It's late and the pumpkin pie is still baking (egg nog, by the way, is the secret to a killer pumpkin pie), so I'm reading Fast Company opine on Mark Cuban's foray into the movie industry (December 2005 - not yet online). Cuban's partner, Todd Wagner, says something that struck me as similar to what's happening in the software industry:
The duo [Cuban and Wagner] admit there was no initial plan to build a vertical media machine. The acquisitions [of movie theatres, production companies, etc.] were designed to tip the movie industry's daunting odds in their favor. "If you just invest in [producing] movies, that's like going to Vegas," Wagner says. "You might get lucky and win at blackjack. But if you go to Vegas often enough, the casino's going to beat you." With 2929 Entertainment, he says, "we wanted to start making ourselves look more like the house. We could make a movie, put it on our screens, play it on our TV stations."After an interesting lunch conversation with Charles Forelle of the Wall Street Journal today, I'm wondering if this doesn't describe the software world (including its nascent open source component) perfectly.
Larry Ellison certainly seems to think so:
"We are no different than any other industry," he said. "You have good years ... and suddenly demand falls off, and there are more companies, there are more sellers than there are buyers for technology."More vendors than buyers. Supply exceeding demand. Thus leading to heavy consolidation such that only a few vendors with mega-operations can more efficiently serve customers.
I'm not a big fan of big, but there's something to this. Name the top 10 largest software firms. Now name the next 10. The first time I did this I was shocked at how quickly the numbers fall. Microsoft, IBM, Oracle, SAP, and then you plummet to those few scraping $1 billion in revenues, and fall off the $1 billion cliff to find a maze of much smaller companies. For all the talk about amazing margins and big money in software, there really aren't that many companies striking it rich in software.
Including open source. This isn't a critique of open source, but rather a defense. I've wondered before about whether we over-hype open source by making believe that there will be thousands of winners. It seems that it's not a question of over-hyping open source, but rather of over-hyping software companies, generally. And not because there's something wrong with software (or open source), but rather because the world doesn't need 100 $1 billion software companies. There's not enough demand.
All that said, I'm witnessing firsthand surging demand for open source in the enterprise. It has been surprising in its scope, scale, and depth. Perhaps this means my employer, Alfresco, is one of the chosen few. Perhaps. But I think it's actually an indication that the buying community is tired of being treated as a captive consumer. "I'm Vendor X and I own this market - take my product or leave it."
Again, this is something I've witnessed firsthand at Alfresco: large, Fortune 500 companies approach us (and, I presume, our open source peers) as much for the open style of doing business that open source engenders as for our code. They want to take smaller bites of technology, at their own pace, rather than sucking down multi-million dollar feasts.
So, I still think there's opportunity in open source for consolidation. I don't view consolidation as a bad thing. As with Mark Cuban in his rage against the Hollywood machine, sometimes you have to play by the industry's rules - slightly tweaked in your favor - to win. The important thing is that open source companies not lose touch with the communities that keep them honest and make them different - consolidation of technology to the detriment of community is a losing strategy.
Posted by Matt Asay on November 23, 2005 11:07 PM
