Wednesday, March 17, 2004

Conferences, Panels, Speakers... getting your time and money's worth

Putting on a conference is a huge undertaking. Having it be a good conference with inspiring speakers, fascinating roundtables, and great networking is even more difficult. So the organizers of this week's Open Source Business Conference should get credit for meeting most of their objectives and inspiring, fascinating, and networking at least some of the time.

Two major places where the conference felt weak to me:

1) Too many gratuitous keynote speeches by event sponsors. Its OK to have a keynote from someone at a sponsoring company, but they have to have something to say! A tired flogging of the sponsor's products and market strategy (especially if the speech has been given before at other conferences... you know who you are) doesn't do the sponsor any good and cheapens the conference experience for attendees.

2) The panel format is difficult at best to pull off. The two key ingredients are a tough moderator and some tightly defined issues that the panel (and audience) can dig their teeth into. Going deep on an issue and really uncovering some great ideas is much more valuable than a skin-deep flyover of a broad set of questions.

Criticism aside, the idea of a conference on Open Source Business is definitely one whose time has come and I am certain that this conference will only continue to improve with time.

My thoughts on the open source investor roundtable

This group of venture capitalists seem to be largely interested in investing in commercial software -- gee, if you can use open source as a leverage point against a larger commercial competitor to get distribution scale or infrastructure -- great. But there is no open source business model. Proprietary software advantage is what will succeed.

This is quite a contrast to Ray Lane's presentation of the watershed that the software industry is confronting, or the comments that Clay Christensen reportedly made yesterday (I wasn't here) about how open source transforms the way we think about the software product -- instead of a core piece of software wrapped in service, documentation, etc -- the wrapping becomes the product.

So are the VCs wrong and stuck in the past? Or are they the pragmatic ones and the idea that open source can change the software industry is polyannish at best?

More from OSBC -- Open Source Investor Roundtable


Opening comments:

Dave Power, Fidelity Ventures -- open source is a way of getting a headstart and a way to build a community, but it is not a business model in itself

Peter Fenton, Accel Partners -- open source is one of the top three disruptive forces in the software industry, we don't make a bet on organic uptake but it has to be there, a viral broad and growing community around an open source product -- there has to be run time, or production value -- the oxygen that allows you to charge for support and thirdly there needs to be demand side economies of scale -- a dominant provider vs. many small providers, and lastly there has to be product drift over time -- sendmail doesn't have much product drift for example, that is the key to harvesting revenue streams for open source vendors

Tim Guleri, Sierra Ventures -- As Peter said, there has to be an organic uptake of the product, it has to be a group of people that has control over the way the open source community contributes to that open source product

Steve (?) -- we are looking at companies that are building applications on top of an open source platform

Moderator Question -- as venture capitalists you are making significant early bets, what are the business models you are making on open source?

Dave -- three models that make sense -- 1) a dual licensing model, an open source version but also a commercial version that they can make money on; 2) enhancing open source software with proprietary software and 3) a service model

Peter -- those are the revenue models. But as a VC we want a scalable, high margin revenue model. Consulting companies shouldn't be looking for venture money.

Tim -- there is a commercial tipping point at which big companies have deployed a certain amount of an open source product and then someone asks, is there a commercial version of this product?

Steve -- we are in a period of transition in the way that corporate america thinks about open source -- they have started to embrace it with the caveat that they still want to have a commercial vendor that gives them comfort that there is a support function -- but will they continue to evolve? will they become completely comfortable with using open source without the need to have a commercial vendor associated with these technologies?

Moderator Q -- relationships with the communities, as the products become more commercial how does the community react?

Dave -- in each case in the beginning there is a community leader of the open source product, a person that reaches out and then there are hundreds of thousands of downloads, that creates a community. But over time as you get more successful the companies that form around these products are doing more and more commercial software development so there is a challenge about how these companies continue to nurture that community that got them started. We are in a window where there is an opportunity for startups to do something special here -- but large companies are starting to figure out how to manage these open source communities.

