CollabWorks

Challenging the assumptions

Just is case you missed this pitch, there is a lot of buzz about it in the LinkedIn Cloud Group. Mostly around challenging the assumptions. Its worth a 10 minute look.

http://uptimeinstitute.org/images/stories/McKinsey_Report_Cloud_Computing/mckinsey_clearing_the%20clouds_final_04142009.ppt.pdf

Personally I think the definition, and top down vs. bottom's up convergence framework makes sense. What is not well discussed are the key drivers. Greater variable/fixed costs, SAAS plug and play, and IT self-service will be key factors to roadmap decisions in my view.

Predictions '08

The OSA recently asked its member CEO's about their predictions for 2008.
Here are mine:

1. What will trigger increasing adoption of open source in the enterprise in 2008? Will adoption be at the same pace in Europe? The U.S.? Asia? Which region will lead?
The trigger will be two reinforcing community developments - enterprise and commercial companies leveraging open source.   - They will collaborate among their respective communities and together themselves to implement best practices and sharing successful solutions and working collective issues like interoperability. I believe the US will lead.

2. What is the biggest challenge for the open source software industry in 2008? What about for your company, is it the same challenge or something different?
I don't see an open source software industry. To me open source is an approach to developing and licensing software. The think the challenge for the commercial companies leveraging open source is to build a clear brand that leads the average IT buyer of software to believe that software that leverages open source is better than pure proprietary solutions. Our challenge is to demonstrate that collabsourcing will generate 2-3x the savings that typical outsourcing approaches provide.

3. How big of an effect will licensing have on open-source software in 2008? Is your company considering adopting GPLv3? Why or why not?
Open source licensing will continue to bother enterprise users but the dissemination of best implementation practices including license management will reduce this issue somewhat. 

4. What will be the biggest surprise in open source in 2008?
That the focus will shift from interoperability and licensing issues to momentum around a community of commercial companies that demonstrate that open source is the "prime source" for IT innovation.

Open Innovation

A few months ago we embarked on what we called the Open Solutions Project with the Open Solutions Alliance (OSA). Our goal was form a collaborative group of IT customers who would work together and with OSA and thought leaders such as Bernard Golden to develop best practices and more importantly, practical use cases including the whitespace for implementing open source. Part of the idea was to invite the suppliers who make up OSA to contribute reference-able customers who could in turn share with each other their successful open source implementations.

After conductive extensive interviews with CIOs and IT executives we confirmed their interest in open source and to develop processes, best practices and risk mitigation strategies to accelerate enterprise level utilization of open source. In addition, we learned that models for implementing open source are extendable to other sources of innovation. This leads me to introduce to you the Open Innovation* Project (OIP).  Its goal is to streamline the processes and mitigate the risks of implementing enterprise IT innovation. Sources of IT innovation can come from mainstream suppliers, startups, open source, other IT organizations, government and university programs, individual contributors, and so on.

I want to share a couple of examples enabling innovation as expressed by our CIOs. The first is and example of how not to reinvent the wheel, and how to earn a return on your internal R&D.  As it turns out, SAP's 6.0 HR solution lacks the versatility to meet the needs of customers. To create a custom solution would cost a mid-sized IT organization about $1 million in custom development plus the cost of implementation and "whitespace learning". Instead of repeating the solution as dictated by silo behavior, a CIO with this problem is now negotiating with a second CIO who already solved the problem to share the solution in exchange for an investment by the first CIO in a project that would benefit both companies.

In a second example, a CIO of one of the top business schools is concerned about how to manage the risk of professors depending on small highly innovative startups where the loss of one key person could crater the supplier. Escrowing the software does not really address the problem. The CIO wants to collaborate with other business schools to find suppliers who will act as second source to these startups. In the traditional silo approach it does not generally make sense for a supplier to be a second source of a startup. However, by acting as a community with other business schools, risks can be shared and the opportunity for providing second sourcing is greatly enhanced.

These are both examples of Open Innovation* Project. The idea is to build models, processes, and risk mitigation strategies to accelerate the implementation of enterprise IT innovation. By engaging and delivering on Open Innovation, IT organizations are walking the model of the virtual corporation and leading by example the transformations necessary for their companies to thrive in the participative web. We see Open Innovation as Open Source for business. By positioning themselves around the brand leveraging both the collaboration and innovation tenants of open source OSA can be perceived a vital force of IT innovation.
* I wanted to acknowledge Henry Chesbrough for his huge contribution of virtual innovation strategies in his ground breaking book, Open Innovation. While his focus was enterprise R&D strategies, my vantage point is about business processes for the virtual enterprise.

