Download - Going Open: The Perils And Promise Of Open Source BI

Attribution-NonCommercial-No Derivativehttp://creativecommons.org/licenses/by-nc-nd/3.0/us/

Going Open The Perils and Promise of Open Source Mark Madsen –June 26, 2008 www.ThirdNature.net

June 2008 Mark Madsen

The Short Version

•The enterprise software market is in the midst of a major structural shift.

•Open source is a change in the conduct of the market – it’s not about ideology.

• If we understand why this is happening, we can figure out how to respond.

•The firms that develop a strategy to deal with the new market realities will be the ones who make money.


Peril


Promise


The First Recorded Patent


The First Monopoly


Déjà vu All Over Again

“The greatly increased mass of participants has produced a change in the mode of participation. The fact that the new mode of participation first appeared in a disreputable form must not confuse the spectator. Yet some people have launched spirited attacks against precisely this superficial aspect.”

Walter Benjamin, 1935The Work of Art in the Age of Mechanical Reproduction


What is the State of the Enterprise Software Market Today?


Any Industry This Big is Maturing

Annual US software sales

-10

10

30

50

70

90

110

130

150

70 75 80 85 90 95 00Source: US Dept. of Commerce


Evolution of the Software Market

Source: John Prendergast (data: Bloomberg, Factset)


The BI / DW Software Market Today According to IDC, the analytics and data warehouse software market is growing at 10.3% CAGR

17,38619,342

21,40823,601

26,00128,682

31,595

2005 2006 2007 2008 2009 2010 2011Source: IDC


BI is Just Entering Mainstream Adoption

The BI market has lots of segments, most new, some mature, some being rejuvenated.

Platforms

DatabasesReporting & Analysis

Data Integration

Predictive analytics

Source of diagram: TCG Advisors


BI is Already Becoming a Commodity

According to this people just assume that the features are there; evaluation is about aspects other than features.

Source: IDC


What does it look like from the CIO perspective?

Indications of the commoditization of software


It Looks Expensive

IT costs as a percent of equipment investment

0

10

20

30

40

50

68 72 76 80 84 88 92 96 00 04Source: US Dept. of Commerce


The Devaluing of ITFor most businesses, nearly 80% of IT budget is dedicated to basic infrastructure

…and more than 60% of IT labor cost goes to keep things running, i.e. basic operations and support.

Commodity

Strategic


It Wasn’t Always This WayAs technologies mature and spread to competitors, they cease to be differentiators. Unfortunately, this is what packaged software vendors want to do.

CommodityCommodity

The old advantages becomes the new focus of cost reduction.That’s one of the things that makes open source compelling.

Strategic Strategic


Commoditization!

“There is no reason anyone would want a computer in their home.”

Ken Olson, CEO of DEC, 1977

“…by 2008 we will be producing one billion transistors for every man, woman and child on earth”Semiconductor Industry Association, 2007


What Commoditization Drives in IT

Time

Equipment

Expensive: outsource to reduce equipment cost

Labor

Affordable: insource for control, innovation

Dirt cheap: outsource to reduce labor cost

Cost


Perspective on Where IT Came From

The model evolved from build in the early days

BuildHigh differentiation

High cost


Enterprise Software Options Evolved

…to a choice of buy versus build

Buy

Build

Low differentiation

High differentiation

High cost

Low cost


…and Options Evolved Further

The Internet generated a new option

Buy Lease

Build

Low differentiation


High cost Low cost


Open Source Gives IT New Options

The Internet and Open Source enables a fourth and also reduces the cost of the buy option.

Buy Lease

Build Compose

Low differentiation


High cost Low cost


Reasons for Adopting Open Source?

Source: North Bridge Venture Partners


Benefits Seen After AdoptionAfter your organization adopted open source software, what was the primary benefit of its use?