Peter -- the starting point is some mercurial founder that gets the ball rolling, and builds a viral contributor base but this shifts over time. Once a project is established the issue becomes maintaining and this requires a different kind of support from the company built around the project

Tim -- we make sure that we fund, maintain, and make sure the open source community thrives -- in our market segment we keep the commercial and open source in sync (security product)

Moderator Q -- Where is the value of open source over time?

Dave -- the value will be up and down the stack

Peter -- anywhere you can get huge distribution efficiencies and broad developer interest

Tim -- every segment of software will get affected in a positive vein by open source. I think the SMB space is where a lot of this innovation is going to occur -- maybe GM won't want to run their financials on open source, but the 10 person parts company will want to.

Audience Q -- comment on standardization for interconnectivity APIs

Tim -- standard XML protocols that are self describing

Peter -- standard product sets - JBoss, mySQL, running on Linux -- a standard open source software stack and that drives standards


David Ritter continues...

but I was wrong about having power... yes there is a plug, but no it isn't providing any electricity.. so I am signing off for now and will be back when I find power...

Dave Ritter Keynote

Making Connections: Lessons on the Power of Networked Communities

David Ritter is Vice President of Strategic Technology for the Boston Consulting Group

Opening comments:

Open Source is about people. And it is about networking

Breakthrough creativity solving complex challenges by participants who are geographically and organizationally dispersed, who don't do it for direct monetary reward but display unusual enthusiasm...

Ray's closing comments

We are just starting the "golden age" of our industry

Open source is the key factor (besides web services) that will start that

Software will be delivered as a service. Software IS a service. A service company is a different DNA than a product company. Software companies have to recognize this shift.

Software has always been a service business and we just haven't been honest about this.

Ray continues -- How has the formula changed?

90s formula -- ROI = I x M / C

invention times momentum divided by the cost

NOW -- ROI - P(I) x U / TCO

Proof of innovation times useability divided by total cost of ownership

Software industry at the start of this decade is a $200 billion industry, 70% in the US, representing 1% of the US GDP, and employing 325,000 people

Today, (2004), Open Source Software and Web Services changes the marketplace. Apache is 2x Microsoft. Microsoft is only 3x Linux. India and China are becoming enormous. And the enterprise is adopting OSS

Here is what enterprise CIOs are saying about Open Source:

Positives -- Lower TCO, Equivalent Functionality, Equivalent Quality, Bi-directional scalability, Faster bug response fixes

Some challenges -- Informal support, velocity of change, no roadmaps, functional gaps, licensing caveats, ISV endorsements

What does the software industry look like in 2010?

OSS destruction > Growth -- the industry will be the SAME SIZE at the end of the decade because Open Source will destroy as much revenue growth as occurs in other parts of the industry

US Share < 60% -- more and more is going to move off shore

<1% of US GDP -- GDP will grow faster than revenue in the software industry

< 325,000 people -- the US is not supplying the engineers for this industry

Ray continues -- what the software industry needs to do

More predictability -- not necessarily perfect software, but better predictability about when software will work

Ubiquitous Access -- this is a worldwide marketplace

Continuous Updates

Service-Oriendted Architecture (network/federated data)

Flawless Service

Ray Continued -- Compare to the automobile industry...

Ray's comments

Progress on auto industry:
  • Replace Horse
  • Build for masses
  • Make better, faster, cheaper
  • Mass customization
  • Differentiate on service

The software industry has done this --
  • we replace Labor
  • PCs were built for the masses
  • progress on Moore's Law drove better, faster, cheaper
  • the Internet drove mass customization
  • Now it is about service

Ray Continued -- "New" Enterprise

Ray's comments:

The Software industry's technological progress is our vulnerability

Innovation-- emphasis on "how" vs. "what"

Scarcity -- focus on management vs. engineering

Entrepreneurs -- focus on Renovation vs. Invention

Investment -- "OP Ex." vs. "Cap. Ex."

