How Evolving Business Models are Enabling OSS Adoption
"Open-Source represents some revolutionary concepts being thrown at an industry. It gives customers control over the technologies they use, instead of enabling the vendors to control their customers through restricting access to the code behind the technologies. [However], supplying open-source tools to the market will require new business models." Bob Young, Chairman and CEO, Red Hat
Since Young's prognosticating over a decade ago, Open-Source software (OSS) has come of age. And with it a number of maturing business models now allow companies to capitalise on its much heralded benefits whilst mitigating the business risks inherent in the implementation of any new technology. This article considers the structure and rationale behind the business models that are fuelling the proliferation of OSS, and examines how they seek to mitigate the perceived risks without compromising the benefits of OSS for the customer.
So what is OSS and what are the most widely acclaimed benefits?
"Free software is a matter of liberty, not price. To understand the concept, you should think of free as in free speech, not as in free beer." Richard Stallman, Free Software Foundation
OSS makes available the source code which the licensee may inspect, use, improve, expand and distribute freely. The fact that OSS can be freely copied without payment of royalties is perhaps its greatest draw, at least at first glance. However, there is no such thing as a free lunch, and OSS is not free‘ in the sense that there are no costs associated with its adoption. Whilst it has the potential to significantly reduce total cost of ownership (TCO), it is a mistake to rest the case there. What OSS promises is freedom‘; freedom from vendor lock-in and the constraints of software which does not conform to open standards. But again, perhaps this has been overemphasised. CIO‘s are only too aware of the potential exit costs of proprietary software and the effect that has on their agility in an increasingly volatile and changing market, but view them as long term considerations. What ultimately drives CIO‘s to invest in OSS now are immediate cost savings and compliant software which deliver results in alignment with business strategy and goals. Economic conditions are forcing virtually all companies to re-examine costs and corporate management is applying more pressure on IT organisations to reduce expenses. In a recent CIO Insight survey of 219 IT executives, 80% of the respondents said they were under more pressure to reduce costs this year than they were last year and without any degradation of service or increased risk. This is where OSS has come into its own. The primary benefit of adopting OSS software is the ability to squeeze more productivity out of a lower IT budget. So in summary, many organisations through their measured adoption of OSS get the features and functionality they need to run their businesses with similar or better performance, scalability, reliability, security, and support at lower costs — plus the flexibility, choice, and control to manage their environments on their own terms and timeframes.
And what are the risks associated with the adoption of OSS?
Whilst most CIO's considering OSS these days are either sufficiently well informed or guided by specialist consultancy firms so as to avoid the pitfalls, there are still those that embark on OSS policies and undertake return on investment (ROI) appraisals based on two popular misconceptions; it's all or nothing, and it‘s free. Taking the latter first and elaborating on the points made previously, the design, transition, operation and ongoing development of OSS are not free and one way or another the CIO must factor those into the investment appraisal. Wherever these services come from, to deliver successful outcomes they must be undertaken in line with the organisations best practice policies. Only when they provide the proper processes, checks and testing demanded of proprietary software projects and are backed by enterprise SLA's that offer at least as strong service delivery guarantees as their proprietary counterparts, can OSS be considered a viable alternative. Meeting these demands at a price point that retains the TCO advantage provided by free licensing is the challenge for OSS vendors and independent service providers and arguably acts as the primary catalyst for the innovation of the cost effective Open-Source business models discussed later.
"There is a very strong propaganda blogger focus among the Open-Source community that tends to treat Open-Source as an ideology. Even some organisations treat it as an ethical issue and that tends to muddy the waters." Mark Driver, VP, Gartner
Today's IT world is no longer an all or nothing world in which customers and vendors choose to be either proprietary or Open-Source. Instead, it is a progressive and pragmatic world where the OSS vs proprietary software dichotomy is replaced by one of healthy competition and cooperation making interoperable deployments a perfectly acceptable and often advisable solution. The key to success is determining which projects make sense for Open-Source. Savvy organisations consider both proprietary and open-source options for projects, and choose the right product for the given situation. ROI calculations must be undertaken using the proper time horizons and considering the risks/rewards downstream. The software must stand on its own merits and be objectively measured in terms of quality, reliability, security, flexibility and cost in relation to the proprietary alternative.
With over a quarter of a million OSS projects currently registered on SourceForge, one of the significant risks for any organisation considering OSS is identifying those that are enterprise ready. Determining which of them comes from an established, viable community, meets basic quality and integrity standards, is actively maintained and meets basic standards for documentation, and has a well-understood Open-Source licensing model is essential. Ascertaining the development roadmap and predicted longevity are similarly vital considerations in any product evaluation process and in relation to community OSS can be all the more challenging. Having said that Linux and many OSS applications are far beyond the adoption chasm, have enterprise business models and are backed by some of the strongest growth organisations in the industry. It is often the proprietary software that looks to be the riskier option.
Finally, as enterprises consider making strategic investments in OSS, they face the question of indemnification; a standard component of most traditional proprietary software offerings but not always available with OSS. Without a measure of protection against potential copyright infringement claims organisations will find it hard to get OSS beyond the approvals and auditing process- the average risk appetite would simply (and reasonably) preclude it from consideration. And it is this final point that serves to differentiate most vividly between those OSS offerings that are enterprise ready and those that potentially introduce unacceptable risk.
