Open source vs. traditional enterprise software, part II
Matt Assay responded to the Enterprise Irregulars postings, which I summarized here, on the question of whether open source will crush, extinquish, vanquish traditional, proprietary enterprise software. Matt is vice president of business development for Alfresco (open source content management) and founder and program director for the Open Source Business Conference. While the Irregulars don't see open source as poised to vanquish traditional software development and delivery models in the enterprise, they acknowledge that is a growing force in many sectors. Matt, however, is of the opinion that Red Hat will eventually win over Microsoft and JBoss will be the king of application servers:
...keep in mind that it will still be several years before JBoss will be crowned king, just as it took IBM and BEA years to create and own the market. Enterprise markets move slowly. Just look at JBoss' momentum, though, and you'll see the writing on the wall.
In response to the idea from Niels Robertson that open source companies look like professional services companies, with lower margins than traditional software, Matt countered that Alfresco has 80 percent plus margins and is doubling revenues quarter-over-quarter. He cited SugarCRM and another success story. Of course, many so-called open source companies also have proprietary software components as part of their solutions, especially for larger enterprises. They have a value proposition that includes an open source software foundation, services and possibly closed source components to provide an edge over competitors. MySQL, for example, has proprietary management components and SugarCRM holds back some of it code.
Matt goes on to paint his view of the demise of proprietary software:
I won't go on with Dan's blog, because the more interesting question (one not asked or answered there) is, "What will be the primary bases for competition once everything is more (or less) open source?" Today, I heartily enjoy competing against my slow-learning proprietary opponents. There isn't a thing (besides incumbency, and that does go a long way, though not forever) going in their favor. They have the wrong business model (for customers, who are wising up), the wrong licensing model, the wrong everything. All they have is incumbency, and I'll take pieces out of that quarter after quarter, year after year, until we move into their offices at a lower cost of sale, lower cost of development, and significantly better value for the customer.
It's not about price. It's about value, as Michael Tiemann said at OSCON. Jeff Nolan might be right about proprietary vendors with big warchests being able to win a price war. What they can't win is a value war, because they are structurally incapable of competing well on that ground. I'll take my proprietary competition every single day on value. Already am, in fact.
Matt is right about the value war, but not that open source ultimately slam dunks the proprietary vendors. The industry is in flux and the key to survival and providing value is adaptablility. It's taking the best practices and business models from each side and finding a middle ground that maximizes user and business value. For the proprietary vendors it's open sourcing what is no longer unique, and open source companies have already adopted hybrid models to varying degrees, without blowback from customers. Down the road, as various parts of the stack commoditize, open source will dominate, but purity--either 100 percent open source or 100 percent closed--is more of an inflexible idealogy than a practical strategy.