There is only One Chasm and I believe in Santa Claus

Bernard Golden is convinced there are two chasms to cross for commercial open source company and I believe there is only one. As I wrote in my recent blog, “There is no such thing as Commercial Open Source”, the attempt to ride the title wave of open source into a magical business domain called commercial open source adds more confusion and dilutes the core value proposition of open source. Let’s not confuse the success of well managed companies like MySQL, SugarCRM, MuleSource, and others with validating the commercial open source model. Each of these companies is winning the old fashion way, listening to customers, creating complete value propositions, and leveraging open source as a competitive advantage, not as a business model or special category. They don’t have two chasm strategies. Their customers are traditional buyers who normally buy proprietary products.
Getting lots of software downloads, open source or not, does not spell commercial success. If the downloads are from commercial buyers who normally try before they buy, then this could be a good marketing tactic – open source or not. However, if your downloads are by developers who rarely if at all buy software or support, then the small amount of revenue from added services to this group is NOT a “cross a chasm” strategy if your real buyer is the IT executive who buys every day commercial products. To be a commercial success it is critical to understand and drive towards meeting the needs of your sweet spot, pragmatic customer who is looking for results, a dependable relationship and low risk. Your early adopters are the SAME type of customers except they are willing to take on more support burden and risk than your pragmatist. It is critical that your early adopters have similar demands and the mutual respect of the pragmatist – otherwise you have not crossed THE chasm.
There are two points of confusion that I believe have led many so-called commercial open source companies down the slow top line growth path:
1. There is confusion regarding market strategy versus business model. The business model reflects a value exchange and the means upon which a company intends to meet its revenue goals. It starts with the pragmatic customers who write the checks. They write checks based on perceived value versus alternatives – not based on downloads, open source, or price. On the other hand, market strategy is your approach to shaping your pragmatic customer’s perception into believing you are the best choice. SugarCRM leverages its open source developer model to differentiate itself from Salesforce.com as the better choice. SugarCRM prices to what the check writer will pay, not to optimize download conversions.
2. There is confusion on open source as a market or a benefit. Using the Bee model referred to by Bernard, in my opinion (with the exception of developer tools), the open source community of developers are not a market. They don’t like buying stuff. This is not the path to IPO. An open source development and QA model on the other hand can be a competitive differentiator. It’s just better.
My bottom line is that there is no value in a category called commercial open source because commercial buyers simply don’t value the distinction. There are two excellent opportunities for commercial companies leveraging open source:
1. Properly leverage and reinforce an open source commercial “brand”. Part of the lure of commercial open source was to collectively wedge a larger opening for small innovative startups competing in a highly consolidated IT supplier world. Through organizations like the OSA, commercial companies leveraging open source can create a strong brand of innovation, commercial viability and responsiveness that capitalizes on the enormous benefits of open source. 
2. Commercial companies leveraging open source can further the brand and enhance there respective business models by publicly pronouncing they represent “second generation” open source. Like the first generation, this group of companies can form a community to collectively foster open source development, interoperability, and quality standards that go beyond and are more effective than traditional go-it-alone proprietary companies. The “commercial open source community” can share best practices, validated solutions, and promote standards to their combined community of customers. In my view this kind of community can represent a category recognized by customers and analysts as a great source of both innovation and reliability.
So, what does this have to do with why I believe in Santa Claus? The deal is that if you have been good, Santa will arrive baring gifts as your reward. In a bigger sense than a commercial Santa Claus putting gifts under the tree, I believe that doing good things for others does come back to you, often indirectly, in a good way. Everyday thousands of developers write and share code, producing value for others and often with little or no recognition. I have been troubled that only a few of these developers get tangibly rewarded. If a commercial open source community could work with a community of IT organizations to further innovation, best practices, interoperability, and the like, then these communities could also develop tangible reward mechanisms for developers. Such a process would be benefit both the first and second generations of open source, and become the means for having an open source Santa for the unrecognized developers upon whom the open source industry owes so much.    
Conclusion

One thing is certain.  As we move into 2008, more commercial open source companies will succeed, with others falling by the wayside, and it will become clearer who is right.  Is open source its own secret to success, a business model “secret sauce” that will ensure the success of any company who gets it right?  Or, is open source a means to an end, another arrow in the quiver of any business trying to sell value to customers?  Or, more likely, is there a kernel of truth in each?

There is no such thing as Commercial Open Source

While Bernard Golden and I agree on many things we do not agree on commercial open source. I believe it was John Roberts, CEO and founder of Sugar CRM, who first coined the term "commercial open source" as he was raising money from VCs. The term stuck and many others rode the term through funding events. John is clear that his company is a commercial company that leverages open source. His competition is saleforce.com and his strategy and tactics are to gain market share and leverage open source to his competitive advantage.

