OSS Trickle Down

    October 31, 2006

If I understand Dana’s point correctly here, he’s saying that as open source vendors start getting a larger part of the corporate IT budget, less money is spent on commercial vendors, thereby reducing how much those commercial vendors have to spend on R&D for future innovations.

We shouldn’t ignore the fact that some of the most useful technologies these days have come from outside a commercial ISV’s doors (i.e. PHP, MySQL or Spring). So, I don’t think we can make the blanket statement that open source growth equals a reduction of innovation. And I don’t think that is Dana’s point.

I wrote that Red Hat is actually spending 3.1x on SG&A than on R&D, compared to an average of 2.6x across IBM, Oracle and Microsoft. On the surface, this could be a double whammy. First, there is less revenue going to established software vendors to pour into R&D, and second the R&D spending of established’ OSS vendors is lower than the proportional R&D spending of their commercial competitors. One could argue that the net result of these two forces should be a reduction in innovation. (We are making the simplifying assumption that R&D investments result in innovations.)

This is a situation where the IBM WebSphere division has done some interesting things. The WebSphere division first decided to use the Apache HTTP server inside of WebSphere Application Server (WAS) vs. the HTTP daemon that was being developed internally. As a result, the development resources that were previously working on the internal HTTPd were assigned to other parts of the WAS team to work on technologies and innovations that customers saw as having differentiated value. In this situation, OSS actually helped to drive innovation from inside a commercial SW vendor by freeing resources to work on innovative technologies.

The next example was the acquisition of Gluecode Software. Through this acquisition, IBM was able to introduce WAS Community Edition (WAS CE) to address the needs of customers there were seeking a light-weight, easy-to-use, free application server, and thereby make some revenue which could feed R&D efforts. It has also allowed IBM to experiment with the OSS business model.

Having WAS CE as a member of the WAS family allows IBM to compete against both commercial application server vendors (BEA) and open source application server vendors (Red Hat/JBoss) in situations where a customer is contemplating open source. So, instead of risking losing such a deal, IBM Is able to offer the customer WAS CE, and thereby gets support revenue. Sure it’s not the same amount as selling a commercial WAS license, but it’s better than not winning the deal. Also, a WAS CE customer gets introduced to the rest of the WAS and IBM Software family of products, so the customer may end up purchasing one of those in the future (equaling more spending with IBM which can go towards future R&D).

Open source and commercial software will continue to exist in a symbiotic relationship for the foreseeable future. The relationship will require commercial vendors to rethink their approaches to building everything vs. building differentiated value on an OSS foundation. And when commercial software vendors start altering their business models, OSS vendors won’t be able to take a business as usual approach either.


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I am taking a semi-break from IBM life as I return to finish a PhD in Industrial Engineering. I’ve held roles in market intelligence, strategy and product management. I’m ex-product manager of IBM WAS Community Edition, and blog about enterprise open source topics.