- Front End Integration-Lightweight Architecture Part 3
- Marketing to Dilbert: Mini-analysis of Sun
- Exporting affluence
- CIO Magazine's Guide to Open-Source Business Models
- JBoss: Everyone sucks but us
- Community is hard to find
- Governments and "Software Libre": Matt was wrong
- Protecting the enterprise against open source M&A
- Mashing up open source
- Choosing an ideal systems integration partner for an open source company
February 27, 2006 | Comments: (0)
Front End Integration-Lightweight Architecture Part 3
ActiveGrid CEO Peter Yared is back with the third installment of his series on lightweight architecture. Previously Yared wrote about Enterprise SOA Apps and Google, Amazon and Yahoo utilizing lightweight architectures
Integrate on the Front End with Lightweight Architecture
"Integration" is the third rail of enterprise IT. The mere mention of the word raises terrifying thoughts of huge budgets, endless meetings, and extremely complicated software.
But the days where each enterprise application is an island are coming to an end -- even things as simple as an employee directory now need to integrate the HR systems of multiple divisions, accommodate cross-reporting and virtual teams, and integrate outsourced third parties. Like it or not, essentially every enterprise application today requires integration.
Naturally, enterprises have taken notice of the rise of "mash-up" applications on the Internet that integrate data from a variety of sources in new and useful ways. The trend was kicked off with sites like Housingmaps.com, which displays Craigslist housing listings on Google Maps, and has now reached quite a pinnacle with a conference called Mash-up Camp where numerous people demonstrated useful mash-up applications.
Front-end integration has become the enterprise equivalent to the mash-up movement. It works by integrating Web services and databases at the web tier, using lightweight technologies like LAMP. With lightweight architecture, it is very simple to integrate data from a variety of internal and external sources and present the data with a rich AJAX user interface. One example of front-end integration would be a call center application that integrates data from CRM and ERP systems as well as FedEx, so that customers are not waiting as call center reps are endlessly typing lookups into three different systems.
Remember, however, that back-end integration is still necessary to create non-user facing services that require multi-phase commits or long-lived processes. Multi-phase commits involve coordinating across multiple data stores to ensure that data is updated on all of them or none of them, most commonly for financial types of transactions where money is being moved. Long-lived processes involve coordinating multiple steps across many systems, such as handling exceptions in supply chain management where a shipment needs to be diverted automatically to a new plant. These types of projects are very expensive and cumbersome, and the most popular technology for back-end integration is of course J2EE servers and their Integration Server offshoots from vendors like IBM and BEA.
But as evidenced by the growing use of mash-ups on the Internet, very useful integration projects can be delivered quickly and economically on the front-end, using lightweight architecture.
Peter Yared can be reached via email pyared@activegrid.com
Posted by Dave Rosenberg on February 27, 2006 07:29 AM
February 26, 2006 | Comments: (0)
Marketing to Dilbert: Mini-analysis of Sun
When I set out to develop the content for the OSBC panel "Marketing to Dilbert: Marketing Methodologies for the Open Source Crowd" I was fairly certain that something would get lost in translation. The topic itself is just so broad that I tried to refine it to what I considered the most important aspects. Therefore I focused on market research, communicating with developers and learning from other marketers. The thing I think most people continue to forget is that marketing is much more than brochures and websites. It's also pricing, brand positioning, communications and more.
In the presentation, the slide that I thought could easily make me less friends was the one about what companies are doing a good job and what companies are close but not really succeeding. Oddly there wasn't much disagreement from the audience though at least one person misconstrued something I said.
Who's doing a good job
RedHat
MySQL
SugarCRM
Decent branding, but not great marketers
Sun
JBoss
Novell
I think the companies who are doing a good job are fairly self-explanatory. RedHat has a virtual monopoly on Linux deployments, MySQL has a model community relationship, and SugarCRM has been unbelievably smart about their business model and how they interact with both customers and developers. You can also look at the pricing and branding strategies to see that they have all done well for themselves.
Let me clarify what I mean in the "decent branding but not great marketers" category. None of these companies are necessarily bad-in fact I like all of them, but they are all off in one area or another. With Sun, the struggle is transitioning from a generic strategy of differentiation (high-end specialized products) to one of cost-leadership (new machines that compete with commodity Intel boxes running Linux.) It's not easy to swing a ship that big, but there continue to be signs that things are going in the right direction. But they aren't there yet, hence my dubious trust of their marketing.
Let's take the oft-cited 4 Ps of marketing (Product, Price, Place (distribution channels), Promotion) and apply them to Sun to see what happens. For the sake of this exercise we'll simplify using a high, medium or low rating. I will also throw in the notion of Community as the wildcard.
Sun Microsystems (SUNW)
Product: High
Sun makes quality products.
Price: Medium
Sun offers good low-end products at decent prices. However, Sun has traditionally based their strategy on differentiation, not being a low-cost provider. While its clear that they need to get into different markets (SMB, high-density data center etc.) this low-end pricing causes confusion as the perception is that Sun makes high-end systems with a high-end price tag.
Place: High
Sun's product distribution is excellent. Realistically, every open source company should get a high mark here since distribution is basically free on the internet.
Promotion: Low
This is where I feel that there is a great deal of confusion and mixed messages. Just a year ago Sun was basically against Linux-I would even say that the perception was that Sun was an enemy of Linux. Now they cite statistics of new servers running Linux.
Add to this the acquisition of StorageTek, which does not lean toward the open source future that Sun keeps talking about (though buying revenue and cash was not necessarily a bad thing.) Then take into account the purchase of SeeBeyond, which makes more sense but still doesn't tell a clear story.
Community: High
Sun is really exemplary in community building and maintenance especially in relation to Java. What I said was that I found it hard to trust Sun because there is no clearly visible strategy. I find it disappointing that Sun didn't embrace Linux, but I get why they stuck with Solaris. That said, they have pioneered the majority of the community models we see today.
You should be doing this stuff if you are in marketing
This is an extremely basic example of a marketing analysis. The point is that if you are running a company of any kind you should be looking at your competitors and figuring out their weak spots. With Sun, the weak spot is the flip-flop on Linux and the fact that it's an enormous organization that is responsible to shareholders. The fact that they have been good to the community that uses their products is admirable.
Previously:
Does free software necessarily lead to support revenues? (Jonathan Schwartz)
Sun's Grid Flop
E-trade on Open Source
Posted by Dave Rosenberg on February 26, 2006 02:01 PM
February 26, 2006 | Comments: (0)
I'm back home now in Utah, but Venezuela is still with me. I had an excellent week of meetings with Alfresco's business partner there, Tecnocomputacion 3000, as well as prospective customers. It was an experience I won't soon forget.
The beautiful mountains. The dirty streets and stray dogs. The exhaust from ramshackle cars. The impeccable dress code for businessmen and women. Fascinating.
What struck me most, however, were the people. Everyone I met seemed to be earnestly, strenuously working for a better life. My business partners started work at 8:00 (if not earlier) and ended at 9:00 PM, or later. While there I received emails from prospective partners and customers in Chile, Peru, and Brazil, all sent "after hours." Clearly, this is a people who are willing to work.
One problem, however, is for whom they actually work. The United States, to a large, unhealthy degree. The software and hardware they were using comes from American companies, for the most part. Most of the products in the stores I visited were from American and European companies. In essence, they're trading Bolivares for dollars, and losing in every transaction. They are net buyers, not producers.
And they're not able to buy much. As I drove to the airport, I asked my driver how much a typical apartment (2BR, 1BA) costs. Answer? Roughly $218/month. I then asked how much the commuters we passed were paying per month for transportation to work ($145), and what they - largely manual laborers - made in a month ($227 is the minimum wage). I paid more for my taxi fare than they make in a month. It made me ashamed.
I don't believe it needs to be this way. I believe there are markets waiting to be born in South America. And I believe (finally - I've been a complete imbecile on this topic in the past) that open source is one way to grow them. Sure, open source is a more efficient way to develop and distribute software but, until this trip, I didn't really see the incredible opportunity it offers to developing nations. Open source is, essentially, a way to transfer wealth to these nations without them shipping dollars back to the US and Europe in return, and without these developed nations losing anything in the bargain. In fact, quite the opposite. It's a way to help others grow local economies, which growth we can share in, as my company does today.
While I feel a moral and ethical responsibility to help grow these markets, and you may, too, this is not about charity. It's about helping to create markets that we can sell into and, perhaps, disproportionately benefit from. Grow the pool of Bolivares for my Venezuelan colleagues, grow the local manufacturers earning them, and hopefully they will then share a small portion with me. Everyone wins.