Technology -- "Service-centric" vs. "Component-Centric"

Ray continues -- What does the next decade look like?


Volatility -- we can resolve for some time the assymetric threats in a conclusive manner. It was much easier to deal with the Soviet Union in the cold war. Now how do we operate? How do we plan our business and invest in the stock markets with the invisible threats?

Transparency -- if you are the CEO of a public company your shareholders should thank you every day -- why would anyone want this job? You run your company in a fish bowl and get no appreciation for this.

Low Growth -- focus on profitability instead of growth


Knoweldge Work Globalization -- it doesn't matter what your politics are, you have to decide where you stand on globalization of work and free trade economied. I just came back from India and I learned a whole lot about what is going on over there. India is not a black box that you shove work into. There is a lot of innovation goin on there and it is driven by an outstanding educational system over there. Either we use this advantage or someone else will.

Network Based Service Providers -- ASPs are NOT a flawed business model created by the Internet bubble. They are a capital intensive investment because you have to invest a lot to get the service level up by the time you have a first customer. End users are going to, more and more, say "I get it now" Instead of talking to my commercial software vendor and putting software on the shelf I can buy what I use.

Rationalize IT Infrastructure -- there is a modern IT infrastructure sitting out there now. CEOs say all that money I spent in the 90s I didn't get a return on so there is a negative attitude about IT. But what you have to convince them of is that they have to invest more now -- because the next set of technologies will leverage the infrastructure that was installed in the 90s and really deliver on that investment

Portable Computing -- Mobility is finally here -- we don't even need laptops as mobile devices, anywhere, any place, can provide communications and computing in a handheld platform.

Ray continues -- A New Economy?

Ray's comments:

A few years ago everyone was saying that the aggressive investment in IT technology was supposed to create an unending improvement in worker productivity that would allow economies to grow at a faster rate than at any other time in history.

Now people are asking, does IT matter? Quotes Nick Carr in the Harvard Business Review as saying "no"

The mistake -- it is not the IT that matters, it is the USE of IT that matters. How do you change the prospects of leadership in your industry because of the IT possibilities?

Nineties Optimism makes today look like a recession but if you look at the past 30 years, today looks like normalcy.

Based on a perspective from the bubble, it looks like we crashed the "new economy" -- wars, terrorism, market crash, job loss... but I contend that the new economy survived all of this.

Look at Amazon, EBay, knowledge workers at work anywhere in the world. Yes we destroyed it temporarily but it is being recreated.

I contend that by the end of this decade most of the predictions made during the Internet bubble will have come true

Ray continues... 2004: Things Are Looking Up, but...

Ray's comments:

The economy is recovering... so why the paranoia in the software industry?

This stuff is still not easy to sell, the buying activity is still back-end loaded at the end of the quarter, prices are at an all time low -- you are plagued with the thought "how long can I manage my cash flow burn rate to get out of the recession or is this the shape of things to come -- it isn't getting better? What is the next big thing to get us out of this rut?"

We all hope that this big new thing is going to solve all of our problems. But the wait for the next big thing is probably a decade away.

Examples of "big things" -- Transistor, Microprocessor, operating system, personal computer, Internet

Is open source a "big thing"? No, it is a shift in the existing set of paradigms that will effect incremental change in the way the computer industry operates.

Ray Lane's introduction...

Ray's comments:

This industry is at a watershed.

A sum up of all of our successes and problems.

The computer industry has become one of the largest in the world -- 3rd or 4th in the world

Yet we still operate with a lot of proprietary baggage that forces the end user to integrate and make it work

One of the significant events that is not often recognized is Andy Grove's horizontal stack chart which was designed to attack IBM's dominance of the computing marketplace.

This chart was one of the first attacks on the set of assumptions about proprietary advantage - that proprietary products will work better, have a lower cost of ownership, and give the company's that make them lasting profitability.

