software running on multi-million piece of hardware (think about the servers processing real money) still have some time before they get "sucked" by beige PCs running OSS.
And then some companies switch from "making money on software" to "making money on services" and injecting lots of dollar into OSS R&D (IBM anyone?) and it seems to work very well. Somehow I don't see MS pulling that "services" trick
If you want to see the contributions OSS has made to the world, look no further than computer games. I mean, we have highly successful OSS games like, um... er... hmm. Well, there are those OSS MMOGs, like... er... damn. Ok, that one great RPG... it was called... uuuuhhhhhh, aaaahhh... hmmm.
Nevermind. I'm going to go boot up my Lunix boxen and play one of those great Text Editor games!
The information age is doing for information services exactly what the industrial revolution did for production.
However in this analogy Microsoft is like the plantation masters who thought that the industrial revolution was all about leveraging inventions like the cotton gin to expand their plantations for unlimited growth and profit.
Back then they relied on a false property construct, slavery, to impose this vision while stupidly missing out on the entire industrial revolution.
Today Microsoft relies on a false property construct, copyrights (and DRM), to impose their vision while stupidly missing out on the entire information age.
Hey Microsoft !
Why don't you minimize the damage now by killing your license system, killing DRM, back off the patent BS, go open source, become truely sincere with Linux, and use the power of your brand name to cary on from there. The adjustment will probably hurt like hell, but it will be the only thing that saves your butt in the long run.
I love his chart showing the price increase of Actuate(ACTU) showing the wonderful world of Open Source. Claiming it's risen in value 200% in the last two years. Then claiming the rest of the industry has only averaged 50% gain.
He doesn't mention that ACTU is nowhere near it's 2000 bubble price.
he also doesn't tell us which players he's averaging together. The two largest players in BI are Hyperion and Microsoft. Hyperion's stock has gone up at a rate faster than Actuate, but more importantly they're back at their bubble high, around 52 bucks a share.
Compared to Actuate's $5.
This whole thing is like reading a press release from George Bush on how wonderful the Iraq war is going because the schools all have fresh coats of paint.
Google can provide a more valuable service than Red Hat because there is much more money in mass advertising than there is in providing software support and consulting, even for critical OS components. Businesses make money using FOSS by providing the software as an adjunct to services; if the services are good enough, then the business makes money. It's a competitive market but, on the other hand, the customer relationships established are often durable; while Oracle may eventually take over Red Hat's service market, it's going to take a long time.
"if you want to build a road faster you just have more people working at it, "
Not true. There are plenty of roads that no increase in manpower will make work. This can be due to engineer flaws, political pressure, or a variety of other causes. Let me point you to devils slide in San Mateo County.