[Note: BusinessWeek just ran an excellent article on admissions at Amherst, a premier US liberal arts college. The new president is trying to bring in more disadvantaged students, who generally are disadvantaged both economically and academically, without upsetting the school's academic standards/reputation. His job is much harder than the software world's, relative to providing increased prosperity and chances for others. In his world, he's dealing with a relatively finite number of incoming students - it's somewhat zero sum (let a poor academic performer in, leave a top performer out). In open source, there is no such quandary. It's just bits and bytes, so give liberally. There really is no tragedy of the commons.]
Posted by Matt Asay on February 26, 2006 01:48 PM
February 26, 2006 | Comments: (0)
CIO Magazine's Guide to Open-Source Business Models
CIO Magazine's Christopher Koch has a great matrix of Open Source business models in this month's issue as part of the cover story Free Code for Sale: The New Business of Open Source. The text is pasted below for posterity's sake. All credit to Chris and CIO Mag.
Open Source + Service
What it means: Companies sell support and services around open-source software.
Who’s doing it: Compiere (ERP), JBoss (middleware), Red Hat (Linux)
Advantages for CIOs: You pay only for support, not software. The cost to switch providers is relatively low because the source code is available to anyone.
Startup challenges: Difficult to build businesses because switching costs are low, as are barriers to entry. CIOs will always favor large, established vendors over startups unless the startups also control code development. Hard to get venture funding because venture capitalists are looking for sustainable competitive advantage in their investments. Unless the software is complex or mission-critical, CIOs may choose to support it themselves.
Mixed
What it means: An open-source code base with proprietary add-ons.
Who’s doing it: Sourcefire (security), SugarCRM
Advantages for CIOs: CIOs may not need the proprietary stuff, but if they do they’ll already have acquired deep experience with the open-source product before buying the add-ons.
Startup challenges: There’s ample motivation to make the open-source product inferior to the proprietary package, transforming the open source into trial software. If that happens, there may be a backlash among open-source developers and users wanting to see all the code.
Open Source + Buy Off
What it means: Companies offer a proprietary license for their open-source software so that users can modify the software and redistribute it without having to make the code changes available to the public.
Who’s doing it: MySQL (database), Sleepycat (database)
Advantages for CIOs: The open-source software has all the features of the proprietary version.
Startup challenges: Sales of the proprietary version are limited mostly to those companies that want to redistribute it as part of their own hardware or software packages.
Open Source + Aggregation
What it means: Companies assemble various open-source software packages into integrated units that are easier for CIOs to consume.
Who’s doing it: Exadel, Navica, SourceLabs, SpikeSource
Advantages for CIOs: Simplifies open-source integration and support.
Startup challenges: Barriers to entry are low, brand differentiation is difficult, lack of ownership of open-source projects limits the influence of the company in the development of the code.
Open Source + Hardware
What it means: Hardware makers use open source as the foundation for the software that runs their machines.
Who’s doing it: Cisco, Digium, Netezza
Advantages for CIOs: Lower prices on hardware.
Startup challenges: It’s difficult to differentiate on hardware alone, especially when CIOs are looking to standardize their infrastructures.
Posted by Dave Rosenberg on February 26, 2006 01:09 PM
February 24, 2006 | Comments: (0)
I tend to be a little hard on JBoss, I think mainly because for all the altruistic open source posturing they seem to only operate within their own sphere. Maybe I am wrong. The recent blog post "Strip Mining and Waste Dumping in Open Source" from a few days ago is actually really interesting and informed, I just have a hard time with the notion that JBoss is so benevolent.
Marketing spin aside, the strategy is "OSS Strip Mining" which is taking open source software built by a community and "Bluewashing" or "Blending" within proprietary, closed source offerings; forking/changing the open source code as needed in the process. The community does not benefit from this, but IBM and BEA shareholders absolutely benefit.
Link: Enter the JBoss Matrix
Previously:
More on Oracle's (possible) JBoss acquisition
So, what if Oracle does buy JBoss?
Open source M&A: What value community? Downloads? Source?
Memo to Microsoft : Buy Novell or JBoss, or both
Posted by Dave Rosenberg on February 24, 2006 12:38 PM
February 24, 2006 | Comments: (0)
I am in Vegas (internet access for only $25/day!) for MAGIC, the apparel trade show that has become the bane of my existence. My wife is here to unveil her new Moongirl clothing line that is doing fairly well, but sadly not making us rich. My years working for Comdex and LinuxWorld didn't prepare me for the intense boredom associated with staffing a trade show booth. And it's also made me reconsider my post from last week contemplating marketing vs. technology.
One thing I realized about the small apparel vendors is that there is very little community. There are definitely companies we made friends with and certain crews that run in the same circle, but there is no drive toward a greater good. That's one of the things that baffles me about this market, and continues to intrigue me about open source. It's also interesting when you consider the vast global network of suppliers who are involved in clothing production and the fact that its still quite difficult for a new business to navigate and that there is really no one targeting this problem, nor are there people readily sharing information.
All this stuff that we talk about regarding open source community and market development is applicable to many market segments. It's just a question as to when people will figure it out. Open source companies have provided many models that can be followed and built on for the future.
Now...my reviews of food and hotels in Las Vegas this week.
Hotel: Paris Las Vegas-Thumbs Down
I have never been to Paris, but I hear that people there are unfriendly (how dare you say the French are rude!) If that’s true then I am pretty sure that Paris Las Vegas is an accurate representation. I have also never been to a Vegas hotel that didn’t have an army of people working. This place was filled with a bunch of shiftless, lazy chumps.
Restaurants:
Bouchon at The Venetian-Thumbs Up
Without question the best, most consistent restaurant in this town.
Valentinos at The Venetian-Thumbs Down
Literally the worst service and food for the dollar that we have ever experienced. We at the one in Malibu and it was fantastic. The Vegas version sucks. Seriously. They suck.
Shibuya at MGM Grand-Thumbs Up
Very similar to Nobu, a bit over-priced but really good across the board.
Posted by Dave Rosenberg on February 24, 2006 12:13 PM
February 22, 2006 | Comments: (0)
Governments and "Software Libre": Matt was wrong
So, it's actually not uncommon for me to find out that I'm an ignorant Muppet. But it's somewhat uncommon for me to admit it publicly. ;-)
I'm in Venezuela meeting with partners and customers, some of which are government agencies. In so doing, I've asked for further clarification on Venezuela's legislation (Decreto No. 3.390 [PDF download]) mandating the use of open source software. I've criticized this (and other governments' open source legislation) in the past, not because of a disregard for open source software (My entire career has been spent promoting open source), but rather because I dislike government edicts that require use of a particular kind of software.
As it turns out, the Venezuelan legislation preferences open source software, but does not mandate its use in areas where it might not be a good fit. So, for example, the government isn't throwing out its SAP ERP software (yet!), but will shift to open source ECM, CRM, operating systems, office suites, etc. because those currently have strong open source alternatives.
This, I believe, is smart legislation. In talking with people here, it's clear that money really isn't driving these decisions. Freedom is. Freedom from lock-in to vendors whose interests are not always aligned with the government's. Freedom to build up the local economy by keeping Bolivares here, rather than wiring it back to the US, Europe, or anywhere else.
Here's a relevant part of the legislation (in Spanish):
Articulo 1. La Administracion Publica Nacional empleara prioritariamente Software Libre desarrollado con Estandares Abiertos, en sus sistemas, proyectos y servicios informaticos. A tales fines, todos los organos y entes de la Administracion Publica Nacional iniciaran los procesos de migracion gradual y progresiva de estos hacia el Software Libre desarrollado con Estandares Abiertos.Chavez is on the march....
Posted by Matt Asay on February 22, 2006 05:00 AM
February 21, 2006 | Comments: (0)
Protecting the enterprise against open source M&A
Network World just published an excellent story on open source M&A, and whether commercialization of open source is harmful or helpful to open source software development. The best quotes in the article come from large enterprises that use open source:
Barry Strasnick, CIO, CitiStreet (and JBoss customer):
"I believe what will really determine the success or failure of commercial firms purchasing open source vendors is the extent to which they can keep the key developers. One of the main reasons that CitiStreet likes to deal with vendors such as JBoss is that our senior technical staff can deal with their technical staff, instead of having to deal with useless layers in between. We don't buy software because of fancy brochures or well-dressed sales staff. We buy software to gain benefit from great programmers.Could JBoss possibly have paid for a better advertisement? I love that line "useless layers in between." It's true. Who wants to talk with someone that can't immediately solve your problem?