Source: The 451 Group

31%

31%

15%

10%

7%

4%

3%

Flexibility

Lower cost

Reduced dependence on vendors

Performance

Reliability

Security

Other


The Real State of Enterprise Software


Enterprise Software Consolidation

Number of public US enterprise software companies

240

289268

248222 217

183157 149

2000 2001 2002 2003 2004 2005 2006 2007 2008

Sources: Thomson Financial


Something’s Going on Here

Tech Industry IPO Activity has not recovered

5275

126

86

195

243

155116

381

264

26 22 2252 54 40

68

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sources: Thomson Financial


Software Economics: Primed for OSS

•

70% - 80% of sales & marketing is for new sales

•

76% of new license revenue goes to sales & marketing

•

Maintenance makes up 45% of revenues and this number is increasing

•

75% of R&D for mature products is for updates, bug fixing, and non- revenue enhancements

•

Maintenance and support is becoming the biggest factor is software company profitablility.

Sources Goldman-Sachs, Tech Strategy Partners, Forrester

The enterprise software model is breaking down. Some facts:


IT Has Changed, Making OSS Use Easier


What Do They Know That We Don’t?

Venture capital and deals in open source


Acquirer Acquired Price

$1 billion

$500 million

$350 million

$350 million

$35-50 million

There Must be Value There Somewhere


Why invest in open source startups entering a maturing market?

Because the structure of the market has already changed


Theory of Disruptive Innovation

Product performance

Time

Customer demands

High-end customers

Low-end customers



Product performance

Time

Customer ability to adopt

Rate of existing technology improvement



Product performance

Time


Rate of new technology improvementNew entrant




Product performance

Time


Rate of new technology improvementNew entrant


OSS is disrupting through new production and distribution methods


What’s Really Going on Here?The Internet, providing connectivity to…Lots of demand (users), connecting to…Lots of supply: (developers), all of whom can find each other via…The Internet.

In other words, the conditions of the market now enable commons- based peer production methods.


The Internet is a Great Big Copy Machine

Cognos for $20!

Citrix Metaframe for $30!

Low volume high margin selling is going away.


Software is a Perfect Commodity

$0

Nobody ever thought infinite fixed supply would be a reality.


A Perfect Commodity Changes Things

Open source is a means of production and distribution of software, and is driving change in the market.

But the fact that the internet is a massive copying machine for the perfect commodity is the real change in conditions.

Maybe enterprise software isn’t such a great business to be in.


The Economics of Scarcity is About Rivalry for Resources

Rivalry: the more I use the less you have

Exclusion: intellectual property law is exclusion; you can’t use it unless you pay me


The Economics of Abundance Requires New Principles Anti-rivalry: there is no consumption, only use. Open source licensing is a way of addressing the change in this dynamic.

Inclusivity: the network effects of inclusion mean more use = more value; and as cost goes down, usage and value go up.

Data warehousing is actually all about the network effects of data.


Anti-rivalry + Inclusivity = Collaboration


Open Source is an Inevitable Consequence

If the means of production is widely distributed at commodity costAnd the internet connects all those means of productionAnd the supply of any software program is infiniteThen we need to rethink some things.“The era of high capital industrial production is giving way to a different model.” – Peter Drucker


What’s Happening With Open Source in the BI Market?


Open Source Disruption

Which sector of the industry is most vulnerable to disruption by open source in the next five years?

1. Web publishing and content management2. Social software3. Business Intelligence



Time

Adoption Rate

What About Adoption?

End of LifeNew innovation


Adopter Categories

Innovators Late Majority

Early Majority

Early Adopters

Laggards

People here tend to focus technology as a means to capitalize on future opportunities.

e.g. time is more important than money

People here tend to view technology as a means to resolve present problems.

e.g. money is more important than time


Time

CumulativeAdoption

Market Adoption


Product Maturity

Some Ideas Aren’t That Good

End of LifeTimeNew innovation

A lot of vendors hope this is open source


Curves Can Explain a Lot

Time

Product Maturity


Where is Open Source?

