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Open Source and the Rise of as-a-Service Businesses

I Want You To Open Source!

As discussed in my recap of the 2014 predictions from this space, it has been interesting to see Oracle’s SEC filings reflect the structural changes to both its business and the industry as a whole.

In 2012 and prior, Oracle reported on:

  • New software licenses
  • Software license updates and product support

By 2013, that became (additions in bold):

  • New software licenses and cloud software subscriptions
  • Software license updates and product support

And for the last fiscal year, Oracle expanded that into:

  • New software licenses
  • Cloud software-as-a-service and platform-as-a-service
  • Cloud infrastructure-as-a-service
  • Software license updates and product support

In just a few lines of a Consolidated Statement of Operations is writ the recent history of the software industry. Even companies that have efficiently extracted billions of dollars in profit from traditional, perpetual license software businesses are increasingly looking to cloud and service-enabled lines of business for future growth.

The numbers make it easy to see why. From 2012 to 2014, Oracle’s new software license revenue was down 0.37%. Over the same time period, its IaaS, PaaS and SaaS offerings combined reported growth of 75% – and if you exclude IaaS, which is a nascent business for the company – the growth rate jumps to 146%.

If we can accept for the sake of argument that this is not a unique adjustment of Oracle’s, but a pattern replicating itself across a wide range of businesses and industries, there are many questions to be answered about what the impacts will be to the industry around it. Of all of these questions, however, none is perhaps as important as the one I have discussed with members of the Eclipse and Linux Foundations over the past few weeks: what does the shift towards as-a-service businesses mean for open source? Is it good or bad for open source software in general?

The problem is that this question is difficult to answer precisely, because evidence can be found to support opposing arguments.

The Good News

On the positive front, the creation of services businesses has indirectly and directly led to an enormous portfolio of open source software. With the introduction and subsequent commercialization of the internet, a new class of problems demanded a new class of solutions. Prior to the internet, the types of scale-out architectures that are now standard within large service providers were relatively uncommon outside of specialized areas like HPC. The prevailing design assumption at the time, as Joe Gregorio observed, was N = 1, not the N > 1 fundamental assumption on which today’s platforms are built.

To satisfy the immediate demand for an enormous volume of new software written to solve new classes of problems, fundamental shifts were required. Most obviously, an unusually high percentage of this software was not written for purposes of sale. Unlike prior eras in which industry players lacking technical competencies effectively outsourced the job of software creation to third party commercial software organizations, companies like Amazon, Facebook and Google looked around and quickly determined that help was not coming from that direction – and even if it did, the economics of traditional software licensing would be a non-starter in scale-out environments.

Which is how this scale imperative led to a seismic shift in the way that software was designed and written. The decision by many of the original organizations to make these assets freely available as open source software consequently led to similarly titanic shifts in how software was distributed, marketed and sold.

The sheer number of companies not in the business of selling software who are releasing their creations as open source has dramatically inflated both the number and quality of available open source solutions. It has also put enormous competitive pressure on software vendors to either compete against open with a closed alternative or make their software similarly available.

The net, then, is that the rise of service-based businesses has directly and indirectly led to the creation of a lot of new open source software, which is positive for the industry – from a functional if not commercial standpoint – and customers alike. And having disrupted first the enterprise software industry and then compute, open source is now turning its eyes towards previously immune sectors like networking and storage.

The Bad News

One of the most important advantages open source enjoyed and continues to enjoy over proprietary alternatives is availability. As developers began to assert control over technical selection and direction in increasing numbers, even in situations where a proprietary alternative is technically superior, the sheer accessibility of open source software gave it an enormous market advantage. Choosing between adequate option A that could be downloaded instantly and theoretically superior option B gated by a salesperson was not in fact a choice. Thus Linux became the most widely adopted operating system on the cloud and MySQL the most popular relational database on the planet.