And this one from Bob Hecht, VP of Content Strategies, Informa ($1.5 billion publisher and conference organizer and MySQL + Alfresco customer - truth-in-advertising):
"I'm comfortable in saying that if we build something on an open source platform and it gets bought, it's ours anyway. The implication is for future development, but open source has a way of living. It finds a way."Hecht goes on to say that he ensures his developers understand the open source code they deploy so that they don't have to passively accept whatever the market throws at them. Good counsel.
Posted by Matt Asay on February 21, 2006 12:54 PM
February 21, 2006 | Comments: (0)
Reuven Cohen has a cool idea: open source mashups. He's created a site to house the mashups. Not much there yet, but consider the possibilities of mashing up Sugar and Alfresco, Plone and Compiere, Zimbra and JasperSoft, etc.
Yes, you could wait for these vendors/projects to get together, but it's probably much faster to just do it yourself.
Very cool, Reuven.
Posted by Matt Asay on February 21, 2006 12:35 PM
February 21, 2006 | Comments: (0)
Choosing an ideal systems integration partner for an open source company
Given the positive feedback I've had on the idea to bring an implementation/systems integrator focus to OSBC Boston 2006, I figured I could start the conversation here by discussing some of my findings about choosing a strong SI partner.
In my experience, different SIs bring different strengths, and it's not clear that one is necessarily better than the other. Some of the different types I've worked with at Novell and Alfresco:
- Open Source Savvy. Systems integrators with a strong open source background can be a huge benefit in pitching reluctant customers. You don't waste time trying to bring them up to speed on the "Why open source?" question, and they generally have solid customer references to help newbies "cross the chasm." The downside to open source SIs is that they don't always have good depth in a given market (CRM, ERP, ECM, etc.). Worse, because their backgrounds tend to be with "in the wild" open source projects, they sometimes have a hard time pitching commercial open source alternatives.
It's therefore imperative that you work out a clear sales strategy/competitive differentiation with your open source SIs. In Alfresco's case, for example, one of our partners - Cignex - has traditionally been a Plone shop. They found that a number of customers wanted a Java-based ECM offering (Alfresco is J2EE-based), however, and have established clear guidelines for when they pitch Alfresco versus Plone, making us comfortable that they're not undercutting us or underselling us.
- Proprietary Solution Savvy. These are SIs who have a long track record in implementing SAP, Documentum, Siebel CRM, etc. These partners are great because they tend to have excellent customer references and have felt their clients' pain acutely, which usually stems from implementing overly expensive, inflexible, and featured products. They tend to see open source offerings as a low-cost alternative to their more costly, proprietary partner offerings.
The downside with these partners is that they tend to lack a sophisticated understanding of open source and therefore don't always pitch this value accurately or emphatically. You need to work with these partners to help them see open source as more about flexibility, choice, and innovation than it is about cost.
I haven't found either type of SI partner to necessarily be generally better than the other. Each has its strengths and weaknesses and should be brought into deals accordingly. I have found, however, a few more things:
- Size doesn't matter. Some of our best SI partners are 3-5-person shops. They are hungry to work with us and do exceptional work.
- They're not in it for the license revenue. Because open source solutions tend to cost less, 10-50% in margin won't mean as much as it will in a bloated, proprietary software deal. But the good news is that there is still plenty of money for them to make in implementation. Open source doesn't obviate the need for customization to an organization's business processes.
- SIs are absolutely critical to open source's success. A successful open source business model is one that scales well beyond its own employees. SIs give an open source company leverage and range. Building a robust SI channel is therefore one of the most important things an open source startup can do (in addition to building out a strong inside sales team).
I'd be grateful for any other insights people may have into this. Please share.
Posted by Matt Asay on February 21, 2006 11:19 AM
February 21, 2006 | Comments: (0)
The importance of architecture
I'm in Caracas, Venezuela right now for customer visits and partner training. I've never been here before, and was super excited to have the chance to visit such a great city/country.
I was less excited, however, after an hour in the car from the airport, with another 1.5-2 hours to go. Normally, the trip from the Caracas airport is 30 minutes to downtown, but the "Viaduct" (bridge connecting the two) is down, requiring a HIGHLY circuitous, corkscrew route from the airport to downtown. It was hell. Pure hell. I actually only made it half-way before I revisited my Delta Airlines meal. Enough said.
Why is the bridge down? (And, more appropriately, why is there only one direct way to get to the airport?) Because the mountains between which it is suspended have been moving, causing the bridge to buckle. When it was built ~50 years ago, no one thought about complex foundations to flex and give. Who can blame them?
Today, however, the result of this architecture is clear: a broken bridge and my near insanity at being cooped up in a car for nearly three hours on super-windy mountain roads.
Much of today's software world is made up of Caracas bridges. In my world (content management), there isn't a major proprietary ECM product that was built in the last six years. Documentum is 15 years old. FileNet, Vignette (did a major redesign, much to its customers' chagrin), Interwoven, etc. All are burdened by antiquated architectures. The same holds true of other product spaces (ERP, CRM, etc.).
Part of the value open source brings, then, is simply novel architecture. And because that code is open, the architecture tends to get vetted early and written "right" or the project dies. Open source, then, offers a way to build the "Viaduct" in a transparent manner, resolving architectural snafus early on.
So, if you're an enterprise buyer, do you want to invest in a stodgy, decrepit, proprietary architecture? Sure, it probably has more features, but that's a temporary advantage. Besides, why not invest in a modern, flexible architecture and build up the product through a system integrator, rather than trying to chisel down the calcified remains of an overwrought, overweight proprietary architecture? In my experience, the former road is cheaper and more likely to lead to IT happiness than the latter.
Posted by Matt Asay on February 21, 2006 10:55 AM
February 20, 2006 | Comments: (0)
Book Review: The Wal-Mart Effect
I just finished reading Charles Fishman's The Wal-Mart Effect, and found it fascinating and disturbing. I admit to despising Wal-Mart: I don't like companies who only innovate in making things cheaper, without product innovation and/or without taking responsibility for cutting prices in a responsible fashion (as, for example, Southwest Airlines does).
Fishman writes a cogent, fair analysis of Wal-Mart and its effects on its customers, suppliers, and cities/counties/etc. in which it operates. He doesn't come across as a Wal-Mart fan, but nor does he write as holy crusader against Wal-Mart (as I would be). Still, Wal-Mart can't help but come out looking ugly in its devout, relentless insistence on "Everyday low prices." It's not that Wal-Mart is an evil machine, but rather, as Fishman notes, that its scale makes some of its practices destructive, no matter how innocent they may have been in its founding decades ago.
At some point, for example, a rigid insistence on lower costs means suppliers must cut corners. Those corners may be the quality of their products (as Fishman illustrates with Snapper lawn mowers), the quality of the environment (Chilean salmon at $4.84/pound in part because of the massive destruction of the Chilean oceanic waters), or the quality of the lives of their suppliers (inhumane working conditions in Bangladesh and elsewhere to produce Kathy Lee Gifford apparel). But you can't forever squeeze costs without squeezing someone.
This "Wal-Mart effect" is just one reason that I don't like it when we view open source as a commoditizing force. If all open source can do is wring costs out of the system, then it is a paltry gift indeed. No, open source is a way to refocus innovation, allowing us to innovate closer to the customer's perceived value rather than reinventing (company by company) the infrastructure of, say, a CRM system. Open source is more efficient, or can be, without being blindly efficient, in the way I believe Wal-Mart to be.
Anyway, here are some of the more interesting factoids/comments from Fishman's excellent book:
- At the end of 2000, Wal-Mart had 888 supercenters (up from 9 in 1990), and was the number-one food retailer in the United States. So, the company went from a "standing start" to first place in roughly 10 years. That's power. (3)
- Every seven days more than one hundred million Americans shop at Wal-Mart - one third of the country. Each year 93 percent of American households shop at least once at Wal-Mart. Wal-Mart's sales in the United States are equal to $2,060.36 spent there by every U.S. household in the last year. (Wal-Mart's profit on that $2,060.36 was just $75.00.) (6)
- ExxonMobile, number-one on the Fortune 500 list, employs about 90,000 people worldwide; Wal-Mart employs 1.6 million. ExxonMobile is growing by raising prices; Wal-Mart is growing despite lowering prices. (7)
- Wal-Mart sells more by Saint Patrick's Day, March 17, than Target (its closest competitor) sells all year. (7)
- How does Wal-Mart do it? Not by focusing on profits, but rather on cost containment. Relentlessly driving pennies out of the dollar: driving jobs overseas (without much concern for how those jobs are fulfilled, so long as the result is a lower cost), driving costs of its own employees (locking them in its stores overnight, forcing them to work overtime without pay, skimping on their wages and health insurance, etc.), and driving its suppliers out of business.
