IT Investment Research

Five 2010 Enterprise Software Predictions That Can't Miss

Some time in the next 10 days I’m going to look back at my now year-old 2009 enterprise-software-market predictions and ‘fess up as to how well or poorly I did. But, first, I’ve decided to make that end-of-year review task a breeze at this time next year. Here's a list of predictions for 2010 that I am certain will be true a year from now when I look back.

Number 1, all those people that didn’t buy enterprise-software licenses in 2009 will not be placing subscription maintenance renewals in 2010. Because maintenance revenue makes up about 67% of the enterprise software market revenue stream, this factoid will have a devastating compound-interest-like effect on the software market all through the next decade

Two, Copenhagen has come and gone so that means all the 2009 marketing buzz about green this and green that in information technology (IT) has come and gone as well.  Early in 2009 I wrote a blog post about the silliness of SAP's sustainability message. The editors at IT Business Edge did not want to run it so I kept promising myself I would convert it into an IT investment research piece that pointed out the huge revenue stream SAP was racking up with its green products.  Throw that article away.

Three, 95% of software downloaded off the Internet under open source terms and conditions (Ts&Cs) in 2010 will never be converted into a paying service revenue generator. As much as 90% of that software will never be used in a production sense.  But that’s actually a great improvement.  Not too long ago, the numbers were more like 99%. Initially, most development software became a commodity and therefore a candidate for open source Ts&Cs. Then low-level deployment software such as web servers and enterprise service buses (message oriented middleware) followed suit.  Now the market is working down into the operating system with Linux soon (three-five years) overtaking Unix in service revenue and up into the application middleware category (e.g., heritage JBoss).

Fourth, and this is too much like a real prediction, open source Ts&Cs will never have much of a visible effect on higher order applications such as collaboration or ERP software.  That’s not because there won’t be millions of lines of open source licensed code used for those purposes but because it will be hidden behind the software as a service (SaaS) delivery method.  (The latter is really a next-decade prediction, not a next-year prediction.)

Fifth, as explained on IT Business Edge in July, all the leading enterprise software suppliers are deciding what they want to be when they grow up.  Their final bets will be placed in 2010 and it means users will have to make some decisions as well. 

The previous two sentences are the prediction; what follows is just a guess about where they will place their chips (in alphabetical order rather than in order of leadership in the software market):

• Google (GOOG)—IT enabled consumer services becoming progressively more important as search patents expire in 2011; heavy user of open source software for other functions
• IBM—IT enabled business management services, eventually using all open source software
• Microsoft (MSFT)—Content-driven business and consumer services, uniquely melding the two (and even using open source software if it does the job better than some of its own technologies)
• Oracle (ORCL)—Technology provider, like Cisco (CSCO) and Intel (INTL), even supplying technology to IBM, Microsoft and SAP
• SAP—IT-driven business process management (BPM) delivered SaaS for enterprises of all sizes; needs to acquire Intuit (INTU) or Sage (LSE: SAGE) or risks being acquired itself

Note that the five guys at the top of the heap in enterprise software at the end of the first decade of the 21st century soon won't even compete with each other. Assuming this transition is mostly complete by about 2015 which one is the best investment today? It depends on whether you like investing in commodities or services, and whether you think investing in consumer or business services is safer.

-- Dennis Byron

Oracle/EU Battle over Sun Ends with a Prayer

Aaron Ricadela of BusinessWeek is out December 14 with what looks like some good inside-baseball reporting on the final innings of the Oracle (ORCL) win against the European Union (EU) Competition Commission over the Sun (JAVA) acquisition. A non-binding PR release from Oracle pledging not to be Oracle for a few years when it comes to MySQL seems to be all it took. Interestingly Ricadela says the thing that pushed the apparent EU approval over the top was Oracle's quiet commitment…

“to let other technology vendors continue licensing MySQL for use in their products for another five years”

on the same terms that Sun had offered them.

So who are these poor little technology companies?  Are they a bunch of struggling open source based MySQL, JBoss and Zimbra wannabees? Ricadela says they include  Symantec (SYMC), F5 Networks (FFIV), Google (GOOG), Yahoo! (YHOO), Facebook [partially owned by Microsoft (MSFT)], and Twitter. SAP has an arrangement with MySQL as well. He says

“EU regulators were concerned that Oracle could squelch competition in the database market by owning (both) the top business database software and the most widely used database among Internet companies.”

Oracle argued unsuccessfully that these are two distinct markets.  The EU decided correctly that that claim was bogus.  No 2008 market analysis I've seen divided Sun's revenue for MySQL from Oracle's revenue for Version 11. 

So what Oracle did was give some competitors a few years to find other options if they do not like what are likely to be higher support fees and other more expensive terms and conditions in the long term.  Clearly the EU was simply looking for a way to save face given that no one in the world objected to the deal except a small Finnish company called Maria offering a MySQL knock-off (and hoping to get all that Google, Symantec, Facebook, etc. business). 

The version of MySQL used by these companies is not open source according to the BusinessWeek article. That explains why the two-month-long attempt by Maria to stoke the fires of open source blogoblatherers and the last minute direct call to the open source community to write to the EU fell on deaf ears in Brussels. Recent 451 Group research shows how the open source community that uses and works with MySQL soldiers on depite all the EU intrigue.