Is it the development or business model that impacts most significantly on OSS adoption?
Open-Source development is commonly viewed as a direct challenge to the traditional one shop model of proprietary software development, and largely that is the case. However, whilst their development models may be poles apart, it does not necessarily follow that their business models are too.
The significant disparities of the development models are easily summarized. In the proprietary model, the management, funding, and focus of research and development are undertaken within the boundaries of a single organisation. The primary advantage of the model is that the organisation is able to generate income from investors and then decide how to optimally allocate those resources to maximize the success of any particular development project. Conversely, in the Open-Source model, control is more diffuse, with development proceeding through relatively decentralized hierarchies. As discussed earlier, the strength of this Open-Source development model is its potential to innovate faster and produce higher quality products that conform to open standards.
Nevertheless, whilst the development model is doubtless responsible for the emergence of a new industry paradigm and should not be undervalued, ultimately a product must be measured against a discrete set of requirements in which the development model is unlikely to feature. What is much more relevant is the business model, as this has the potential to significantly impact on project success rates, capital expenditure, TCO, legal liability and ultimately the value derived from the software during its lifetime.
How and why has the traditional OSS business model developed?
Traditional software business models are based on revenues derived from the sale of licenses to use a firm's copyrighted software. The prevalent Open-Source licence, the General Public License (GPL), gives everyone permission to run the program, copy the program, modify the program, and distribute modified versions - but not permission to add restrictions of their own. As the software is freely available and developments are open to appropriation, OSS organisations have had to develop business models that add real value to the end user. As with any new business model, its success is dependent on the identification and correction of a market imperfection. Correspondingly OSS business model innovation has served to identify the weaknesses and risks associated with the early OSS model and then fortify and mitigate them respectively.
What the innovators recognised early on was how critical it is for organisations to comply with the public sector and industry regulations to minimize corporate risk and conform to internal policies relating to industry accreditations, development cycles and enterprise SLA's. The model adopted by most OSS organisations in the 1990s and early 2000s was simply not to charge for the software but offer support, training, and consulting services that assist users in the design, implementation and management of their OSS solution. It just didn't go far enough in most cases to make OSS acceptable to all but those with the greatest technical confidence and highest risk appetite. And it was this to a large extent that inhibited the adoption of OSS then, and continues to do so albeit to a lesser extent today; the potential to put the organisation at risk by leveraging Open-Source components that are not commercially supported, certified or indemnified. Deploying applications and services in production environments demands enterprise-class reliability and maintainability over the long term. The use of community project software offers no formal guarantee of long term stability, supportability and maintainability, no software or hardware certifications, and perhaps most importantly, no legal assurance. CIO‘s had then, as they do now, a duty to consider the potential incurrence of significant costs related to the support and maintenance of infrastructure cobbled together from multiple community projects, and worse, the possibility of intellectual property infringement claims.
In 2003 one of OSS's most significant actors, Red Hat, radically changed its business model. It withdrew Red Hat Linux and replaced it with Red Hat Enterprise Linux (RHEL) and Fedora. RHEL was designed to be a stable platform with industry standard release cycles, offering support and maintenance for up to 10 year's with full backward compatibility. It had been certified against hardware and software applications businesses relied on. It offered commercial, vendor backed utility support underpinned by formal, industry standard SLA's. And again, perhaps most importantly, it offered intellectual property assurance to provide certain safeguards in the event of a legal claim. This was a game changer for Linux and the adoption of similar dual-license business models by hundreds of OSS vendors has fuelled the accelerated adoption of OSS we are seeing today.
What challenges remain for the OSS business model and how are they being addressed?
It's all very well having these enterprise OSS business models in place so long as the OSS that organisations want to implement is made available accordingly. Otherwise, it may be superior quality software from a well established and organised community, but without the requisite assurances its proliferation in the mainstream will be significantly hampered. Organisations are all too often left with the choice of retaining expensive and less appealing proprietary software because they are unable to safely and efficiently leverage the OSS alternative they prefer.
To address this specific issue and help combat the ongoing threat to OSS proliferation, in 2011 LinuxIT pioneered in the UK a program to underwrite carefully selected community based OSS. LinuxIT has teamed up with a leading global insurance-based financial services provider to deliver its unique OSS Indemnification Program that provides the assurance required to embrace the benefits of OSS. Together with enterprise SLA's and extensive product certifications, this program has enabled many of the marginalised OSS projects to be considered enterprise ready. It is this type of innovation that is knocking over the barriers to adoption and enabling organisations to consider OSS on a level playing field with the proprietary alternatives.
In conclusion, whilst historically the debate has centred on the disparities in OSS and proprietary development and business models, thereby polarising their strengths and weaknesses, increasingly organisations are recognising there is a middle ground. For organisations wishing to cultivate a heterogeneous environment that benefits from the best of both worlds, there is a significant trend towards convergence, as OSS companies combine the most successful elements of the Open-Source and proprietary paradigms to drive proliferation and gain competitive advantage for themselves and their customers.
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