The Open Source Software Challenge in 2001

Anthony Dunams, Jake Elston, Mark Forrest Sitting but ready to provide a Standing Ovation:

Frank ‘Forking’ Morey, Russ ‘Sustainability’ Smeback,

and Kevin ‘Tech” Tucker

The Open Source Threat

• “I’d put the Linux phenomenon really as threat number one.” -Steve Ballmer, CEO Microsoft

• “Open source reduces the value of IP over time.” -Martin Fink, HP Linux Systems Operations

•“A server license can cost up to $20 grand! Why buy a cow when you can get the milk for free?” -Dr. Fredrick Von Pidooma

Free Software Foundation

• GNU operating system -1984

• General Public License (GPL) – “Copyleft”

•A “Viral” license •Source code may be copied, modified, and redistributed for a fee•All new combinations must carry the GPL license

Berkeley Software Distribution

• Berkeley Software Distribution License (BSD)

•Similar to GPL

•Allows for proprietary variations

A Seismic Shift in Strategy

• “The decision to open source can strike at the heart of a company’s strategy.”

-Burgelman/Meza

• “Open Source alters the fundamental notion of property and property rights.”

-Steven Weber, UC Berkeley

Profits fromHardware

Does Not SupportsSupport Open Source

Profits fromSoftware

Microsoft

IntelHP

SUN

IBM

Industry Map

Hewlett Packard

• “Low level infrastructure is going to be commoditized over time and the best thing we can do is embrace that and stop investing there so we can invest higher up the value stack, into things we can charge more money for.” - Martin Fink, HP

Hewlett Packard

Strategy

• Reduce costs for non-strategic development and use freed resources to develop greater value added hardware and software.

•The desktop is NOT strategic for HP

•Backend infrastructure IS strategic

Apple OS-X

• Apple used the same rational for building their latest Mac operating system on top of BSD Unix.

• Aqua is the proprietary interface built on open source platform.

• This is a more efficient development system for this company with limited resources.

TiVO

• Even mighty TiVO runs on a Linux platform.

• Visit the TiVO website to download the free software.

-Steven Weber, UC Berkeley

Sun Microsystems

• “Companies like Sun, HP and IBM make money by selling things that weigh something; servers, computers, printers, etc. Software is secondary to how they make money – but central in generating the pull for the hardware.”

- Dr. Richard Gabriel, Sun Microsystems

Sun Microsystems

• “Open source allows Sun to establish some ubiquity in the marketplace, particularly when we try to establish new market places.”

- Dr. Richard Gabriel, Sun Microsystems

Sun Microsystems

“Loss-Leader” strategy

• Use open source to increase penetration in network computing environments.

• Leverage free software to sell hardware.

IBM

• “The widespread adoption of Linux is going to neutralize any vendor’s ability to exercise control – over customers or software developers – based on that vendor’s proprietary operating system… This makes possible an equally seismic shift in the way value is delivered – through services, through middleware, through servers.”

–Irving Wladawsky-Berger, IBM VP

IBM

• “Simple – We sell the hardware under Linux, the software on top of Linux, and the services all around it. The fact we don’t sell Linux itself is irrelevant in the big picture.” -Daniel Frye, IBM Linux Technology Center

IBM’s Strategic Alignment

Business Strategy:Consulting &

Services

IT Infrastructure:Existing Open Source

Platform - Linux

IT Strategy:Non-Proprietary

Intel

• “Port of Choice” strategy

-Make sure all important systems run best on Intel chips.

-Walking a fine line with Microsoft as an important business partner.

• Open source creates confusion for development teams used to protecting IP.

Microsoft

• “A common trait of many of the [dot com] companies that failed is that they gave away for free or at a loss the very thing they produced that was of greatest value – in the hope that somehow they’d make money selling something else.” - Craig Mundie, Microsoft Senior VP for applied strategies

Microsoft

• “The [open source] development model leads to a strong possibility of unhealthy “forking” of a code base, resulting in the development of multiple incompatible versions of programs, weakened interoperability, product instability, and hindering businesses ability to strategically plan for the future.” - Craig Mundie, Microsoft

Microsoft

• “This is the bald faced propaganda of a desperate man whose cash cow is being commoditized.” -Dr. Fredrick Von Pidooma

Microsoft

• Business model based on closed source operating systems driving proprietary hardware - antithesis of Linux

• Views Linux a few ways:– When under Antitrust investigation, they cited Linux as

evidence of a robust, competitive marketplace.

– They consider Linux just “good-enough” technology.

– Linux is a “competitive challenge.”

Microsoft

Strategy• Circumvent Linux’s potential threat

– Sun-Microsoft Deal Good News for Web Services and Infrastructure Software - IDC Viewpoint. Improving interoperability will fortify their current strengths to support the lion’s share of enterprise workloads through Solaris and Windows.NET.

• Other challengers - Novell pushing forward with a Linux-based desktop due to acquisitions of Ximian and SUSE. Microsoft may face more competition on the desktop.

Microsoft

Strategy (cont’d)• Microsoft does not embrace open source; viral

affect poses a threat to intellectual property.• They suggest sharing only the parts of the source

code needed to make applications work with their programs.

True Cost of Open Source

• It’s FREE!– If you can run the system unsupported and

expect no system crashes.

• Yeah but it’s FREE!–No support provided so what is the cost of supporting the system internally ($100k per staffer) or externally (3.0 multiplier).–The system does have bugs due to unfettered collaboration and standard, not specific, applications.

True Cost of Open Source

• It’s not exactly free…– You also need hardware infrastructure,

compatible applications, installation, support, training, etc.

– Total cost may exceed that of proprietary systems.

•Form follows Function–“IT purchasing decisions typically don’t and shouldn’t begin with the operating system.”

-Peter DelGiacco, VP IT for NHL

True Cost of Open Source

• Companies providing Linux (Red Hat and VA Linux) are in the red - net losses of $86.7 million and $89.8 million, respectively in 2000.

• Traditional closed source organizations (Microsoft, Sun, HP, IBM) have significant income in billions of dollars and growing.

The Open Source Challenge

• Final thought: Open source does not equal free, but when combined with the right hardware and support, its performance can be competitive with proprietary systems.

The End