In Bernard's latest Navica newsletter, he challenges Savio Rodiques of IBM and Matt Asay of CNet and Alfresco on their assertions that "commercial open source" companies cannot scale above $100M in revenue. Bernard argues that low pricing creates much larger demand through price elasticity and that 3% close rates on leads are OK if the sales effort is very low such as Land's End catalog sales which amount to over $1B in revenue per year.

In my view commercial open source was trendy 2-3 years ago for raising venture capital. It has meant nothing but confusion to either the IT buyers or the developers. If you cruise the SugarCRM website, the front page and most of the tabs now show a logo tag line "break away". They have not dropped the old logo with the tag line "commercial open source" which is still on 50% of the tabs (I assume they are gradually moving away from the old logo). Not once on the front page is open source mentioned. Under the products section SugarCRM uses open source to explain their differentiation or unfair advantage. This is consistent with my assertion that Sugar is really a commercial company - period. Sugar values its open source community and leverages them to seek an unfair competitive advantage. Sugar is price competitive to saleforce.com and I would bet they measure their lead to close for ratio revenue against salesforce.com - not as a percentage of downloads.

IT executives understand what is a commercial company and how they want to do business with them. Developers understand open source and how to leverage it. That works. Is there any revenue ceiling for commercial companies leveraging open source? - no. Is there a ceiling for any company that gives away most of their product value and gets only a small conversion, say 3% in revenue customers? - yes. JBoss owns about 25% of the their market and less than 5% of the revenue. I have no idea how much revenue is garnered by Open Office but it is very small compared to total downloads. If price elasticity mattered, Open Office would dominate Microsoft. Apple on other has set relatively high price points and is now winning market share from Microsoft as a commercial company. Ditto for iPhone. MySLQ, MuleSource, Funambol, are winning the old fashion way. Clear commercial value prop that is better than alternatives.

I vote to forever bury the term commercial open source and move on. Commercial companies are forming great relationships with developer communities, nurturing them to gain a competitive advantage. There are no scaling limitations, no $100M ceiling, and no pricing models that succeed by giving away to much value that choke the top line growth. There is only one chasm and there are no open source business models - only commercial business models.

Can we learn from open source and apply it to the commercial market? - you bet. Can a community of commercial companies leveraging open source work together with a community of customers and solve common problems and leverage each other's strengths? - you bet. Does open source represent a huge innovative and disruptive force that when augmented by commercial business models can create a huge breath of fresh air to IT orgs who need new alternatives? Yes.

Bee Keepers, the Chasm & Open Source

Confused? How about commercial open source and "the second chasm"?

Bernard Golden, CEO at Navica, has described a creative model of the "second chasm" in his July Newsletter. He is referring to a modification of Geoffrey Moore's well-known model of Crossing THE Chasm. The second chasm is his observation that on average only 1 in a 1000 users of open source solutions actually pay for the code. The result is that many commercial open source companies are experiencing slow top line growth. This can be OK if your company is cash flow positive and the management and shareholders are comfortable with running a user-growth as opposed to profit-growth business. However, many of the 150 or so commercial open source companies are VC funded and these VCs have clear expectations on exits and 30%+ returns on capital. Unless you happen to be in the right place at the right time like XenSource (bought for $500 million by Citrix), revenue growth is key. Here in lies the debate and frankly confusion over business models and chasms.

As part of Bernard's chasm discussion he refers to James Dixon of Pentaho and his paper describing bees, honey, bee keepers, and consumers of honey as a model representing code developers, open source code, commercial open source companies, and consumers of open source code. His point his that the bees work hard to create the honey and are less motivated to continue to produce if bee keepers are focused on making a buck on the creative content of the bees. I am not sure this model helps sort through the mottled values of the various interests around open source. Long before consumers tasted honey and bee keepers went into "business", bees made honey year in and year out and happily so. As consumers discovered honey, and bee keepers a market, the bee adapted to a new value chain. What makes commercial open source confusing is the treatment of bees and consumers as customers. The idea is that a small percentage of the bees will be consumers and that somehow this is a great business.

In my view there commercial open source is NOT unique to any other commercial business made up of buyers and sellers, competition, value propositions, profit incentives and investor returns. There is only ONE chasm. Moore has it right. The consumers begin as early adopters, accelerate to the pragmatists, and plateau with the laggards. If you are a commercial open source company you are actually a commercial company that happens to use open source as a competitive advantage. Your focus is on the buyer, the buyers needs, and the buyer's choices. In most cases this is the CIO and the IT professionals reporting to him/her. After many discussions with CIOs I have found that they are interested in solving problems and leveraging their IT strengths for some competitive advantage. They want to do commerce is certain traditional ways and are not interested unusual business models, legal issues, or difficult to understand or rely upon support models. They are not really interested in buying "insurance" for free software if their other choices include built-in insurance into a straight forward ROI value exchange between the seller and the buyer.

