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Ellison’s case against open source business models is compelling – or is it?
Christopher Noble, April 18, 2006 @ 8:11 am ETIn the FT interview mentioned by Raven below Oracle CEO Larry Ellison weighs in on the twin topics of software as a service and the long-term viability, or otherwise of open source business models.
In large part the interview is good old fashion Ellison knock-about in which he takes the opportunity to give both JBOSS and Red Hat a kicking after the the acquisition. However the rough and tumble is interspersed with insightful comments and … to be honest… comments that suggest that Ellison hasn’t thought through all of the issues with regard to open source models.
Tomorrow, I’ll look at Ellison’s suggestion that Oracle might create its own Linux distribution. But first a look at his thoughts on the open source business model.
In terms of insight, Ellison is at his best and worst when asked whether open source models could be disruptive to Oracle. His answer?
“No. If an open source product gets good enough, we’ll simply take it. Take Apache: once Apache got better than our own web server, we threw it away and took Apache. So the great thing about open source is nobody owns it – a company like Oracle is free to take it for nothing, include it in our products and charge for support, and that’s what we’ll do. So it is not disruptive at all – you have to find places to add value.”
Spot on… nearly. The 451 Group’s argument has always been that proprietary software companies are negligent if they fail to exploit the good work done by open source projects. Ellison clearly sees the potential to simply grab the good stuff. But as for his assertion that this caused no disruption to Oracle. Really? Nobody from the original team had to be laid of off redeployed? There was no reorganization? Counsel didn’t have to examine the Apache license and decide on its ramifications, there were no discussions on whether to contribute to the ongoing development of Apache or to fork it? Surely there was just a little disruption.
Of course Ellison could have meant that there was no disruption to Oracle’s business model and in that he is right… nearly. His last clause belies the problem: “…you have to find places to add value” he says. Before Apache’s web server came along, Oracle’s own web server clearly did have value, in terms of Oracle-owned intellectual capital. I’m sure the company’s salesforce claimed that the Oracle server was the bees knees in terms of robustness, scalability, performance and whatnot. With the advent of Apache that value evaporated and Oracle had to shift its business model somewhat to find additional value elsewhere. You can see how increasing reliance on open source software would continue to shift and disrupt a business model.
This takes us to his appreciation of the open source business model in general and Red Hat in particular.
Ellison’s general feeling appears to be that he would never spend big money on an open source company because apart from the brand and the people it owns nothing. The technology can be appropriated by anyone and the business can simply be duplicated. He talks about the problem of another company setting up and offering support fot an open source product, cutting the ground from under the original vendor’s feet.
This argument is correct as far as it goes, but misses the fact that companies with pure-play open-source business models are likely to get their money from consulting, service and integration work. His criticisms of the open source model therefore should apply to equally to all consulting and integration firms therefore; bad news for the likes of EDS and Accenture. But since large, well capitalized integrators do exist, we can assume that it should be possible to build large, well capitalized open source-based companies. The companies have a delicate juggling act, balancing the the open source development, with community input and the money-spinning support side, but nothing makes it impossible to achieve. The only problem that open source companies face is that that dominance can only be achieved through excellence, rather than vendor lock-in.
Moreover integration and consulting revenue streams should, by all rights be more accessible to the company that actually spends its time writing the code and building the overall distribution. In other words, while it is always going to be possible for another company to support and integrate Red Hat Linux, Red Hat itself, should have an unfair advantage.
If As Ellison claims, Red Hat is “not supporting the customers very well” that is entirely to do with the specifics of Red Hat and nothing to do with any intrinsic weakness in the open source model. Of course, that could just be some more of Larry’s rough and tumble.
Comments (4) Categories: M&A,Software
And how about the elephant in the bedroom in Larry’s comments – the long-term threat to Oracle’s core database business from the likes of PostgreSQL. I’m sure if they could have acquired MySQL, they would have – it’s more easily relegated to the database ghetto of websites, log parsing, and less-critical applications. But PostgreSQL has always represented more of a threat – all the more so since, unlike MySQL, the knowledge and IP is dispersed throughout a global community rather than concentrated in one acquirable company.
Great point, Ned. I wonder how cavalier Ellison will be when he finds Oracle scrambling to “find places to add value” in its core RDBMS business? As if adding value were ever easy.
Yes, I was wondering that – the logical conclusion from his comments on Apache is that he would jettison the Oracle DB in favour of a better open source one if such a beast ever arrived. Finding a new place to add value then might prove a tad disruptive.
Excellent article, thanks. Larry Ellison always manages to do two things in any discussion – he shows he is brilliant at first, but very quickly with his swagger makes sure that one forgets his brilliance. Larry Ellison however is very clear about putting money where his mouth is, and he will be keenly following how the open source movement evolves and makes money
On a tangential point, making revenues from free & open source software is one of the most frequently asked questions these days. While there have been a few successful examples of companies (like MySQL, Red Hat etc) which are making money, I’d surmise that these are still very early days for open source revenue & profit models.
While open source as an operational paradigm certainly has been having exceptional success against proprietary and closed-software models in the recent past, in my opinion, a lot more thought need to be given and experimentations done before the emergence of viable revenue models for the free & open source models that can successfully compete with the current proprietary software revenue model. Some specifics of the business models are emerging fast, but it will take a few years for the market to test each of these out and hopefully, the fittest will survive.
A site that focuses exclusively on revenue models from open source is Follars.com – Free, Open-source Dollars!
Ec @ IT, Software Database @ eIT.in