Real World Explains Differences Between Microsoft and Open Source

There is an interesting contrast between the real world and the open source world evident in two blog-post/comment-threads popping up on my “open source” Google (GOOG) Alert as of November 22.

Over at Ostatic there is consternation and concern about the investment prospects of three “public open source companies,” Red Hat (RHAT), Sun (JAVA) and Novell (NVLL).

But there is no such thing as “an open-source company.”  I have reams of research that says that that term in meaningless from both an investment- and market-analysis perspective. That’s because, using RHAT as an example, Red Hat’s business model is no different than that associated with most IBM (IBM) and CA (CA) business, for example. And Red Hat’s model is only different than the Oracle (ORCL) model in that Oracle asks for half of its software-related revenue up front. 

But then for the article to lump Sun and Novell, two companies that came to the open source party after the candles were blown out, with Red Hat is an insult to Red Hat.

• The latter two companies’ problems in the stock market have nothing to do with their newly found fondness for open source as a marketing tactic. The world has simply passed them by.

• Red Hat's problem, on the other hand, is that it has not been able to grow out of its operating-system niche to a broader software portfolio fast enough. In better economic circumstances, it would have been given the time by investors to make the transition.  Red Hat’s situation would be the same no matter what license terms and conditions—open source or traditional executable—it used.

Meanwhile over in the real world on LinkedIn (no-charge membership required I think) there is a discussion that illustrates the other reason there is no such thing as an “open source company.” Real IT folks don’t acquire open source software because it is open source (i.e., because the source code is available and because it comes with some more or less unusual license terms and conditions).

At Linkedin, a member writes:

“I just started being exposed to the Open Source world of software. OpenOffice is a big (example of open source), as I understand it, and they are working hard to compete against Microsoft. Do you believe that the open source industry will force Microsoft and other (legacy software) companies to deliver better products? Do these companies pay attention to the "open source world"? Is open source a real threat to licensed software?"

Among the answers are some of the following quotes:

• “I feel Microsoft is doing its best to deliver great products now, to increase our productivity and allow us to get more done, while making money for shareholders and rewarding their employees.” - Louis D-Risk Reporting Developer at MetLife (a guy who has never been exposed to open source blogoblather no doubt)
• “Some companies even embraced open source getting involved in its development and offering services that include open source software (just think of IBM, Novell and others). BTW, open source software is licensed as well, it just uses different licenses.” - Massimo L, Owner, Thule Enterprise
• “Not likely, Microsoft's marketing strategy is too strong, and the majority of users aren't techs who know about Open Source sites [or even what OpenSource is for that matter]; they're normal folks who happen to need to use a computer at work or at home.. So, I would say that Microsoft is safe from OpenSource code for now. - Theresa L, Executive & 6Sigma Champion.
• “I run a very large installation of Open Source software from Linux, Java, Perl, Liferay, et al. However, I still use multiple Microsoft, Oracle, and IBM solutions in the same environment. 1) I do not believe it is a question of better products. It is just that some products perform certain things better than others. The big vendors would have you believe they can do everything; however, the reality is much different.  2) Of course (the legacy suppliers including Microsoft) pay attention to the Open Source world. Many help support it. I applaud the movement and encourage my teams to contribute when/where appropriate. 3) No it is not a real threat. Open Source has a different licensing model than the commercial software licenses. However, each product has different capabilities and specialties and often the uses may call for a commercially licensed solution over the Open Source.” --  Jeffrey H Senior Vice President at Nomura International LTD

With many more comments like that, the LinkedIn site is a reasoned discussion of the pros and cons that real-world IT people appreciate without the Microhate you find in the open source blogosphere and with a grounding in what is really happening in the market. The LinkedIn thread is a virtual-focus-group-like approximation of statistical research I have gathered over the years on the same subject.  It illustrates in real people’s own words (without the statistics themselves, which were gathered for particular clients’ use) that:

• Users want Microsoft and everyone else to co-exist
• Microsoft is not losing business to open source (it may be losing business opportunities but that is another discussion); instead open source is replacing Unix and other legacy software
• IBM and other legacy software suppliers are the leaders in open source (not guys in their attics existing on Jolt)
• Linux users are on the rise, and there are so many good applications now that “myself and many of my friends run exclusively on OpenSource as far as we can. I also use all the Google applications on a daily basis rather than paid for tools. About the operating systems though, Windows still has by far the upper hand.” (in fact, according to some market research, more open source software runs on Windows than on Linux)
• Users understand the difference between license terms and conditions and the need for full support (which leads to business/market dynamics investors should care about)
• The Open Source culture/development model has proved that it is best at one thing, creating excellent replicas of existing software (I don’t have statistical research on this one but it is conventional wisdom and it is hard to find projects that disprove it)
• Open Source has been around a long time, some of it predating the public Internet emergence (in fact predating the term “open source” by a couple of decades).