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Open-Source-Impacts-Traditional-Software-Suppliers
Michael Goulde
Monday, November 17, 2008
All around the world, a growing number of companies are finding more uses of open source software in their businesses. What began as edge of network and infrastructure applications has spread throughout the middleware stack and today includes business applications as well. Customers have many reasons for switching from proprietary products to open source products and not the least of those reasons is to save money.
This fact has not gone unnoticed among traditional suppliers of software, integration, consulting, and support services. The challenge for these traditional vendors has been to find ways to accommodate open source software into their existing business strategies.

Open source changes (almost) everything
First, to state the obvious, there are multiple dimensions to open source and strategically each dimension calls for a different response.

Open source is a development methodology: Community development is one of the biggest benefits of open source, bringing in contributions from many different directions. Traditional software products include software from different sources, but that code is licensed and not contributed. Becoming open to an outside community will require deep cultural change.

Open source is an approach of sales and distribution: Open source software is freely available, which usually translates to anyone being able to download the software and use it without notifying the project or supplier. This leads to very large download numbers, with little or no effort. Converting those downloads to paying customers will require new strategies and new skills.

Open source means transparency to the outside world: The process of developing open source software is one that is extremely open to inspection. Code repositories are open, bug tracking databases are available. Code is available for test and review throughout the life cycle. This is another radical cultural change that traditional software companies will have to make.

Open source is a pricing model: Traditional software companies either sell their software or license it as their means of obtaining revenue. Open source revenue streams are created elsewhere. While dual license strategies can approximate traditional software revenue models, everything else about pricing open source software is different.
Startup companies can address these aspects of open source software easily. They can build their business model from the beginning to leverage the best offering of open source. However for the vendors who are in business for years, with established product lines and an installed base of customers, overlaying a new or different open source strategy over existing business and products requires willingness. This will create deep and significant changes in everything from product development to licensing and making information available to the world at large.

Not every open source strategy embraces open source
Not every traditional software supplier is willing to delve into the task of adapting the company to open source. There are four general approaches a company can take to open source:
Compete directly: Not every software supplier will accept that they need to evolve into an open source company. They will compete directly and promote the value of proprietary software. They can view it as a competitive threat and adopt strategies to compete against the benefit customers perceive to be getting from open source. This has been Microsoft's approach for many years.

Limited participation: They can adopt a hybrid strategy that makes the supplier appear to be supporting open source, but in a way that does not bring enterprises all the benefits or freedom of open source software. At this stage, this appears to be Oracle's strategy.

Extend: They can embrace open source licensing and limited community participation, but reserve the most valued features for non-open source versions of their software and retain complete control over product development and the product road map, effectively excluding the community from participation. We have not seen too many examples of this approach among established companies yet. Offering free versions of software without open source licenses does not qualify.

Adopt: They can view it as an opportunity and adapt their development practices, licensing terms, and even their software architecture to take advantage of open source. IBM and Sun are prime examples of this approach.

Evolving and implementing open source strategies for a software supplier is made difficult by the existence of 3rd party code in many software products. Not having the copyright to the source code in a product makes it impossible to distribute that product under an open source license. It could take several years to either re-implement those parts of a product for which the supplier does not own the copyright or to migrate the product to being based on an open source foundation.

Can I buy an open source strategy?
One final approach that vendors are taking is to buy their way into a strategy by purchasing leading open source companies. IBM's acquisition of Gluecode Software and Oracle's acquisition of Sleepycat Technologies are two examples of this. How successful this approach will be remains to be seen. There are skeptics who are saying that traditional vendors will invest in open source companies in order to make them go away.

The very nature of open source software, from its community focus to the free availability of the source code, will lead to a never-ending stream of new companies emerging, based on open source technologies and principles. Traditional suppliers will have to come up with strategies, and not try to buy themselves out of the situation.

Michael Goulde is a senior analyst in Forrester Research Inc.
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