The real reasons vendors are moving to open source models

More vendors are adopting open source business models. Columnist Paul Gillin offers advice on how users can leverage this new vendor interest to their advantage.

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Everywhere you look today, vendors are embracing open source. IBM, Computer Associates International Inc., Hewlett-Packard Co., Sun Microsystems Inc. and many other industry heavyweights have contributed large bodies of code to the open source community. Oracle has purchased two open source software companies in recent months. Even Microsoft is cozying up with JBoss Inc. and SugarCRM Inc. to improve interoperability with Windows. In...

addition, dozens of small companies have moved their products into the open source domain over the last couple of years.

This is certainly a heartening trend, but the cynic in me says to be careful. This apparent altruism is also tinged with self-interest. It's hard to believe any successful software firm is going to willingly adopt an open source business model unless it has to.

But users should certainly grab this brass ring as it comes around. Open source software gives you unprecedented leverage to use in price negotiations with your vendors. You should also engage with vendors who have found open source religion because some of them are really committed to changing their business to accommodate the more user-focused realities of the open source market.

There's no doubt that a bit of a gold rush is going on in open source land right now. Venture capitalists poured more than $150 million into open source software firms last year, according to a PricewaterhouseCoopers LLP survey. A new business model is emerging in which software companies make money based on support and add-ins instead of licenses and lock-ins. And some businesses are making that model work.

But open source software companies operate very differently from proprietary ones. This is a low-margin, low-overhead proposition that depends on collaborating with and influencing customers. For software vendors that are accustomed to fat profit margins, big sales forces and lifetime maintenance streams, it is a very difficult switch to make. I doubt many are doing so willingly.

While I'm sure some vendors really have seen the light, there are other reasons they might go open source:

The product isn't competitive. Software is expensive to maintain and vendors lose money supporting software that customers aren't buying. It used to be that tech companies had to swallow the considerable cost of maintaining also-ran products. Now they open-source them instead. This isn't necessarily a bad thing. Open source can be a rebirth of a failing product. But remember that a lot of open source projects die the death of neglect in the community, which is worse than what a custodial vendor would inflict.

The vendor is failing. The process of morphing a closed software business to an open one isn't pretty. It means massive internal upheaval, layoffs, hiring of new customer support staff and a complete change in marketing and product development. Margins are slimmer and competitive barriers to entry are low. This is also an evolving business with a lot of unknowns. If a vendor suddenly declares that it's becoming an open source company, you have to wonder if it's getting on board or being made to walk the plank.

The vendor wants to make a competitor go away. When a dominant company like Oracle tries to buy an up-and-comer like MySQL, does that make you a tad suspicious? I suppose it's conceivable that big, successful software companies can get open source religion, but if you've got a lot of money, it's also tempting to buy a competitive product and marginalize it. Ask anyone whose supplier has been acquired by a larger competitor how much respect they get. If Oracle were to acquire MySQL, ask what incentive it would have to make that package any more scalable than it already is.

The vendor isn't Microsoft. Since open source looks to be Microsoft's main bugaboo these days, the anti-Microsoft crowd has lined up behind anything open. Some have even tossed their failing products into the stew. Since negative motivations are rarely good business, be careful when dealing with companies whose main objective is to screw a competitor.

On the bright side, the customer is benefiting from this trend. Open source companies are forcing down profit margins and innovating in markets that had seemed closed to new entrants just a couple of years ago. And if the market becomes more open and price competitive as a result, who cares how it gets there? Just be careful not to believe too much of what you read in the press releases.

Paul Gillin is an independent marketing consultant and founding editor in chief of TechTarget. His website is www.gillin.com.

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