IBM & Open Source: The Good, The Bad & the Questionable
Bob Sutor, IBM's vp for open source and standards told eWeek that IBM intends to focus on open source solutions for vertical markets - initially automotive, education and health care. However, according to the eWeek quote, there are no limits on what IBM intends to "open" with.
Analysis
A huge proportion of IBM's revenue and profits come from the IBM Global Services (the computer giant's consulting arm). As evidenced by the 2002 acquisition of PriceWaterhouseCoopers Consulting by IBM/GS, it is an ongoing and huge part of CEO Sam Palmisano's strategy. Therfore, the move to open source should surprise no one. IBM hopes to give away software in hopes of moving more iron ... and most importantly, more billable hours for its consultants.
The Good, The Bad and the Questionable
Is this "good for business"? Well, its another, inexorable shift in business models. Software is becoming commoditized. But it's not necessarily a good thing. You see - software has historically been a high gross margin business - develop the software, and ship out distribution tapes/disks/CDs/DVDs and downloads, and collect perpetual license fees - without much labor (once the product has been developed). Enhancements, bug fixes and the like are covered by the 17% to 20% maintenance surcharge.
However, firms like SAP and PeopleSoft (now part of Oracle) saw consulting firms like Accenture, BearingPoint, CapGemini and IBM Global Services generate revenues of 3x the software licenses for the installation work. With the robust adoption of LINUX, and open source technologies like MySQL, a trend seems to be forming ... give away the software to get the services.
The good news (for consultants) is that the services are easy to sell once the product sale has been made. The consultancies ride on the coat tails of the software vendors - reaping rewards the rewards of the sales-cost borne by the software companies.
The bad news is that the open source trend may severly impair the innovation, development and deployment of new softaware solutions. Open source solutions are "free" (until you start paying the consultants) - but their release cycle times and functionality often lag commercial solutions.
The questionable issue is the future. There is far less leverage in consulting services. Consultancies are labor intensive - billing by the pound of flesh per hour. Consulting firms a notoriously hideous at producing commercial product, because a body in development is a body "on the shelf", earning nothing today on the promise of something in the future - and hence a cost item. Bodies in motion at client sites are moneymakers now. When the bodies in motion run short - the developers are pushed into the market place.
Propaganda
Industrial strength Open Source as "free software" is propaganda. Someone pays for it - and if the market's not paying license and maintenance fees, it's paying consultants. If the market is paying consultants, it's promoting short term revenue (bodies in motion) over longer term development (bodies in development). Given the historical proclivities of consulting firms to shy away from deep pocket investments - the market tendency toward the latest open source fad could lead us down a slippery slope.
The Ultimate Devolution
If the industrial strength open source movement gathers momentum - here's the prognostication:
Devolution Phase I: Big software firms channel resources into services and away from new development. "Consulting" grows from 10% to 20% of software company revenues to 50% or more.
Devolution Phase II: The revenue from bodies in motion at software companies starts to surpass 60% - the companies announce that their putting their code under GNU-like General Public Use licenses (or the more commercial friendly "Berkley Copright License"). Sure, the existing maintenance dollars will go toward the development pool of second-class developer citizens (the consultants have the keys to the kingdom now).
Devolution Phase III: The developers have all but died off as has maintenance revenue. "Public Contributions" are supporting the software frame - which is getting pretty rickety.
Devolution Phase IV: The industry has now made a 180 degree turn back to the 1960s - all software is now essentially "custom" software because there's no stable code base and the consultants have customized everything (or created so many parameter driven tables that setting parameters is, in itself, a programming language).
Devolution Phase V: A new concept arises - "packaged software". 5 guys in a garage launch a new CRM/ERP/BPM/CMS system. The selling point is that the software is "standard", can be installed without consultants, and has a perpetual license at a fraction of the cost of what consultants charge to build all this stuff on-site. And ... they'll maintain the code base for only 15% of the then-current license price.
Planet of the Apes Scenario: Genetically engineered chimps with wireless brain implants are taught to write and debug the current 9th generation language - the 5 guys in the garage hit the road as consultants!
posted by AFC @ 12:16 AM
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