For example, Wal-Mart has proved exceptionally adept at externalizing costs to its suppliers. Wal-Mart "charges many of its vendors with keeping product in stock on its shelves; Wal-Mart cascades data about its sales out to its vendors...but it gives those vendors the responsibility of analyzing those waves of data and reporting the insights back to Wal-Mart." (94-95)
- Does Wal-Mart create or kill jobs? Fishman reports: "While the entire country (from 1997 to 2004) was adding 670,000 new retail jobs, Wal-Mart was adding 480,000 jobs in the United States. More than 70 percent of all new retailing jobs in the United States in the last seven years came just from the growth of Wal-Mart. The remaining new retail jobs - 190,000 in the entire nation spread over seven years - amount to just 540 new retail jobs in each state, each year...." (107)
Juxtapose this with manufacturing, and those lame Wal-Mart jobs look even worse. During that same period of time, "U.S. manufacturing jobs...fell by 3.1 million jobs, a loss of 37,000 factory jobs a month, on average, for eighty-four straight months." (108) [Interesting factoid from Fishman: the US now has more people working retail than in manufacturing, a shift that happened in 2003. We truly are a consumer nation.]
As Fishman says, "We find the abandonment of U.S. factories from Georgia to Michigan unnerving; we find cheaper stuff on store shelves addictive. And we don't connect the two." (108)
More: In the first year after a Wal-Mart opens, it adds 100 new jobs to the typical U.S. county. Keep in mind that each Wal-Mart typically employs 150-350 workers. Do the math: even as Wal-Mart opens, it puts others out of business. That 100 new jobs? All Wal-Mart jobs. No one else benefits. Then, in the years after Wal-Mart arrives, retail employment falls gradually, so that five years after Wal-Mart's arrival in a county, there are only a total of 50 new retail jobs. Add to this the fact that unlike smaller competitors, Wal-Mart does its own distribution, resulting in a net loss to a county of 20 wholesale jobs. Five years after Wal-Mart moves in, a county has gained only 30 new jobs. Wal-Mart is hardly a growth engine for any economy. (144)
- On suppliers. "Companies doing 10 percent or less of their business with Wal-Mart had operating profit margins of 12.7 percent. Companies that become..."captive suppliers" to Wal-Mart - selling more than 25 percent of their goods to Wal-Mart - see their profit margin cut almost in half, to 7.3 percent." (163)
- Wal-Mart and poverty. Economists found that "once you control for everything else, U.S. counties that had a Wal-Mart just before 1989, or that added one during the decade, had higher poverty rates than counties that were Wal-Mart free. In a county with at least one Wal-Mart, poverty fell not to 10.7 percent but to 11 percent. The difference - three tenths of a percentage point - looks trivial....But it is not. In counties with a Wal-Mart, the rate of poverty fell 10 percent more slowly than it would have without a Wal-Mart during that decade." (164)
- Wal-Mart and groceries. "Part of the reason Wal-Mart can sell a salmon fillet for $4.84 [It used to cost $5.00 or more for a quarter of a pound of salmon] is that...'they don't internalize all the costs.' Pollution ultimately costs money - to clean up, to prevent, to recover from. But right now those costs aren't in the price of a pound of Chilean salmon. Salmon-processing facilities that are run with as much respect for the people as the hygeine of the fish also cost money - for reasonable wages, for proper equipment, for enough workers to permit breaks and days off. Right now those costs aren't in the price of a pound of Chilean salmon, either." (179)
- Workplace conditions. A recent lawsuit against Wal-Mart alleges that Wal-Mart's low price guarantee and relentless insistence on squeezing costs "makes it impossible for suppliers to comply with even the most basic laws where they operate, including wage and hour laws." Yes, Wal-Mart does a limited number of inspections of its suppliers for safety/workplace conditions. 12,500 of them in 2004. "But only 8 percent of them were surprise inspections. That means 1,000 inspections were unannounced, and 11,500 were scheduled in advanced. Still, Wal-Mart reports, 9,900 of the inspections resulted in violations serious enough to either suspend a factory or put it on notice. Even if you presume that the 9,900 number includes every single surprise inspection - that is, if you presume that every surprise inspection resulted in uncovering serious violations - that leads to a remarkable conclusion: 8,900 inspections of factories in 2004 revealed serious violations in factories that knew in advance that Wal-Mart inspectors were coming. if the code of conduct has to be signed by the factory management, if it is posted on the factory wall, if the inspections are scheduled with advance notice, and still thousands of Wal-Mart supplier factories get a "yellow" or "red" rating...how seriously are the factories really taking Wal-Mart's code of conduct?" And if those are the conditions in the factories on a day when managers know Wal-Mart is coming, what is life like on a typical day? (189-190)
- "Wal-Mart sells $178,125 worth of stuff per employee.
Target sells $156,506 worth of stuff per employee.
Whole Foods sells $121,875 worth of stuff per employee.
As those numbers go down, the pleasurability of the shopping experience goes up, and that's no accident....Wal-Mart is relentless at measuring its own costs; it isn't so interested in measuring its customers' costs [i.e., of waiting in line, finding shelves stocked and organized, etc.]." (203)
- Conflicted shoppers. a recent study uncovered four basic kinds of Wal-Mart shoppers: champions (they love Wal-Mart and heavily promote it), enthusiasts, conflicted ("Actively dislike Wal-Mart because of its impact on communities, wages, and jobs"), and rejecters [me]. Shockingly, conflicted shoppers are "by a wide margin...the second most frequent shoppers at the store [5.6 visits/month]...and they spend nearly as much at Wal-Mart as the champions - $289 a month." (220)
- The punchline. "[Wal-Mart's] dominance at both ends of the spectrum - dominance across a huge range of merchandise and dominance of geographic consumer markets - means that market capitalism is being strangled with the kind of slow inexorability of a boa constrictor. It's not free-market capitalism - Wal-Mart is running the market. Choice is an illusion. Wal-Mart's suppliers can't consider themselves serious players...unless they are doing business with Wal-Mart. Once they are doing business with Wal-Mart, though, they are doing business on Wal-Mart's terms because Wal-Mart already dominates whatever business they're in....
[By way of example, t]he new P&G [formed by the merger of Procter & Gamble and Gillette] will be number seventeen, or thereabouts, on the Fortune 500 list in 2006. But remember: Wal-Mart isn't just P&G's number-one customer; Wal-Mart is as big as P&G's next nine customers combined. Cheerful discussions of partnerships notwithstanding, Wal-Mart owns P&G's business." (234)
- Bigness beyond Wal-Mart. "The five biggest public companies in the United States - with sales of $1.1 trillion - account for 9 percent of the economy. The top twenty companies account for 20 percent of the economy. Those numbers are arresting, and they are moving in the direction of increased concentration [as 10 and 20 years ago the top 30 companies accounted for 20 percent of the U.S. economy]....We don't often talk about the concentration of corporate power, but it is almost unfathomable that the men and women who run just twenty companies make decisions every day that steer one fifth of the U.S. economy." (242) Indeed.
- Wal-Mart isn't just a store, or a huge company, or a phenomenon anymore. Wal-Mart shapes where we shop, the products we buy, and the prices we pay - even for those of us who never shop there. It reaches deep inside the operations of the companines that supply it and changes not only what they sell, but also changes how those products are packaged and presented, what the lives of the factory workers who make the products are like - it even sometimes changes the countries where those factories are located. Wal-Mart reaches around the globe, shaping the work and the lives of people who make toys in China, or raise salmon in Chile, or sew shirts in Bangladesh, even though they may never visit a Wal-Mart store in their lives.
Wal-mar has even changed the way we think about ourselves - as shoppers, as consumers. Wal-mMart has changed our sense of quality, it has changed our sense of what a good deal is. Wal-Mart's low prices routinely reset our expectations about what all kinds of things should cost....
The Wal-Mart effect touches the lives of literally every American every day. Wal-Mart reshapes the economic life of the towns and cities where it opens stores; it also reshapes the economic life of the United States - a single company that steadily, silently, purposefully moves the largest economy in history....