What is widely under-recognized, however, is the fact that from a convenience standpoint, open source does not enjoy the same advantages over its services counterparts that it did over proprietary competitors. Open source is typically less convenient than service-based alternatives, in fact. If it’s easier to download and spin up an open source database than talk to a salesperson, it’s even easier to download nothing at all and make setup, operation and backup of that database someone else’s problem.

If convenience is an increasingly important factor in technology adoption, then, and all of the available evidence suggests that it is, open source’s relative disadvantage in this area is a potential problem.

Particularly when you consider the motivations of vendors, who have not forgotten one of the primary lessons of the proprietary software market: locking in customers is good for business. As Shapiro and Varian put it 1999, “the profits you can earn from a customer – on a going-forward, present-value basis – exactly equal the total switching costs” (emphasis theirs). Put another way, then, the more it costs to switch, the more profits it is possible in theory to extract.

Among services companies, meanwhile, we see radically different attitudes towards the value of software, and thereby attitudes towards the act of open sourcing internal software. Facebook, at one end of the spectrum, is radically open, contributing everything from infrastructure software (e.g. Cassandra, HHVM, PrestoDB) to datacenter designs to the public knowledge pool. Amazon and Microsoft, however, are not major contributors of net new projects or packages to upstream projects.

The Net

There is little debate that to this point, the rise of service-based businesses has been a boon for open source. And for many of the pioneers of these scale-out businesses, open source is a competitive weapon in their biggest challenge: talent recruitment and retention. Developers evaluating open positions today are often faced with a choice: develop in a black box, where your work will touch thousands of other developers daily, but for which you’ll receive no external credit. Alternately, they can work on interesting problems and be given some latitude for sharing their work outside the firewall, improving their visibility and marketability moving forward.

To some extent, the lack of interest in the AGPL is a testament to the foundational role of open source in building out service-based businesses. If collaborative development and upstream contributions to key infrastructure projects was a major issue, the AGPL would probably be employed more frequently as a solution. Instead, it is an infrequently used license whose protections are widely regarded as unnecessary.

All of that being said, however, it is equally true that the future for open source in a services world is ambiguous. There are substantial incentives for vendors to drift towards non-open software, and the current trend towards permissive licensing, if anything, could accelerate this. By placing few if any restrictions on usage of open source software, permissive licenses present no barrier to any form of usage of open source software in proprietary contexts. It is true, however, that for services-based businesses, even copyleft licenses such as the GPL pose little threat because the distribution trigger is not tripped.

Taken as a whole, then, open source advocates would be wise to be appreciative of how far service businesses have gotten them to date, while being wary and watchful of their intentions moving forward.

Disclosure: Amazon, Microsoft and Oracle are RedMonk clients. Facebook is not.

Categories: Cloud, Hardware-as-a-Service, Open Source, Software-as-a-Service.

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Continuing the Discussion

  1. […] Open Source and the Rise of as-a-Service Businesses […]

  2. […] “…what does the shift towards as-a-service businesses mean for open source? Is it good or bad for open source software in general? The problem is that this question is difficult to answer precisely, because evidence can be found to support opposing arguments. … the rise of service-based businesses has directly and indirectly led to the creation of a lot of new open source software, which is positive for the industry – from a functional if not commercial standpoint – and customers alike. And having disrupted first the enterprise software industry and then compute, open source is now turning its eyes towards previously immune sectors like networking and storage. … open source advocates would be wise to be appreciative of how far service businesses have gotten them to date, while being wary and watchful of their intentions moving forward.” Via Stephen O’Grady, RedMonk […]

  3. […] the one hand, as Redmonk analyst Stephen O’Grady highlighted, the Facebooks and Googles of the world are happy to release mountains of open source: “The […]

  4. […] this topic, one other article I particularly recommend is by RedMonk’s Stephen O’Grady: Open Source and the Rise of as-a-Service Businesses. Here’s the key quote (as cited in the TechCrunch […]