The open source developers are suppliers to commercial open source companies and as any normal supplier vital to your company's value proposition: they are to be respected, acknowledged, and rewarded. The successful bee keepers take very good care of the bees that serve them. My conclusions: (1) There really are no commercial open source companies, and branding yourself as such my be counter productive and confusing. There are only commercial companies that leverage open source to their competitive advantage. Your customers are traditional buyers who have alternatives, namely your competitors. You price to market, and bundle complete solutions that don't need insurance - just a relentless focus on customers satisfaction and incredible passion to help your customer succeed. You price to market and value - not to developer expectations. (2) Like bees and honey, developers and open source existed long before commercial companies leveraging open source. If the bee keepers want to enter the value chain, then it is vital to nurture developers with community contributions, services, barter, and where practical, monetary rewards. And (3) there exists a huge strategic opportunity for commercial companies leveraging open source. Namely, to repeat what the developers have done so well around code - collaborate. Such as around issues like interoperability and sign-on standards and more importantly with customers. Consider the huge leverage of getting your customers to form a collaborative project where they identify shared requirements, share resources to solve problems, and to work with your company to address issues and drive your roadmap to solve their future needs. Welcome to Open Source 2.0.

The Grocery Store & Green IT

What do grocery stores and data centers have in common? Or rather what should they have in common? They both have a need for to supply cooling, for the grocer, it's to the perishable food products, and for the IT manager, it's for the hot servers. On a recent visit to Net Apps remarkable data center, I saw many innovative practices they use to minimize power consumption: automatic wireless sensors to regulate cooling, flywheel technology for back-up power supply, a state-of-the art control center. All really cool stuff, but the thing that struck me most was their use of simple clear PVC strips, just like those found in a typical grocery store to keep hot aisles hot, and cool aisles cool. Deploying simple plastic strip curtains results in a big gain in cooling efficiency without hindering access to servers. This simple relatively low-tech innovation, borrowed from grocery stores, was also coupled with heat sensors so that the curtains would automatically fall to the floor, so as not to obstruct sprinklers in the event of a fire. Kudo's to Net App for pioneering this simple, inexpensive idea.

Introducing the "Meta CIO"

Today's CIO is less about infrastructure and more about knowledge optimization and distribution. Who is responsible for adapting the end to end processes within an enterprise from suppliers to customers in order to be out in front of your competitors? Engineering? Sales? Marketing? Finance? I don't think so. Who is leading the transformation of your company to the participative web?

Not the CEO. Going forward the CIO is. Perhaps we get confused with the constant growth cycle that starts with innovation and ends with commodization. Yes much of traditional IT is now maintenance and far more can be outsourced. Taking the place of traditional IT is the meta layer that adds intelligence to information. The CIO must move up the ladder in an equal role with Engineering, Marketing, and Sales as a core operating unit. Those who recognize this paradigm will win the high ground as the network effect of the participative web works its way from consumers to the enterprise. What do metrics of success look like? How about revenue per employee versus virtual employees per total employees. Or, the number of "meta" CIOs that have held other CEO reporting positions and/or become CEOs. Your thoughts are most welcome. Mike Grove

An Arresting Spam Solution

We've had Steve Kirsch of Abaca present his very interesting anti-spam technology to our group, but the FBI may have done more good than Symantec, McAfee, and SurfControl combined, they arrested Robert Anthony Soloway, the "Spam King."

According to the article, this represented a real decrease in the amount of Spam on the Internet. A measured 8% drop in Spam equates to 6 billion messages. Unfortunately there are still a whopping 74 billion messages out there clogging the network. The majority of the messages are sent via compromised PCs acting as drones in a Spam sending bot-net. These bot-nets are very powerful. A spammer even chased an anti-spam company Blue Security out of the anti-spam business by launching an attack on their site.

This is the first real enforcement of the CAN-SPAM Act. Is government intervention needed to stop Spam? Or, has private private industry come up with solutions that are "good-enough."  Will more arrests help? or will other spammers rise up to take their place? What do our CIO members think?

Insecurity by Chocolate and Smiles

A recent study (cited by Tom's Hardware) in London showed that an attractive “researcher” and promises of a chocolate bar after completing a survey showed that 64% of workers gave up their passwords. Amazing! What was surprising is that even 22% of IT workers gave up their password.

Which leads us to question IT, can your company’s security be compromised by chocolates and a sexy smile? For centuries, nations have relied heavily on “pillow-talk” for their intelligence gathering, but it interesting that chocolates and a smile seemed to be nearly or perhaps more effective in London. What’s the “sweet spot” here? Is it a $59 ipod shuffle? Or the $599 iphone? Or would chocolate and a sexy researcher be enough?

One hopes our sophisticated Silicon Valley workforce would know better, but it would be interesting to know the policies and programs our CIO members have instituted to combat password compromises.