The New Economics of Open Source in the Enterprise

Michael Vizard

Like most economic statistics, the rise of open source in the enterprise is a trailing indicator. Right now, we have some pretty compelling anecdotal information, even though hard data is still amorphous. Nevertheless, it seems like everywhere you turn IT executives are getting comfortable with open source software well beyond the operating system level. And the key factors driving that increased level of comfort are:

Cost: Free is hard to resist in a down economy. And when the difference between doing a project and not doing it at all is the cost of commercial software, open source becomes the only choice. This is one of the reasons that you see IT services companies of all stripes embracing open source, because if the choice comes down to their fees or the cost of the software license, the commercial software is going to get tossed overboard.

Quality: The simple fact of the matter is that the quality of open source software has improved dramatically. Not only do we see robust Linux distributions, but now there are quality open source implementations for everything from business intelligence applications such as Jaspersoft to data integration platforms such as Talend. Once upon a time, you could say that open source was only suitable for a minority of enterprise projects. Today, closer to 80 to 90 percent of enterprise projects can be handled adequately by open source projects.

Maintenance Fees: In the absence of new projects, commercial software vendors have been raising maintenance fees. This helps their balance sheets in the short term, but it also strengthens the customer's resolve to look for open source alternatives.

Comfort Level: Now that Linux is pretty much a standard part of the enterprise, the comfort level with open source within most IT organizations is pretty high. As Microsoft points out, there may be some integration costs, but the cost of IT labor in this economy is cheap compared to software licensing fees.

Midmarket: For all the reasons outlines above, the midmarket customer that previously might have not used a business intelligence application or middleware platform is discovering open source options. This is increasing the adoption rate of classes of commercial software that previously were only available to high-end customers. As great as Informatica's data integration platform may be, for example, the roughly 3,500 customers that use it, versus the number of customers that need the technology, is relatively slight. Open source alternatives are starting to expand the adoption rate of a number of enterprise software categories that were previously too expensive for midmarket customers to consider.

None of this is lost on the bureaucrats at the European Union that are asking Oracle some tough questions about MySQL. From their perspective as representatives of customers, rather than protectors of IT industry segments, they want to make sure industries in the EU have access to viable open source alternatives. They are not trying to protect a sector of the IT industry. They want to make sure that vertical industries within the EU have an alternative to what they view as exorbitant commercial enterprise software. Whether the Oracle database plays in a higher-end market segment compared to MySQL is not the real issue. They want a specific committment from Oracle about the long-term viability of MySQL that Oracle may not be willing to make for both financial and ideological reasons.

Commercial software vendors, of course, are hoping this is all just a fad that will go away once the economy improves. In reality, the open source economy is the new enterprise software economy.

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Dec 4, 2009 1:43 AM Michael Michael  says:

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Dec 10, 2009 6:53 AM JL Valente JL Valente  says:

We at RiverMuse wholeheartedly concur with Mike's points regarding the appeal and demystification of OSS that is happening in the market across many software segments. In fact we are reaching slowly but surely an inflection point where OSS becomes part of the initial investigation of many mid-sized companies. It is also true that Europe is ahead in that regard and we have witnessed that in our own event and fault management domain with our European operations.

We also recognize that software quality and support services have been spotty at best in many open source projects thereby limiting the rate of adoption. As more OSS companies address these issues head-on and achieve critical scale the growth will only accelerate.

But in the end the winning strike will primarily result from the right mix of technical innovation, community adoption, product quality and outstanding support. In other words the ultimate attributes have not changed that much. However the means to get there and the much larger audience exposed to those OSS products present new challenges for the software industry at large.


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