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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."
Can I really take the guy seriously when he's using a hotmail account?
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 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"
"- 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).
How are those two statements at odds with each other? Oracle doesn't want to be seen as a price competitor, they want to get customers who think their 10,000 row DB is "enterprise" and those who think "you get what you pay for".
They say that if you make a RFQ and get one offer for $100k, three for $10k and one for $1k, they're likely to drop the $100k (too expensive) and the $1k (must have missed something). MySQL and PostgreSQL score about 10x as high on the WTF scale to most PHBs. If anything is free* in their world, they expect a bait-and-switch like *upgrade now to $foo pro for the good features, that was just the hook.
Live today, because you never know what tomorrow brings
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