The Collapse of Competition

The Collapse of Competition

Summary: The “natural

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TOPICS: Open Source
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At the same time that free and open source software is growing, the old proprietary model is collapsing. (That's a model for a collapsing universe. Learn more here.)

Alfresco CTO John Newton is frank about it. “John Powell, the former COO of Business Objects and I, were looking at opportunities in Europe and the only thing that seemed to work was open source. The traditional enterprise sales model doesn't work for anyone, except for huge companies like Oracle and IBM.”

The Oracle example is illustrative. The company has spent billions “rolling up” competition in its database area in order to keep its margins high. The company maintains a page listing its acquisitions  of the last few years. This strategy works only if new, scaled competitors aren't born faster than they can be acquired, and you will note that a number of open source operations are on this list.

But Oracle has had to slow its acquisitions in the open source space, and lower its target prices, because it can't control the source code. Fear that Oracle was about to buy out the open source database space  has abated.

Instead, the number of true open source competitors is growing. Ingres and PostgreSQL  both claim to be “enterprise class” database systems. The number of open source CRM (SugarCRM), ERP (Compiere) , ECM (Alfresco), even system monitoring (Zenoss) vendors (as well as projects) keeps growing.

Newton says such open source competitors can scale their development much faster than any closed-source competitor. “We're not trying to hide things until they're ready. We're constantly putting out new functionality, and people are doing stuff with it.” By combining a number of projects together, something open source companies themselves are increasingly doing, all the work that Oracle and its acquisitions have done over a decade can be replicated in a fraction of the time.

Enterprise open source is moving up the stack into applications and up the stack in terms of customer size. The “natural” profit gain you assume in a consolidating industry just isn't being earned. Competition is collapsing in the closed source world, but it is just beginning in the open source world.

This competition, when it happens, also takes a new form. As the Eclipse Foundation notes it's about building alliances. Instead of playing FUD games, open source competitors win through hiring project committers, by supporting other projects, or by winning endorsements from other projects.  

Tomorrow, in the last of this series, I'll look at what all this means for the law.


Topic: Open Source

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4 comments
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  • Are customers changing rapidly?

    When Oracle buys a company, it obtains a customer list and code.

    The customers are not lost automatically.
    The code has already been purchased by the customers. For customers to change software is always a problem.
    There's a good chance of retention.

    Open source identified the customers willing to pay for a solution in the open source framework. A large company, Oracle here, buys the customers and has the business.

    Nice spadework for Oracle. Probably cheaper to have the open source company do the work than for Oracle to purchase a great deal of research.

    And the remaining open source companies can keep looking for buyers among those companies not already aligned with Oracle. When the customer list gets long enough and profitable enough, Oracle can buy them, too.

    The price Oracle pays is going down, probably because the company already has the most valuable customers.
    Anton Philidor
    • It's not all black and white.

      I know of several New England concerns who simply can no longer afford Oracle's prices. They are under some pressure, as is everyone else. Meanwhile it is getting very tough to be a closed-source startup.

      Oracle can certainly afford the status quo for some time to come. And as Keynes said, "The problem with the long run is we're all dead." That this is a criticism of their original business model (which is no longer as relevent) doesn't mean that it's a prediction that Larry Ellison is doomed. They are under some pressure. Less than Sun, M$ or Apple, perhaps, but definitely some pressure. I don't necessarily even think they are losing market share (though I could be wrong). I do think they are very concerned about the loss of some customers.
      jplatt39
      • When an industry consolidates...

        ... companies can diversify their product lines in the absence of competition.

        In data bases, Oracle has now captured much of the market available to open source, and can purchase any remaining significant market share comparatively cheaply.

        Easiest to consider open source companies as prospectors working on commission.

        Companies which can't afford Oracle's prices are a piece of the market. Oracle also purchased code such customers have proven able to accept, so Oracle's line has been diversified well.

        Oracle is under more pressure than Microsoft, I'll argue, because Oracle has to compete with Micrsosoft and other large companies likely to survive.

        I think that Oracle shrewdly used purchases to gain time, but ultimately the company will lose the competition to the other big companies which are the remaining players in the market.

        But I confess that part of the reason I think so is because of the... impenetrability of Oracle's software.
        Anton Philidor
        • Oracle's inpenetrability

          I would agree that it takes a particular kind of warped perversity to take something as simple and elegant as the relational model and turn it in to something as clumsy and complicated as the Oracle DBMS.

          On the other hand the competition isn't really much better so they can get away with it and will continue to do so for many years to come.
          jorwell