Who knew shopping would turn out to be so important?" (5)
Posted by Matt Asay on February 20, 2006 07:45 PM
February 18, 2006 | Comments: (0)
I ran into Ransom Love, former CEO of Caldera, at this past Open Source Business Conference. He's in a new gig and is much happier. Talking with Ransom reminded me of just how far we've come in open source (or how far we've fallen, if you're of that mind).
Years ago, Ransom was vilified for saying things that we now take largely for granted. He wanted to charge a per unit license charge, arguing that support was not a good enough business model (or, at least, not the only business model for open source), and was classified a "parasite." Today, Red Hat has created a fantastic business with a per unit license model. (Yes, they call it "support," but it's really a license fee.) Today, SugarCRM, Alfresco, etc. etc. etc. all essentially charge this way, though we've become creative in how we get there. Today, we're heralded for our foresight. Ransom was trashed.
Speaking of trashed, remember what happened when Trolltech instituted its dual-license model whereby developers could use Qt for free...until they actually wanted to go into production, at which point they had to pay? The open source community was outraged, starting Harmony and other projects to avoid being "locked in" to Trolltech, the evil corporate beast.
Yesterday I had a call with an interesting open source company that plans to do much the same: free for development use, but pay if you want to go into production. My bet? No one will bat an eye. It's a clever licensing model (and not too dissimilar from Red Hat's, SugarCRM's, Alfresco's, MySQL's, etc. Each of these effectively gets to the same result, just through different means).
I'm sure there are other examples of this: open source practices of yesteryear that were rebuked just a few years ago, but are crowned as genius today. Generally, I think our more progressive view of open source is a Very Good Thing. Up to a point. If we treat open source like a commodity to be exploited, rather than as a community to be nurtured, we'll soon find that both the words "open source" and the substance behind them will be dissipated. But for now, we need to keep moving to a point where we can extract more value (read: dollars) from the trend so that we can foster more of it. More money = more development. Up to a point.
(On that note, I was thinking about this last night: we have an ever-increasing body of open source code, much of it from commercial providers. You can get most of an excellent CRM system from SugarCRM, for example, with few to no code encumbrances. Ditto with JasperSoft, Pentaho, etc. in business intelligence. These companies may be keeping some code commercial, but they're giving away much more than they're keeping. This leaves a substantial body of code that the rest of us can borrow and build from.)
Posted by Matt Asay on February 18, 2006 07:34 AM
February 17, 2006 | Comments: (0)
IT's Hidden Truth Part 2: Telecom is still a nightmare
Back in September 2005, I wrote about IT's Hidden Truth-that everything is too expensive and nothing really works. At the time I was focused mainly on hardware and software. Six months later I feel like I have a better grasp on costs but stumbled across another aspect of the pain of IT: Telco service providers are proficient at best, and grossly incompetent at worst. Most are somewhere in between.
A few examples just from this past week:
- Our existing internet provider accidentally sent a kill order for our circuits, forcing us to reroute through our VoIP phone switch and setup a VPN to the VoIP switch (not pretty) resulting in nearly 2 days of vendor provided downtime. This was because we are using the same bank of IPs in our new office. Meanwhile, I was at OSBC sweating it out while the genius from SBC wandered around our basement looking for circuit IDs.- Despite five weeks of warning our existing telco provider didn't tell us that they weren't going to release our phone numbers until 2 days prior to the move. Only when we called the CEO of all three companies involved in the phone circuits did we finally get the numbers released...several days late.
- In another bizarre twist, we can't call from our existing office to our new office phone numbers. Still unresolved but has something to do with DIDs not being registered with the provider which makes no sense.
When I spoke at OSBC this week, I stated that marketing is more fun than IT. While I was joking at the time, I think that I might be right and that I should consider going to back to the darkside. I can't really figure out if doing marketing is any less annoying or painful than IT is, but I am leaning toward the fact that marketing is at least a different type of stress, one not based on the monotony of telecom and servers. On the other hand, there is something satisfying about making things work. That's an aspect of IT work that keeps many of us coming back.
Comments are welcome. I can't be the only one who wonders about this.
Posted by Dave Rosenberg on February 17, 2006 07:16 PM
February 15, 2006 | Comments: (0)
News: Oracle tried to buy MySQL
Marten Mickos today confirmed with Stephen Shankland @ CNET that Oracle tried to buy MySQL. Not sure when, but it sounds recent (and, I suspect, more than once). It's not surprising that Oracle would make this move, though it surprises me that it wasn't IBM (which is not to say that they haven't tried, too - I haven't asked Marten that) - IBM has a clear strategy of using open source as a "low-end" alternative to its high-end products.
What is most impressive in all this (and just one reason that I think Marten is one of the top CEOs anywhere, and certainly in open source business) is Marten's response to Stephen's question as to why not sell:
"We will be part of a larger company, but it will be called MySQL."
It's a different riff on the same theme that he said last night:"Trying to kill MySQL by acquiring open source is like trying to kill a dolphin by drinking the ocean."
Marten, like Matthew Szulik before him, has prized independence as a corporate virtue and has had the audacity to believe that he can compete with the Big Boys.Give 'em hell, Marten!
Posted by Matt Asay on February 15, 2006 04:09 PM
February 15, 2006 | Comments: (0)
John Roberts on 'The Project Powered Enterprise'
John Roberts is in the middle of his OSBC keynote, and has said a few things that i find pretty intriguing:
- SugarCRM never pretends to be anything other than "commercial open source." It has been careful not to deceive would-be users or developers that it is a pureplay open source company that is interested in free love. (Each of the founders has kids. They'll soon be learning about "tough love." :-) I think this kind of transparency is actually quite innovative.
- John put up some compelling charts showing engineering vs. sales/engineering spend at its competitors. I wasn't surprised to see that Siebel spends significantly more on sales/marketing rather than actually writing a quality product, but I was very surprised to see that Salesforce.com comes in last on the list: they spend $10 on sales and marketing for every $1 they spend on engineering their product. That's an amazingly paltry amount for Salesforce.com to spend on writing its product.
- SugarCRM isn't proprietary - it's commercial. There is a difference, and the amount of free/open software they write and release grows over time, and is always in the majority.
Posted by Matt Asay on February 15, 2006 11:13 AM
February 15, 2006 | Comments: (0)
Killing dolphins, drinking oceans
Marten Mickos said something last night during the OSBC Executive Town Hall that was both provocative and profound. Asked whether the acquisitions of Sleepycat and InnoDB were a threat to MySQL, Marten suggested that no one can successfully acquire the life out of a successful open source company:
"Trying to kill MySQL by acquiring open source is like trying to kill a dolphin by drinking the ocean."
I'm not sure I got it exactly right, but that's about it. His point? Successful communities are not subject to one or two dependencies, people-related or technology-related or otherwise. Successful communities grow, self-heal, and adapt. I agree.But then, I don't think (and I somewhat doubt if Marten thinks this - he's certainly never said so) that Oracle is attempting to kill MySQL through its acquisitions. Its intentions are elsewhere....Where? I'm not yet 100% sure.
Posted by Matt Asay on February 15, 2006 09:24 AM
February 15, 2006 | Comments: (0)
In all of us there is a hunger, marrow deep, to know our heritage - ?to know who we are and where we came from. Without this enriching knowledge, there is a hollow yearning.
I'm sitting in Peter Graf's excellent keynote at the Open Source Business Conference, but can't shake some of the ramifications of yesterday's sessions (almost universally excellent).Alex Haley, Roots
Perhaps Mitch Kapor's keynote on Wikipedia was most striking to me - talking about community-driven knowledge aggregation and dissemination. I've written on the topic of genealogy before, but I believe today, more than ever before, that genealogy is a massive business opportunity waiting to happen.
There is a company - MyFamily.com - that already pulls in $100M/year providing subscription access to census records and such. But the real opportunity is in providing a platform upon which average people can share their family information, with mash-ups that allow us to drill down onto historical and geographical information surrounding that data. So, I know my family tree back to the 1700s in England and Belgium, but I know very little about the kinds of lives they must have had.
I'd enjoy clicking through to learn that information, and would even appreciate having someone advertise against that interest: travel agencies pitching me on trips to Belgium, as a trivial example, but even more nuanced approaches that could include "olde thyme" advertisements that mimic old products that were available then. Maybe the record labels have listings of songs that were popular at the time, and link me back to their modern libraries. Stuff like that.
It's inefficient to have one company, church, or other organization providing a single source to this data. The human family is too vast. This is a community effort, or it is a fruitless effort. We have the technological tools (wikis, blogs, instant communication, ECM systems, databases, etc.) AND a rising clarity in business models to monetize the "marrow-deep" interest in learning about who we are, based on who we were.