The open source segments are slightly trailing the commercial BI/DW segments in maturity.

Middleware

Platforms

Dev tools

Applications

Source of diagram: TCG Advisors


This Can’t be Good News for BI

“The tools market is dead. Open source killed it. The only commercial tools that can survive today are the ones that leapfrog open source tools.”

John De Goes, president of N-BRAIN, on announcing that they are giving away their source code editor.

The value they add in the commercial product is the collaborative edition, which they can still charge for.


Who’s Adopting Open Source for BI?

1. ISVs2. The over-served3. The under-served4. The under-budgeted5. Developers who never

had it before

More co-existence and use in edge cases than straight replacements, and often competing with lack of use


OSS as a Source of Innovation

•Not all open source markets are over-served.•OSS will head off some new markets before

they become larger tools markets, as it did with web servers.


Where do people expect innovation?

“Few customers expect to see innovation coming from large software vendors.” – McKinsey survey

22

59

19

0 20 40 60 80 100

Other

SmallVendors

LargeVendors


How can we bet with the market instead of against it?


How Do You Compete With Free?

“When copies are super abundant, they become worthless. When copies are super abundant, stuff which can’t be copied becomes scarce and valuable.”

Kevin Kelly

E.g. trust, security, authenticity, quality, reliability, availability, optimization, customization, configurability, support, training, documentation, usability

“When technology delivers basic needs, user experience dominates”

Don Norman

The #1 complaint about open source applications is fit & finish.


Look For the Resulting Impacts

"Every abundance creates a new scarcity“Chris Anderson

An abundance of choice can create a scarcity of advice• Ever tried to choose a Java web framework?

An abundance of content can create a scarcity of time• Really, a scarcity of attention. Who can sift through all those

open source projects? Which things are important?

An abundance of people competing for your attention can create a scarcity of trust

• If anyone can distribute the code, where do you get it?


Where do Larger Returns Come From?

1. Innovation: implies no incentive for commodity open source, only for novel open source projects

2. Network effects: better reach or more cost- effective scaling for the types of software that increase in value with the size of the network

3. Scale of the vendor: by doing more of more things, there are more relationships between offerings which provide more opportunities for value to develop

4. Lock: even free software can create lock-in through high switching costs or process integrationWhat do the economics of abundance mean for these?


Competing With FreeAn example from the financial industry:Deregulation led to a deflationary spiral in trading transaction revenues: ~50 cents to nearly free.It killed agent-based firms and it forced a lot of market consolidation.Survivors did different things:

• Compete on scale• Stop sharing research data and

use it to internal advantage• Front-end fees


An Open Source Analogue


Three Strategies for Working With OSS

•

BecomeGive up the proprietary model completelyEmbed with contamination

•

BefriendInclusions and natural extensionsShared resources

•

Build onLoose embedding (without contamination)Copyleft buyout


Become

Examples:• Partial: Autodesk, Sun• Complete: Jaspersoft, Ingres

Different companies did it for different reasons.Money follows the path of attention: reach.Risky move unless you understand the markets, e.g. building community, license incompatibilities with partners, as likely to be SaaS’d


As a New OSS Vendor What Can You Do?

Apply Christensen’s and Moore’s theories about commodification and technology adoption:

• Target the over-served customers by offering a “good enough” commodity at a lower price.

• Target the under-served customers by meeting their specific needs.

Interestingly, the BI market exists simultaneously in both over- and under-served states.

“If a company enters into an industry at the bottom of the market, they are 6 times more likely to succeed.”

Clayton Chistensen


BefriendExtending to a whole product or adding natural extensions:

• Appliance vendors partnering with open source for ETL

• Deep integration requirements

Taking advantage of shared resources (“Feed the cow and share the milk”)

• Eclipse as a shared developer platform for multiple products

• Autodesk helping found the Open Source Geospatial Foundation


Build on

Extension• E.g. Infobright, Greenplum• OSS BI partners

Loose embedding and aggregation

• Vertical and horizontal community stacks

• Virtual appliances

Extension often involves some form of copyleft buyout if the license is viral.


