Open Source Insights on Enterprise Software Business Models

A recent Slashdot posting pointed to a presentation from EclipseCon earlier this month, given by Brent Williams, an equity research analyst
who used to be in the software business. A few things really caught my eye …

Take some time to flip through the original presentation; there are some interesting insights about the nature of the enterprise software industry (the SAP, Oracle, and Microsoft crowd). Three of the lightbulbs that went off in my mind …

(Slide 10) [By folding in an OS component, Oracle is] Solving the Wrong Vendor Problem

  • Williams points out that Microsoft tries to do the same thing, and is experiencing problems in recent years (both technical and legal, IMHO)
  • SAP is trying to do the same thing with their NetWeaver layer, and customers are chafing at the potential for lock in, loss of flexibility

Apparently, vertical integration has it’s limits in the software industry – something to keep in mind when listening to the vendor pitches.

(Slide 25) Lock in … makes repeated customer-unfriendly (i.e., “bad”) behavior possible

  • Williams cites the extreme profits (>40% operating margins) for software providers, and the big pressures to grow revenue (see also slide 18)

If nothing else, it’s a clarion call to maintain as much pressure on my vendors as possible, to continue to prove their value-add to my business – help me structure an agreement that makes sense to my company.

(Slide 34) [Comparison] of Software Market vs Commodity Market

  • Some fascinating insights here; you do realize, of course, that “software supply is infinite, since it costs zero to print the next copy”
  • It’s much like the ethical pharmaceutical industry, where products sport gross margins of 70-90%; the net is always something more palatable, as R&D expense for failed products (somewhat justified) and marketing expense for consumers and physicians (often overdone) is allocated against these margins

No matter what your vendors are saying, there is an overabundance of profit in their licensing and maintenance dollars; don’t let them whine when the negotiations get tough.

The Slashdot post itself was interesting, because the number of responses was quite low. For those who may not know, Slashdot is a technology-oriented website that is popular with the open source set; it was one of the first highly successful web communities, and sites that get listed here often experience a stunning level of traffic soon afterwards.

I noticed a strong tendency to shred the Williams presentations on the quality (and supposed lack thereof) of the OS software examples cited. I thought it amusing that the OS crowd should pick on this presentation so much, when it is trying to present a great story in support of their cause.

Finally – the presentations introduced me to a new term – “blowback” – to describe the reaction felt from the market when a company tries to go against the grain. I’d never heard it before this week, but it’s suddenly popping up in other places as well. A new one for my buzzword bingo game …

This Post Has 0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Related Articles

You Can’t Run IT Like A Business (except Maybe You Can …)

Well-intentioned IT leaders, and their functional peers, want to apply run-like-a-business concepts like customer satisfaction and value creation to the operations of shared service functions. If we can describe things with the same words, we can apply the same fixes. But it's a bit tricky to restate things in a meaningful way...
read more

Accelerate Innovation with a Simpler Budget Approach

Organizations are desperate for innovation, but these are still investment choices that require complete and credible data to enable the right decisions. Developing a simple standard for characterizing all costs will accelerate decision making.
read more

Creating Enterprise Value with your Digital Transformation

As your organization ponders a Digital Transformation, a critical concern will be the creation of Value. But is this value for the Shareholder as we focus on building a Great Stock, or value for Employees and Customers as we build a Great Company? Three separate conversations, focused on three different stakeholders.
read more

James MacLennan

... is the Managing Partner at Maker Turtle LLC, a digital consultancy focused on creating value in ways that align with your strategy and drive engagement with employees, customers, and stakeholders. He is an active creator, providing thought leadership through on-line & print publications, and public speaking / keynotes.