Why isn't someone doing this?
Posted by Matt Asay on February 15, 2006 09:17 AM
February 14, 2006 | Comments: (0)
I had lunch with some friends from Oracle the other day. It was a highly interesting and, at least for me, informative session. I learned, for example, that over 50% of Oracle's business today comes from support. I was also reminded that Oracle provides Level 3 support for Linux (and, unless I'm misremembering or misheard, for Apache).
So what? Well, clearly Oracle knows how to support open source projects/products. Also, Oracle's business model already looks a lot like an open source company (except that the support they earn is in the billions, to the tune of $7 billion).
See where I'm going? Maybe the (alleged) JBoss acquisition actually makes sense. Maybe, just maybe, Oracle is the new SpikeSource, SourceLabs, BitRock, OpenLogic, etc. That is, maybe Oracle's future is in providing a supported, certified open source stack.
This is easier said than done, of course. I learned at Novell that the shift to an open source-friendly culture and business model is non-trivial. It will not come easily to Oracle (or any traditional software company), $7B in incentive dollars or not. But I think I see the potential in the (alleged) deal now, whereas before I only saw a threat.
So, when's it going to be, Larry?
Posted by Matt Asay on February 14, 2006 05:44 PM
February 13, 2006 | Comments: (0)
At-a-glance: GroundWork Monitor goes Open Source
GroundWork announced the release of Open Source and Professional Editions of GroundWork Monitor, their infrastructure monitoring solution. Besides the fact that the new releases represent a nice path forward in the product evolution, the Open Source version also represents GroundWork's foray into releasing all the source code under the GPL open source license.
Previously, GroundWork products were basically nice UIs that sat atop Nagios. But Nagios is/was a such a bear to configure that early versions of Monitor didn't do a whole lot toward making the user experience any better. The new release is replete with all of the necessary components as an all-in-one installation package. It's an option that I am surprised more open source companies haven't taken advantage of. They have also built a tool to migrate settings and alerts from Nagios 1.3xx to 2.x, which based on my experience with configuring Nagios 1.3x is a must have. I can't even conceive of having to re-do all those configs.
GroundWork is going after a good market, one that Nagios has served pretty well. Nagios solves an IT problem which plagues a very broad audience, it just hasn't done it very gracefully. GroundWork enhances the Nagios capabilities with new features and functions. In the past I had questioned the reliance on Nagios, an open source project that they don't own, but I feel like it's less of an issue than it was when the company started.
Download GroundWork Monitor Open Source.
Previously:
Groundwork and Open Source marketing
Groundwork bumps OpenViewPosted by Dave Rosenberg on February 13, 2006 08:03 PM
February 13, 2006 | Comments: (0)
News: MySQL raises another $18.5 million
So, my data on $1.3 billion raised in open source venture capital is already old....MySQL just announced that it has raised $18.5 in a Series C round of funding. Investors included Institutional Venture Partners (IVP), which led the round, and corporate investors Intel Capital, Red Hat, SAP, and and Presidio STX.
Keep on rockin' in the free world, Marten! (You and Neil Young.)
Previously:
MySQL 5.0 hits 1 million downloads-Interview with Zack Urlocker
A happy new year for MySQL
MySQL AB Welcomes Oracle to the FOSS Database Market
Why InnoDB matters so much to MySQL (really)
MySQL Redux-Why InnoDB may not matter after allPosted by Matt Asay on February 13, 2006 10:00 AM
February 13, 2006 | Comments: (0)
Over $1.3 billion in open source venture capital
Robin Vasan and I have been working together to figure out how much money has been invested in open source startups. The (tentative) number?
$1.3 billion in the last five years.
That's an amazing sum of money, and one that is only just now starting to pay off. Yes, we have Red Hat's IPO, and the Sourcefire, Sleepycat, JBoss, and Zend acquisitions, but the real money is yet to be made.
(Btw, this number is not yet comprehensive, as I'm missing VA Linux/Software, Red Hat, early SUSE rounds, as well as some of the rounds of others that are on the list we're compiling. And we've applied a fairly tight definition for "open source company," such that the Web 2.0 companies and their ilk aren't in the list.)
Posted by Matt Asay on February 13, 2006 08:37 AM
February 12, 2006 | Comments: (0)
"Get the Truth on Linux Management" Report (Spoiler: It's easier and cheaper than Windows)
Anyone who has read a tech publication or visited a major tech news site has invariably seen Microsoft ads touting random "facts" which are questionable at best. Finally, there is a new study proving with real empirical evidence that not only is Linux cheaper, but it's actually easier to deploy and maintain. The FUD-busting study was sponsored by Levanta and OSDL and was performed by EMA.
Free downloads of the full report, and the executive summary are now available.
In various older studies, Microsoft and some analysts claimed Linux has a higher total cost of ownership (TCO) than Windows. They attributed the difference mainly to higher system management costs, and concluded that the higher TCO outweighed the much lower license and acquisition costs for Linux.
In its vendor-neutral study, EMA analyzed the cost factors cited in previous studies, canvassed more than 200 enterprises, and determined that organizations are managing their Linux environments more cost-effectively and reliably than previously reported. A few of the key findings include:
-Productivity - Linux tends to be more productive, as Linux administrators tend to manage more servers than Windows administrators, and Linux systems tend to handle greater workloads than Windows systems.
-Provisioning - 75% of administrators using sophisticated tools can provision a system in less than 1 hour; one third can provision a system in less than 30 minutes.
-Patch management - most Linux administrators spend less than 5 minutes per server per week on patch management. Sophisticated management tools reduce this effort even further.
-Problem resolution - in over 60% of cases, when problems occur in Linux environments they are diagnosed and repaired in less than 30 minutes, over 8 times faster than industry average.
-Management and support - 88% of enterprises with Linux and Windows spend less effort managing Linux; 97% believe it is, at worst, the same for both systems. Respondents with sophisticated management tools all report Linux management is the same or easier than Windows management.
Posted by Dave Rosenberg on February 12, 2006 09:50 PM
February 12, 2006 | Comments: (0)
Oracle acquisitions: Nefarious or Opportunistic?
Back in October when Oracle announced it was acquiring InnoDB I pondered the impact and decided that while irritating, it wasn't that big of a deal for MySQL. I even suggested that MySQL switch the InnoDB functionality to Sleepycat's BerkeleyDB. But now that Oracle is in allegedly in talks to buy Sleepycat as well it adds a new level of complexity.
A few people are starting to make the argument that Oracle is buying up the components of MySQL to put some kind of stranglehold on the non-internal IP. But I think that's merely a by-product of the bigger picture.
By acquiring JBoss and Sleepycat, Oracle automatically positions itself as the owner of two very broadly used products. (NOTE: Since Zend doesn't technically own PHP I can only assume the appeal is to own the developers.) Regardless of revenue, both of these companies are important. I have suggested a number of times that JBoss should be acquired, primarily because I believe a larger parent would allow for a longer run at sustainable revenue. It would also position that larger parent as a serious leader in open source.
As for MySQL, once again, it's a drag this is happening but it's a solvable problem. It's also a validation that they have seriously disrupted the market-especially if Oracle's motive was to take another shot at dismantling the product.
Posted by Dave Rosenberg on February 12, 2006 05:21 PM
February 10, 2006 | Comments: (0)
OpenOffice = Can ; Microsoft Office = Can't
Yes, I've complained about OpenOffice in the past. In part, because I don't care enough about office "productivity" suites to think we need expend undue energy on them. I think email is the real office suite that most of us work on daily, and Zimbra (and like companies/projects) is a better investment of time than on an outmoded view of how people work.
Still...I came across a great feature in OO.o that isn't available in Microsoft Office, and is a huge improvement. It's called "Enter Group." In Microsoft Office, I often group things (images, text, etc.) when using PowerPoint. Maybe I want them to follow animation rules together, or maybe I just want to keep things tightly organized. The problem is once I group them, I often want to swap out a graphic, change the text, etc. In Microsoft Office, the only way to do this is by first ungrouping the items, making the changes, and then regrouping.
It mostly works. Most of the time.
In OpenOffice, as I just discovered, I can "Enter the group." This allows me to make changes to the grouped items without first ungrouping them. So, for example, in the presentation I'm giving at SCALE tomorrow my Bill Gates graphic got munched converting from PowerPoint to OO.o (Impress). Rather than ungroup everything, make the change, and regroup (and pray that it doesn't screw up the format/animation/etc.), I was able to swap out the Gates photo and exit the group.
