I blog primarily to set the information technology (IT) investment-research record straight in response to out-of-bounds or misleading marketing claims from leading software suppliers. I consider it penance for the 20 years I spent making out-of-bounds or misleading marketing claims for two of the leading software suppliers back in the day.
Most such claims are in press releases or SEC filings but occassionally I run into press articles that "round up" a half dozen such marketing misdirections from various marketing departments in one place. The December 1 BusinessWeek article called "Cost-Conscious Companies Turn to Open-Source Software" is such an article. And it's the second such multi-marketing-oriented misdirection article I've seen this week. I think it's because editors are trying to link IT to the economic downturn.
To be clear, I am a big fan of the open source culture. But this BusinessWeek article and similar articles are so full of misleading points that they put open source in a no-win situation: Open source cannot deliver on the hype that suppliers and PR writers are weaving around it and as a result the culture will suffer in the long run. This hype also misleads investors although that trend has been seriously tamped down since the 2007 peak when Yahoo (YHOO) paid a zillion times revenue for Zimbra.
What's really surprising is that this article is a BusinessWeek deliverable. It sure doesn't meet the McGraw-Hill standard I had to follow at Datapro. The author is repeating urban legends, which is not unusual. But the author does not even pretend to substantiate them, by finding an obscure source to quote. Despite what the "Cost-Conscious..." article says or implies, the facts about open source software are as follows:
- Most popular enterprise-level open source software is written by programmers that work for the company that hopes to benefit commerically. As a result, they "...work for one company" (although I am not sure what that factoid was meant to prove anyways). Thousands of non-commerical, non-enterprise-level open source projects are written by academics and hobbyists and that's what's great about the culture. (Of course they also "work for one company" or organization.) Open source is a culture that is as old as the IT industry by the way and not a new trend in the last few years.
- Research does not indicate that the total cost of ownership (TCO) for open source software is any different than for non-open source software. Nor would I expect it to be because software licenses are such a small part of the TCO equation (refer again to the linked blog post about the misleading claims by Ingres' CEO on open source and the economy).
- Particularly, despite the bald statement in the article, there is no indication that users "pay less for a subscription to an open-source product than for its proprietary counterpart." In fact, one of the basic premises of the core open source community is that the software is "free as in speech," not "free as in beer."
- Of course it is hard to find open-source vs. non-open-source counterparts to compare. That is why open source exists. Typically open source software is developed where a given functionality has reached commodity status and there is no particular competitive advantage between one type or another. Therefore systems and software suppliers do not want to invest in separate development and instead they choose some open source functionality to embed in a proprietary product and/or to provide their customers directly as a convenience.
- Where there are price differences between two roughly comparable software products/services, one available with open source terms and conditions (Ts&Cs) and the other not, it relates to the fact that, as the BusinessWeek article says, users "will get a lot less hand-holding than they may be used to. " If you don't need the handholding and the specific open source functionality is what you need, open source is a good choice.
- Typically however IT users want the handholding, even for commodity software. This is the reason for Red Hat's (RHAT) success, and this is the reason that most enterprises using the Apache HTTP web server (probably the most popular piece of open source software), use a version embedded in a so-called non-open-source suppliers' products [e.g., built into IBM (IBM) Websphere].
- By the way, for investment purposes, the distinction between non-open-source supplier and open-source supplier is a canard. All leading software suppliers including Microsoft (MSFT) distribute software using open source Ts&Cs and almost always have.
- The BusnessWeek article says "Linux as an operating system for the desktop is much less established in enterprise use, with 39 percent of respondents in the Gartner survey currently using it and another 22 percent expecting to use it within the next year." While I am sure the Gartner numbers are accurate, the reality is that Microsoft Windows dominates the desktop followed by Apple's operating software. Linux's share of desktop usage is in low single digits. That's not a criticism of Linux; Linux is UNIX software and UNIX was never intended to be desktop software. In fact, UNIX predates the concept of desktop software.
- There is no research that open source software is more reliable than non open source software. Or more secure (not mentioned in the article but another popular canard). Open source from a business persepctive (as opposed to a cultural perspective) is basically a set of Ts&Cs and has nothing to do with things like reliability, security or any particular software functionality.
- There are dozens of open source licenses with varying types of restrictions and Ts&Cs. "License management" is specifically not an advantage, despite what the BusinessWeek article says, confusing acquisition activity with license management. In fact license managment is one of open source's drawbacks (see below for its advantages).
- Most software--no matter the type--is test driven first before it is purchased or a subscription is obtainted. There is nothing different about open source software when it comes to "try it, you'll like it" marketing.
- IBM is probably the largest provider of open source software services, not Red Hat. Oracle (ORCL) is coming on strong in stealth mode, actually distributing a Red Hat clone (making money, as Red Hat does, by servicing it) but also distributing Apache software and its own open source database product. Microsoft may also be one of the leading distributors based on an arrangement with Novell (NOVL). When the article says "About two years ago, Office Depot began installing the Linux operating system by Novell on its servers, moving away from proprietary software for a range of hardware including IBM mainframes and Sun (JAVA) servers," that could very well be because of an arrangement with Mictrosoft. Of course Sun also now distributes its software with open source Ts&Cs.
In the real world, as opposed to the PR world in which this article seems to spin, companies turn to an open source product primarily because it does (or they perceive it does) something better than the other software they looked at. Often companies take it without handholding as described above but most often they want support and service, making it no different from a market-research (and therefore IT investment research) perspecitve than software with other Ts&Cs.
Secondarily companies choose open source for the benefit of having perpetual access to the source code itself. That's a good reason but is a market dynamic much less often than functionality. Most companies would not want the hassle of having to maintain code if the creator of the code no longer existed. It is more important to use increasingly scarce resources, even IT resources, to do things that make the company's product or service different in its own market.
A very small number of companies do choose open source simply because of the way it is developed; that is, for the culture. Similarly some people will only drink French wine or wear Italian shoes.
-- Dennis Byron