by Bernard Golden

Why Your Future Depends on Open Source — Part 3

May 24, 2006 4 mins

In Parts 1 and Parts 2 of this series of posts I covered two important reasons that every IT organization needs to incorporate open source software as part of their overall IT strategy.

The first reason you need to begin using open source software is that IT budgets suffer from two simultaneous imperatives: low-growth and increasing demand. One important way to respond to these imperatives is to lower your cost of delivering technology. Open source can be an enormous help in this response.

The second reason for using open source is that the software industry itself is undergoing change and will increasingly resemble the open source model: the software itself being freely downloadable, but with far fewer ancillary services delivered by the vendor for free. Beyond the obvious service cuts — no free proof-of-concepts, architecture roadmap presentations, and so on — other, less obvious services will be trimmed as well — things like informative advertising, vendor-sponsored analyst reports. The effect of these changes is that IT organization will need to take more responsibility for technology decisions and processes — a hallmark of the open source world.

Now, let’s discuss the third reason you need to jump on open source — and this one extends the impact past the confines of the IT organization: open source can offer competitive advantage to the overall organization — in other words, open source can help businesses perform better financially. 

How is that?

Well, let’s look at the example I offered in a recent blog posting, relating the story of a small company that selected JBoss over BEA. That company, doing around $30 million in annual sales, saved $450K by going with JBoss. In other words, they saved about 1.5% of their annual revenues by using open source.

What do you think they did with that money? Hired more people. Reached further down into their IT backlog list. Invested in additional marketing. Whatever. The point is, they were able to implement a powerful software system while also saving a ton of money — and then were able to redeploy that capital to another purpose.

Meanwhile, if you’re their competitor that chose BEA instead, where do you stand? Most likely, you have a functionally equivalent software system — but you are missing 1.5% of your revenues to invest somewhere else.

Over time, don’t you think the lower-cost company is going to build a lead? It will continue to incrementally save money that it can reinvest elsewhere in its business. 

Let’s take another example. Sabre Holdings. They wanted to data mine the traffic patterns on their Travelocity site. Travel, as you probably know, is a tough business with razor-thin margins. They didn’t have the $500K that a commercial BI system would typically cost, so they created a home-grown system using MySQL running on a 4-way box yoked to a special-purpose RAID box. Total investment? Around $50K.

In Sabre’s case, they most likely didn’t reinvest the saved dollars — they’re stretched too thin. However, they were able to create a revenue-building application with open source that they never could have afforded if they used commercial equivalents.

The counter-argument to the cost advantage of open source software is that the cost of licenses is unimportant in the overall budget of IT. In individual projects, licenses are often a small part of the total project cost — perhaps only 10% to 20% of the entire project. In the IT shop as a whole, I’ve heard 6% of total budget  described as the portion devoted to software licenses.  Therefore, the argument goes, the savings available by using open source are really not critical in the overall scheme of things.

This reminds me of the dismissivenss that Detroit used to evince toward Japanese automakers. It used to take US car manufacturers two weeks to perform annual model tooling changeovers. Toyota figured out how to do it in less than a day. So what, was the attitude of US automakers. The cost of model changeover is peanuts compared to everything else.

But Japanese car companies continued to incrementally improve their cost structure — quicker changeovers, less inventory via JIT techniques, lower manufacturing cost by creating option bundles. One day the US industry woke up and Japanese makers had an unbeatable cost advantage; thirty years later, the domestic manufacturers are still trying to catch up.

I believe in learning from history. Marginal improvements can have enormous cumulative impact. Open source is a marginal improvement tool — and if you fail to put it in your IT toolkit, you may be handicapping your company in a competitive economy.