Innovation is Still Valuable

This means you can adopt one of two approaches to monetizing software depending on where you sit:

• Focus on the core IP and use OSS for the commodity elements or as the framework

• Focus on the center and give away the edgesExample: Actuate with BIRT

• Focus on the edges and give away the centerExample: most OSS vendors with a proprietary version, also vendors like Oracle and Microsoft with ETL

Razor and blades, or blades and razor?


The Big Vendors Are Already Committing


Who Gets the Lion’s Share of OSS Revenue?



Questions?“When a new technology rolls over you, you're either part of the steamroller or part of the road.” – Stewart Brand


Creative CommonsThanks to the people who made their images available via creative commons:canal - http://flickr.com/photos/mcsixth/150749007/

glassblower - http://flickr.com/photos/cazasco/261229878/

porthole - http://flickr.com/photos/lwr/24925322/

baby - http://flickr.com/photos/pichichi/55381094/

lock - http://flickr.com/photos/tremeglan/400428163/

Cliff divers - http://flickr.com/photos/raveller/

befriend.jpg - http://flickr.com/photos/ehrgeizier/114385285/

spanish_on_incan_ruinsjpg - http://flickr.com/photos/districtsoul/182813119/

butterfly_hatching.jpg - http://flickr.com/photos/pezlet/2390627403/

oxygen_bar1.jpg - http://flickr.com/photos/tomlawrence/1413798276

whirlpool vortex.jpg - http://www.flickr.com/photos/26864055@N00/86457712/

highway storm.jpg - http://flickr.com/photos/areyoumyrik/235230688

cat_dog_bw.jpg - http://flickr.com/photos/sweetz_eyez/2606385414/

child_alone.jpg - http://flickr.com/photos/beija-flor/129669668/

children playing.jpg - http://www.flickr.com/photos/beija-flor/52292046/

beer_free_beer3.jpg - http://flickr.com/photos/henrikmoltke/142750871/

firemen not noticing fire.jpg - http://flickr.com/photos/oldonliner/1485881035/

changing of the guard.jpg - http://flickr.com/photos/mambo1935/160739264/

beer_free_beer2.jpg - http://flickr.com/photos/fzero/173386050

surfer1_large.jpg - http://www.flickr.com/photos/millzero/2093324718

teapot.jpg - http://flickr.com/photos/joi/411403/

http://flickr.com/photos/mcsixth/150749007/

http://flickr.com/photos/cazasco/261229878/

http://flickr.com/photos/lwr/24925322/

http://flickr.com/photos/pichichi/55381094/

http://flickr.com/photos/tremeglan/400428163/

http://flickr.com/photos/raveller/

http://flickr.com/photos/ehrgeizier/114385285/

http://flickr.com/photos/districtsoul/182813119/

http://flickr.com/photos/pezlet/2390627403/

http://flickr.com/photos/tomlawrence/1413798276

http://www.flickr.com/photos/26864055@N00/86457712/

http://flickr.com/photos/areyoumyrik/235230688

http://flickr.com/photos/sweetz_eyez/2606385414/

http://flickr.com/photos/beija-flor/129669668/

http://www.flickr.com/photos/beija-flor/52292046/

http://flickr.com/photos/henrikmoltke/142750871/

http://flickr.com/photos/oldonliner/1485881035/

http://flickr.com/photos/mambo1935/160739264/

http://flickr.com/photos/fzero/173386050

http://www.flickr.com/photos/millzero/2093324718

http://flickr.com/photos/joi/411403/


Creative CommonsThis work is licensed under the Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/3.0/us/ or send a letter to Creative Commons, 543 Howard Street, 5th Floor, San Francisco, California, 94105, USA.

http://creativecommons.org/licenses/by-nc-nd/3.0/us/

Download - Going Open: The Perils And Promise Of Open Source BI

Top Related