Easy. Innovative. Simple.
And a foothold in my wee brain to get me to use OO.o more often. It may well be that I've been missing out on lots of little gems like these. Mea culpa.
Posted by Matt Asay on February 10, 2006 11:59 AM
February 09, 2006 | Comments: (0)
Open Source Shopping Spree for Oracle?
Will Oracle buy up lots of open source startups? Sarah Lacy at BusinessWeek says yes in Oracle's Open-Source Shopping Spree
The open-source community may be in for a jolt. Oracle (ORCL) is plotting what could be the biggest endorsement yet by a mainstream software company for a movement that involves legions of developers across the globe who publish "open" software distributed freely over the Net, making money instead from support and maintenance. It's a bold bet for a company that gets a healthy chunk of its $16 billion in annual sales from multimillion-dollar software packages deals, but Oracle is ready to spend big on open source.
Posted by Dave Rosenberg on February 9, 2006 06:02 PM
February 09, 2006 | Comments: (0)
Registration is open for USPTO Open Source Software Community Meeting on 2/16/06
The Department of Commerce's United States Patent and Trademark Office (USPTO) has created a partnership with the open source community to ensure that patent examiners have improved access to all available prior art relating to software code during the patent examination process.
In December the USPTO representatives met with members of the open source software community, which provided an opportunity for members to discuss with the USPTO prior art access issues related to software patent quality. The meeting focused on getting the best prior art references to the examiner during the initial examination process.
As a follow-up to their December 6th meeting, USPTO representatives will hold another meeting on February 16th, 2006. This meeting will be open to the public and will focus on further developing previously discussed initiatives as well as any new prior art initiatives offered at that time.
All members of the open source software community are encouraged to attend. However, space is limited so please register early. Only the first 220 registrations can be accepted. For additional information go to http://www.uspto.gov/web/patents/opensource2006.htm.
You can also check out the Prior Art Initiative supported by OSDL.
Posted by Dave Rosenberg on February 9, 2006 11:58 AM
February 08, 2006 | Comments: (0)
Open source M&A: What value community? Downloads? Source?
What with the hoopla around the possible JBoss (and other) acqusitions in the near term, it set me to thinking about how open source companies should be valued. Once they "grow up," of course, like Red Hat, they're valued in a somewhat rational (P/E) fashion.
But how does one value the frontier of open source business models? How does one value downloads? (I remember Kevin Harvey of Benchmark and David Skok at Matrix both telling me that part of their investment calculus in open source companies/projects hinges on downloads, but how do these factor into an acquisition?) Do downloads equal "community" and, if so, is "community" something that can be valued? (In my conversations with IBM, they certainly seemed to think so, though they didn't share with me how they'd do so.)
And what about downloads or users (as in the case of a XenSource (Xen), Zend (PHP), or GroundWork (i.e., Nagios)) that don't directly relate to sales of a company's products? Can one have a highly successful project without having a highly successful business? Of course one can. These downloads/users are leading indicators, perhaps, but not always revenue-determinative. Relatedly, should MySQL, with a reported 70+ million downloads, be valued higher than a PostgreSQL-based or Berkeley DB-based company that has fewer downloads, but a higher conversion rate into paying customers?
At some point, of course, open source companies will likely get to serious revenues sooner than they have in the past. The trailblazers (JBoss, MySQL, Red Hat, etc.) took many years to get to profitable, meaningful revenues. New companies (including SugarCRM and my own Alfresco) seem to be on revenue trajectories that will get them there faster, largely because of the paths these trailblazers established.
In the meantime, we need to figure out rational valuation models, and be realistic as sellers. This point came home to me last night when I bumped into a good friend and former controller of Lineo, my first open source company. We laughed about how we had scorned $225+ million quasi-offers, and remained scornful up until the day the company was sold off as scrap metal once the promise behind died. We were foolish and greedy. I suspect we're in the midst of another bubble time for open source companies and would do well to be prudent in our expectations. Downloads do not a profitable, revenue-rich company make.
In thinking this through, I stumbled across this excellent report [PDF download] that identifies common valuation methodologies for software companies. I've included a fair amount of relative detail here - try to figure out which you would use to value your favorite open source company.
They are:
Earnings Focused Value Methods
So, what do you think? I imagine open source M&A will use composites of the above-mentioned models. Some open source companies have real revenues and so will likely be valued against those revenues, primarily, while other companies with strong communities but tepid sales will hope for (and likely get, while the open source euphoria lasts) more of a Replacement Model valuation, whereby the cost of building a community will balance out the lack of revenues.- DCF - Discounted Cash Flows: This is the most common method used in mergers and acquisitions and is being used more often for other valuation purposes, especially for larger companies. The authors of the report feel this is the best method to use.
In this method:
- The value of the company is based on the free cash flow to investors, expected to be generated in
the future.
- The value is the sum of the net present values projected for future years (normally 3 to 5 years) plus the value of "continuing operations" after the projected period.
This method is frequently the only method applicable to companies in the start-up stage and to companies expected to have extremely high growth rates driving even larger growth in their profit margins. The difficulty in using this method primarily relates to determining the risk that the company will not achieve its projections. The old adage that the higher the risk, the higher the return, really applies in the DCF model. Thus, the greater the risk of not achieving the projections the higher the required return required (discount rate).Discount rates applicable to DCF models for most software companies will vary from 20% to 70% depending on the risk to be assumed by the investors. The better management can support the projection'?s assumptions, the lower the discount rate required and the higher the value indication for the company.
[Asay note: This might be the authors' preferred way, but it bears no semblance to "reality" as it exists in today's Web 2.0 world. I suspect that intangibles would drive this rational valuation to huge heights, well beyond revenues.]
- The value of the company is based on the free cash flow to investors, expected to be generated in
- Free Cash Flow - LBO model (i.e., Investor assumes that the company's worth is equal to the down payment plus the debt that the free cash flow will support after reserving some of the cash flow (typically 5% - 15%) as a margin
for error). or model whereby a company is worth three to eight times its cash flow represented by EBITDA (earnings before interest, taxes and depreciation and amortization). The valuation process starts with a multiple of approximately four to six times EBITDA and is adjusted upward or downward based on the qualitative aspects of the company. In this variation, it is assumed the investor will be happy receiving his/her capital back in three to eight years depending on the risk assumed;
- Replacement Value: The replacement cost method is based on the assumption that the company is worth what it would cost to replace all of the company's identifiable assets [Perhaps this is a good place to measure downloads and/or community?]. Replacement cost values tend to be most useful in two situations:
- First, for young software companies, with few, if any, sales, user base or dealer base. This may be the highest value indication possible when the primary investment has been in the technology or product.
- Second, in a company with an operating history which does not reflect its investment (time and money) in it product. The company maybe making a major business model change in its platform, versions or distribution channel.
[As the authors note, one problem with this model is that a great deal of damage can happen between the cup and the lip. Take, for example, the execution risk Oracle faces if it were to acquire JBoss, or...well, I'd better not go there. :-) The point is, much "replacement value" can be lost in the very process of trying to make an acquisition that looks good on paper, also look good in practice. Particularly to a skeptical open source community.]
- First, for young software companies, with few, if any, sales, user base or dealer base. This may be the highest value indication possible when the primary investment has been in the technology or product.
- Liquidation Value: Liquidation value is the value of the individual assets if the company were to be liquidated today. [Not likely to be used in many successful open source companies.
Market Focused Value Methods- Internal Transaction Price: This method assumes the stock's current
price should at least be equal to the last price paid for the company's stock or the last transaction price. [I can't see this being used very often, however much a buyer might prefer it. There's little incentive for either the VCs or the companies to sell out at parity (for the VCs).] - Public Company Revenue Multiple: This method looks at analogous public software companies and calculates a revenue multiple by dividing the public company'?s market capitalization by its revenue. [Note, however, that private companies tend to have lower revenue multiples than public ones.]
- Private Similar Company Earnings Multiple: Similar to the Public Company Revenue Multiple, except it uses the revenue multiples calculated from private M&A deals.
- Public Company Earnings Multiple: The public company earnings multiple is very similar to the revenue multiple, except it compares market capitalization to some level of company earnings. The concept behind using a multiple of earnings is that earnings more effectively reflects the difference in the return to the investor between companies than the
revenue multiple. - Private Similar Company Revenue Multiple: Like the private company revenue multiple, the earnings multiple is derived from transactions that took place in the mergers and acquisition world. The earnings multiple is computed by dividing the transaction price by the appropriate earnings of the company.