The press focus on Oracle's more visible “pledge to spend at least $72 million in the next three years to develop MySQL and on the company's commitment to continue releasing open-source versions of the software with the latest technical enhancements” illustrates how really un-open-source the MySQL product is culturally. 

As with most commercially popular open source software, we are not talking about nerds in the attic working through the night cranking out code. To put it another way, most popular open source software is built in the cathedral, not out in the bazaar. And more and more of it is built right in the sanctuary.

-- Dennis Byron

Microsoft: Do the Right Thing on Oracle/Sun, IBM Has

The Financial Times reports on the morning of December 9 that IBM Software Group uberlord Steve Mills has come down on the side of Oracle (ORCL) in its fight to get European Union (EU) approval of the Sun (JAVA) acquisition.

Mills confirms what Oracle has been saying: he never sees MySQL in IBM database sales situations. My guess: those 60,000 daily downloads of MySQL are about as significant as the billions of AOL diskettes that were mailed out in the 1990s just to fill up U.S. landfills.

Good for Steve Mills!  Now it's time for the other Steve to step up and say to the EU:

"Don't do to Oracle what you did to Microsoft (MSFT)!"

In fact, Steve Ballmer could add,

"Larry Ellison is not the pussycat that I was.  He'll take out 20,000 jobs, a few factories and warehouses, and anything else he can find related to Oracle and Sun in the EU if you don't approve the deal."

In fact, Ellison may just gut Snoracle in the EU anyways just for the aggravation the bozos have caused him.  It's probably cut into the Hawaii regatta season.

The Financial Times, to be fair and balanced journalistically, went out and interviewed the only guy in the world who seems to be against Oracle's acquisition, the guy with the agenda behind the whole mess the EU Competition Commission has found itself snookered into. Self-proclaimed open source advocate Florian Mueller says in an email to journalists:

"The problem with hoping for future contributions from large companies is just that MySQL has historically not had Linux-like support from companies like IBM, which has its own database business anyway."

But Mueller also has his own database business, which is the hidden agenda here.  It is based on a product called MariaDB, a fork of MySQL. This waste of Oracle and Sun (and Microsoft and SAP) shareholder value is all about tilting the market dynamics in favor of Mueller's company.

Come on, Ballmer.  Do the right thing for a change! Go to Brussels December 11 and tell Neelie what you really think of her.

-- Dennis Byron

451 Group Research: Oracle/Sun MySQL Is/Will Be Open Source

Recent 451 Group research helps make the argument that the European Union (EU) objection to the Oracle (ORCL) acquisition of Sun (JAVA) is a sham.

The EU is supposedly worried that the dreadful "proprietary" software supplier Oracle will squelch continued use and development of the sort-of-open-source licensed  MySQL and thereby restrain database software market competition.  Oracle says in rebuttal (among multiple rebuttal points to the incoherent EU position) that the EU Competition Commission simply does not understand open source culture dynamics. 

Oracle is right (in this case) and the 451 Group numbers, listed in a blog post by Matthew Aslett, indicate how it will work:

• Less current MySQL users will use MySQL because it is "owned" by Oracle
• These deserters are the "French wine/Italian shoes" open-source crowd of which I write occassionally; they represent the small slivver of the market that rates license terms and conditions more important than function 
• They will move to MariaDB, the MySQL fork project that the EU is trying to unfairly protect, and PostgreSQL, not to Oracle

That's how the open source culture is supposed to work.

There are some methodological issues with the 451 Group Research in that respndents appear to be 451 Group customers only, so I would question that the absolute numbers reflect the information technology market to any meaningful degree.  But directionally the numbers reflect exactly how market dynamics should theoretically move.  And its not the way the EU reportedly says in its Statement of Objections.

The entire 451 Group research report is available only to its subscribers.

-- Dennis Byron 

IDC Says Windows Servers Surpass Unix/Linux Boxes in Quarter 3

If you’re a Microsoft (MSFT) investor looking for good news wherever you can find it, it looks to me like Windows-based-server shipments from the factory--as measured by worldwide revenue--surpassed Unix/Linux-box shipments for the first time ever in the third quarter of 2009. 

 
I’ve only been looking at these quarterly IDC's findings since 2006 but I doubt if Windows surpassed Unix/Linux in years before I started watching this trendline for no other reason than Linux is continuing to gain at Unix’s expense. 

Linux boxes accounted for 14.4% of the total, also a high for that category. Unix-based boxes only accounted for 27% of the revenue, only the second time that number has dipped below 30% in the years I have been watching.

I continue to look at it as “Windows is progressively gaining against ‘other’." As I said the last time I posted on the subject, my opinion is that despite the press hype and conventional wisdom, Linux and Windows probably do not meet much in the marketplace. Especially because the marketplace is driven by the OEM.

I say "if you’re looking for good news" above because overall of course there was none.  The illustration shows percentages but these are percentages of an increasingly smaller pie. On a trailing 12-month basis, server shipments are down 21% with Unix, Linux and Windows-based server shipments down about 20% and ‘other’ (mostly mainframes) down 25%.  IDC seems to think the bottom has been hit though.

-- Dennis Byron