Open Source Strategies

A blog about open source software and business models, enterprise software, and the opentaps Open Source ERP + CRM Suite.

Monday, November 14, 2005

Free Software Equals Free Enterprise

Despite years of support for open source, including the contribution of SapDB to MySQL, SAP may now be remembered more for Shai Agassi's comment on "IP Socialism" than anything else. Why does open source get compared to "socialism" or "communism" so much, and does it deserve it?

What's So Bad about Socialism?

Even the most die-hard conservatives don't mind a freebie from their governments. What people object to about "socialism" seems to be some combination of the following:
  1. Forced seizure of private property through nationalization, expropriation, currency controls, or land reform.
  2. Centralized control of productive assets and stifling of free competition.
  3. Lack of checks and balances on the apparatchiks who control the economy.
  4. High taxes levied on the rest of society.
Is Open Source Socialism?

Viewed in this light, open source does not share any of what most people would object to as socialism. Consider, for example, that:
  1. Open source does not forcibly seize intellectual property. People and organizations, including SAP, license their intellectual property freely under open source licenses.
  2. When there is no centralized control, there is usually a flowering of competition. This is exactly what has happened with open source. Think about how many Linux distributions there are. Better yet, think about how many open source desktops there are for Linux. Most people don't even realize that you can choose a desktop, but with Linux, there is GNOME, KDE, Black Ice, TWM, and countless others options.
  3. The direct result of any free market in any economic is checks and balances. This is also true in open source: when a vendor charges too much, another one jumps. When a project is losing momentum, a fork appears to speed things up.
  4. Finally, all of this happens without a direct tax on the user.
In fact, commercial software vendors should be careful not to take on the traits of centrally planned economies themselves. With their exclusive rights, it is far too easy for them to adopt top-down planning for future products or to use their IP ownership to exclude competition.

Far from a force for "socialism," open source could be the best defense for free enterprise in the software industry.

Bookmark and Share

Thursday, November 10, 2005

The Week of the Open Source Database

This past week (November 7 - 11) should be officially named "the Week of the Open Source Database." In addition to the open source database conference in Frankfurt, Germany, there were these other interesting developments:

Oracle Opens Up

Oracle released a free version of their database, "Oracle Express Edition," this week. The initial license for the beta version seems to be a classic shareware license - you can test it but not use it in production, but they've promised that they'll release it under a new license that's free to develop, deploy, and distribute.

What's truly amazing about this is that according to Oracle investor relations, open source is a tiny part of the database market. Oracle has a whopping 41% market share, followed by IBM at 31% and Microsoft at 13%. All open source databases, including MySQL and PostgreSQL, are in the "Other" category which, together with minor commercial databases, command 9% of the market.

This has to be a classic case of the tail wagging the dog.

Computer Associates Punts

In other news, Computer Associates divested its Ingres database to a venture capital firm. Since open source is still such a small part of the database market (according to Oracle above), there could yet be a good place for it alongside MySQL, PostgreSQL, Firebird, and Derby. More importantly, it may also free Computer Associates up to partner with other open source databases or vendors.

But the lesson is also that it can be very hard for a commercial software vendor to reinvigorate a declining product using open source. Computer Associates reportedly spent $1 million promoting Ingres last year, apparently trying to jump start a developer community for Ingres by offering cash prizes. Maybe the new owners should consider investing in better code quality, documentation, and grass roots seminars for potential users or developers?

How Much Potential is there for Open Source Databases?

We recently did a database study of our own at Sequoia Open Source ERP: We asked people which database they would use, since Sequoia Open Source ERP is compatible with most major databases.

Over 1,760 potential users responded, and the result surprised even us. An overwhelming 90% of open source ERP users wanted an open source database. In contrast, only 7% wanted a commercial one.

This seems to point to two trends:
  1. As people get used to open source, they'll want to use open source everywhere.
  2. As open source business applications such as ERP and CRM mature, they'll drive even more users to open source databases.
If there is really this much potential ahead for open source databases, then it makes sense why Oracle would offer a free edition and why an investor would snap up Ingres.

Bookmark and Share

Monday, November 07, 2005

Who Owns Open Source?

Last week somebody actually asked me: "Does Red Hat own Linux?"

While trying to explain open source software licensing, I started to think about something even more important:

What does it mean to "own" something, anyway?

Does owning simply mean having legal title to something?

Or does it mean effective control of it?

Or, does it actually mean being able to derive economic benefit from it?

In most industries, especially capital intensive ones with high sunk costs (such as real estate, hotels, finance, and entertainment), there is a common practice of separating legal ownership from control and economic value. Investment partnerships or funds are formed to acquire assets, but control is vested in a small number of general or managing partners, and the economic benefits are divided up--usually to the advantage of those managing partners.

In fact, hedge fund managers, venture capitalists, LBO operators, movie producers, and real estate developers all share the same success secret: they are able to gain effective control and derive economic benefit from large amounts of assets without ever having to acquire legal ownership with their own money.

Viewed in this light, software is actually an anomaly: although it is a capital intensive industry with high sunk costs of development, legal ownership is not separated from control and economic benefits. In fact, in the software industry, we often have the exact opposite: legal ownership without control or economic benefit. Think about all the companies which invest huge amounts of resources in software development, copyright, and patent protection to obtain legal title to "intellectual property." Unless these companies can somehow become industry leaders, they are forever condemned to playing "catch up" to the standards someone else is setting, with very limited profit potential. A rather obvious example is all the non-Microsoft commercial office productivity suites out there.

Enter open source, which finally creates new opportunites for the software industry. Although someone may not "own" the intellectual property of open source software, he can nevertheless control its development through code contributions. He can also derive significant economic benefit from it by making it useable and beneficial to end users.

So who owns Linux? When viewed from this perspective, the answer is actually pretty complicated:
  • All the contributors to Linux hold the legal title to their piece of the contribution.
  • Linus and the active developers of Linux control the future of Linux.
  • Red Hat, Novell, IBM, and the other packagers, distributors, and service providers of Linux derive significant economic benefits from it by making it useful for the end user.

Bookmark and Share