Posted by Matt Asay on February 8, 2006 08:09 PM
February 07, 2006 | Comments: (0)
Funambol as Blackberry server replacement?
From Unstrung: Open-Source Gets Email Push
Funambol v.3, as the new product is called, works over Blackberry, Microsoft Windows Mobile, and WAP-enabled phones. Based on the device management and synchronization standard from the Open Mobile Alliance, the new open-source software allows users to check email on or offline, open attachments, schedule meetings, and synchronize calendars, address books, and task lists. V.3 works on the client pre-loaded on the mobile phone or PDA; in other words, users do not need to change out their existing device or client software to use Funambol's solution.
Is Funambol the solution to the potential RIM shutdown? Maybe. Regardless, I have some quotes in the article that almost make sense.
Posted by Dave Rosenberg on February 7, 2006 06:57 PM
February 07, 2006 | Comments: (0)
More on Oracle's (possible) JBoss acquisition
Still in "ponder" mode on the possible Oracle acquisition of JBoss, and came across this interesting tidbit from the Enterprise Open Source Journal (worth a read, if for no other reason than to see Julie in "pensive mode :-). Mark Driver from Gartner writes [PDF download]:
"The [Oracle acquisition of InnoBase] has left many of us scratching our collective heads. On the surface, the motives seem obvious. Oracle, with a clear history of aggressive acquisitions, buys out a critical component of MySQL in order to kill off its commercial support channel. The problem is, we don't actually know the motive yet because Oracle has been mysteriously silent about the acquisition, citing "license negotiations" as the reason. By the time you read this, the issue may be resolved, but I fear it's a lose lose situation for Oracle, no matter what the outcome. Whether deserved or not, once the "stink" of being the bad guy sticks to Oracle, it will be virtually impossible to convince anyone in the open source community otherwise for many years to come.
Bingo!Not directly related to Oracle, per se, Mark also writes:
Mergers and acquisitions are a natural and healthy part of any free market economy. It's only natural then to see M&A activity as part of the open source landscape. However, many nuances in the business models that drive commercial
Interesting stuff, Mark. Why aren't you speaking at OSBC? :-)
support for open source differ from traditional IT vendors. It's one thing when a company such as RedHat acquires Cygnus (as it did in 1999), but entirely another when an old-guard, traditional IT company gobbles up a smaller open source start-up. Are these acquisitions good or bad for open
source? The answer, I fear, is a bit of both.Companies buy other companies for many reasons, most generally to either acquire products and technology (including perhaps the human capital) or to convert a customer base. A large, established IT vendor might also buy a small Open Source Software (OSS) start-up in an attempt to gain instant credibility and influence within the open source community or simply to gain access to the "inner circles" of the OSS community. [Note: I've written before on whether one can effectively buy an open source community. Verdict? Not a chance.]
Larger vendors have the deep pockets to infuse a project with the capital and resources to accelerate adoption and critical mass. Moreover, large vendors can provide a level of clout and reduce the trepidation that more conservative users may have toward open source in general; after all, numerous IT organizations leverage multi-billion dollar vendors as safety blankets against risk.
However, these acquisitions can also be used as a weapon against open source. It's no secret that open source projects continue to mature in markets with direct competition against incumbent closed source solutions. Many large vendors might decide the best defense is a strong offense and simply attempt to kill off competing OSS vendors as they emerge.
For example, in May 2005, IBM acquired Gluecode Software, which specialized in supporting technology from the Apache Foundation. In particular, Gluecode was the principle source of engineering effort behind the Geronimo J2EE application server project. So, why then is IBM interested in a tiny software company focused on an OSS application server? After all, investments in Geronimo would certainly overlap with its own WebSphere product line. However, Geronimo is also a real threat to JBoss. IBM's strategy is a clear example of "the enemy of my enemy is my friend." I think IBM saw the writing on the wall, witnessing the pounding that BEA is taking from JBoss. Essentially, any OSS application server providing an alternative to JBoss is a good thing for IBM in the long run. On the upside, IBM provides a level of funding and support that Gluecode could never dream of as a struggling open source, pure play. This in turn will significantly help the Apache Foundation in driving Geronimo to critical mass much quicker. On the downside, the jury is still out on whether IBM will attempt to influence the direction of the Geronimo project and steer it away from potential competition with its own application server stack. In fact, IBM recently made WebSphere Application Server Community Edition available for free download. Two very interesting issues arise, however. First, WASCE is not open source-just free as in gratis. Second, it's not a full implementation of the Geronimo project. IBM hasn't included Geronimo's JBI-based ServiceMix Enterprise Service Bus (ESB); not surprising, since IBM doesn't support JBI.
For my part, I like the smell of IBM acquiring Gluecode much more than Oracle buying JBoss. IBM has legitimate open source street cred, and the strategy (Geronimo as the low end to Websphere) is a legitimate one, whether one agrees with it or not. But I have a hard time seeing JBoss thrive in Oracle's hands.
Posted by Matt Asay on February 7, 2006 04:18 PM
February 07, 2006 | Comments: (0)
Applying theory to Open Source Innovation
The notion of open source innovation continues to be interesting and elusive. There are a fair number of open source products that are built to be replacements for proprietary applications, but most of the applications haven't reached the point of being more innovative than their counterpart. To some extent this is because they don't have the developer pool, and to another extent it's because most of the products are first-generation. Regardless, there is clear evidence that open source can, and will continue to innovate.
I turned to Clayton Christensen's Seeing What's Next for a bit of theory on how innovation in open source is affecting the market. One key theme that I think gets lost about open source versus proprietary is the non-market context for innovation--the notion that you need both motivation and ability to be truly innovative. It seems like proprietary vendors take this for granted because open source projects are often benevolent, providing their code and projects for a greater good. This innovation altruism contains both motivation (the desire for code freedom) and ability (good developers and community). But these projects are not innovative in a tradition roadmap way which confuses the market. On the other hand, most for-profit open source companies have the motivation but are just now developing the ability to compete on features and move to a model of differentiation rather than based strictly on low-cost.
Two specific areas that I find interesting from Christensen are the Undershot and Overshot consumer frameworks.
Undershot
Undershot consumers are those who buy products that come closest to meeting their requirements, but then need consultants or internal staff to sufficiently take the product the last mile.A few examples of this are found in Tibco, Siebel or Documentum-they both work out of the box but require serious customization in order to be useful to the specific business. This can even be said of SaaS products like Salesforce.com which has a whole ecosystem of SIs that come in and build your personal version.
Consider some open source products like Mule ESB, SugarCRM, or Alfresco as replacements for those products. You still need a level of customization, but your initial software costs are so much lower that they are very hard to dismiss. I would also argue that the parity of features is very close and the behemoth proprietary apps easily fall into the Overshot category below.
Overshot
Overshot consumers tend to be the target market for most open source companies. Overshot customers pay decreasing premiums for improvements they used to value. This is also an area where the condition goes from the bottom up, with low-end disruptions and a good-enough approach.Take for example BEA WebLogic, a product that continues to lose core market share to open source replacements like JBoss and Apache Tomcat - replacements that compete both on features and functionality at a significantly lower cost. The same could be said for the Oracle database product which has a core audience but is constantly challenged by open source competitors that take market share.
But you'll notice that neither company is out of business. BEA is attempting to associate itself with SOA, an emerging "premium" market segment, and Oracle is much less reliant on revenues from the database and more from other value-add applications and services. In fact there is a very viable argument for Oracle to make the database entirely free at some point.
Choose your poison
Overshot or Undershot, both segments have large market potential for open source. Go start a company. As Matt said earlier "the next stage? New technology and new markets, fed and knit together by self-selecting, open source communities. It will happen. Just give us time."
Posted by Dave Rosenberg on February 7, 2006 02:51 PM
February 07, 2006 | Comments: (0)
Be heard: Open sourcing California
I just received this email, which I thought I'd pass along (with permission from its author):
Senator Bowen asked me to make sure you and the other OSBC conference organizers are aware of a legislative hearing scheduled for tomorrow 2/8/06 in the State Capitol on the subject of open source.
The goal of the hearing is to gather information about the open source model, hear from businesses that have moved to open source, and begin a discussion about whether it makes sense to move toward open source software for our voting systems. Senator Bowen is the chairwoman of the Senate Elections Committee and the hearing will be broadcast on the internet (click on "Broadcast Room List," then click on "Committee Room 4202.")
If there are folks you think would be interested in knowing about this policy hearing, feel free to forward this email. Good luck with your conference!-Jennie
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