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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?
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.
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.
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.
I think he does a good job in pointing out the 'brand loyalty' issue with OSS - people prefer distros etc. for reasons that are, in part, not completely rational. But he also points out other issues relevant here, on slide 38, issues that are relevant to both proprietary software and OSS: that software has risks, and has a high degree of inability to estimate those risks. This leads to brand loyalty for fairly rational reasons.
For example, it makes sense to stick to Red Hat as opposed to switching to Oracle's new offering, given that software is tricky stuff. Oracle may apply Red Hat patches late, they may apply them wrongly, and they make enter new bugs of their own. The same is true for CentOS - no matter how similar it is supposed to be to Red Hat, it still depends on someone applying the Red Hat patches and so forth.
Not that I wouldn't use CentOS, I have in the past, and I might in the future. But for large corporations, it is perfectly rational to be loyal to a successful brand like Red Hat, even though they sell OSS. Thus, OSS is not a commodity market, even though it might seem like one at first glance. At least that is how I understand the slides.
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