Lora Bentley spoke with Guy Smith, chief consultant for Silicon Strategies Marketing. Both in a VP role and through consulting, Smith has led efforts on marketing technology products and services as diverse as enterprise backup software, collaborative software development systems, donation management portals and language/localization services.
Bentley: You have written that open source software, as well as software-as-a-service (SaaS), will eventually render traditional proprietary enterprise software markets extinct. What is the top driver for that trend?
Smith: Actually, those two elements - along with some other factors - have already made the traditional software industry extinct. Even those companies selling software using traditional innovation, development and licensing schemes have changed or augmented their approaches to remain competitive. So the software business we all once knew is indeed dead. But it has been replaced by a different species.
The top driver is the Internet. Cheap network access and a settled set of technology standards led to open source becoming a viable development system, led to global outsourcing, and led to new sales and marketing methods. This, in turn, led to a changed scope in the economics of development and deployment, and new economics in sales and marketing. It has also opened up the SMB markets in ways that were formerly impractical.
The Internet also allowed the rise of affordable SaaS. In the bad old days, we had service bureaus, but they were limited in scope and affordable only by larger organizations. Ubiquitous Internet access allowed companies like SalesForce.com to thrive since the cost to support a one-person organization is now low enough that the service was affordable to anyone.
Bentley: In what timeframe do you see this happening?
Smith: A timeframe cannot be predicted because of a huge variable - patents. There have already been rumblings about software patent holders litigating against open source. So far, only SCO had the nerve to do so, and they made the fatal mistake of kicking IBM in the shins. SCO will likely vanish soon. But what about Microsoft? What about other vendors who have intellectual property (IP) and will lose revenue if and when open source alternatives arise?
This is an inevitability, though when and how much litigation will slow open source remains a question. Proposed changes to U.S. patent law, changing away from a "first invented" to a "first filed" basis, will only increase the odds of this happening. At this point, when open source dominance occurs is still an open question.
Bentley: How do you respond to those who say that open source is more of a small- to mid-market play and won't displace proprietary software completely?
Smith: Anyone who believes it is only a small- to mid-market play has not been paying attention. I've personally interviewed CIOs at global financial services, retailing and manufacturing companies, and open source is both actively in use and a central part of the long-term IT strategy.
That being said, open source won't take over the enterprise - completely. Large organizations have all the servers and software they can use. What they need are new efficiencies and differentiation in their offerings. Traditional software companies will become more specialized and innovate in areas that create these efficiencies and differentiation. The value added by traditional software firms is moving up the stack, almost entirely into the application and information management layers.
But open source will, over the long term, dominate the infrastructure. A few years back, one analyst concluded that the average Intel-based server could support 95 percent of all common server needs. With the advent of multi-core chips from AMD and Intel, that number will approach 100 percent. With that, Linux and other open source middleware will slowly [begin to] dominate. Vendor-specific UNIX implementations do not offer enough differentiation to justify the extra expense, and aside from Microsoft Windows Server, there is no other mass deployment operating system. The tactical advantage Windows offers is both small and temporary.