This is the subject that we will address today

Open Source Business Conference

I'll be blogging the conference today here in San Francisco -- the Open Source Business Conference or just OSBC...

This morning's keynote is by Raymond Lane, former president of Oracle and currently General Partner at venture fund Kleiner Perkins Caufield & Byers. His speech is entitled The Macro-Economic Impact of Open Source Software and should start momentarily...

Here is the abstract:

    The bubble and subsequent crash in Information Technology will be recorded in history as a normal growth phase all industries inevitably go through. Our industry is maturing, moving from the "installation" phase to the "deployment" phase where mass adoption occurs. The next ten years will be the "golden age" of technology where the focus will be on applications and services, rather than the technology differentiators themselves. Profits will be attained by those that drive low prices and achieve volume adoption, rather than pure specialization. We will see widespread adoption of standards. This keynote will cover the economic impact of Open Source Software (OSS) and its benefits of no vendor lock-ins, significant cost savings, shift of IT spend from infrastructure to applications, and open standards based architecture. We will also discuss about where OSS has impacted today, where it will reach in the next 5 years, steps to accelerate its adoption and to exploit it to the fullest extent.

By the way, kudos to the show organizers. It is great to be able to get power connections and wireless Internet access from the main conference ballroom and thus to be able to blog the conference in realtime. It would be nice if there were more power outlets though... despite all attendees having laptops we live in perpetual fear of running out of juice so whenever possible, we plug in... thus the hall is filled early with people strategically sitting at the edges of the room so that they can reach the wall plugs.

Tuesday, March 16, 2004

Anonymous office buildings...

It used to be that companies would fight for the opportunity to have their names on the outside of office buildings -- every little bit of advertising helps, the reasoning would go.

I was just on the phone with a friend at a large company (which shall go nameless...) who told me why this practice may be waning -- due to international terrorism...

Why advertise your presence if this could make you a target for terrorism? The friend cited a number of examples where his company and others had been removing signs from properties they inhabit in order to be (or at least appear) proactive in protecting their employees.

Will the future bring vast anonymous office parks where it is hard to tell who the tenants are in any of the buildings?

Monday, March 15, 2004

Open Source Capitalism

Very interesting conference this week in San Francisco, the Open Source Business Conference or OSBC is being held March 16-17 at the Westin St. Francis in San Francisco, CA.

A great set of speakers: Clayton Christensen, Ray Lane, Larry Lessig, Chris Stone, Tim O'Reilly, Mike Evans, Bud Tribble...

Their self description:
    Open Source Software (OSS) is rapidly coming to dominate certain areas of IT. Despite this advance, few beyond hardware vendors have developed solid models for leveraging OSS to boost margins or revenues. This inability to monetize OSS is perhaps its greatest inhibitor to thriving beyond the commodity server.

    The Open Source Business Conference (OSBC) is the first forum to bring together established technology vendors, startups, open source community members and enterprise IT users/customers to jointly explore new oppotunities for OSS deployment and how to capitalize on them.

    Who should attend? Senior technology executives (both vendors and users of OSS); venture capitalists; in-house and outside counsel for IT vendors or buyers; analysts; strategy consultants; and members of the media.

Databases are the next to fall to open source...

Anyone wondering why Oracle's Larry Ellison is spending so much time pursuing an acquisition of Peoplesoft need look no further than open source database company mySQL and today's news (care of CNET) that mySQL will soon offer database clustering technology previously only found in high end commercial databases (like Oracle). Clustering is one of the few remaining reasons to buy a commercial database product.

Open source is an unstoppable market phenomenon. We will see open source projects that provide as good or better software to commercial competitors in every software category over time. Infrastructure elements such as operating systems (and now databases) are the first because the characteristics of these products are broadly understood in the marketplace and technical innovation in these categories tends to be incremental and not transformative.

Larry is right to try to move Oracle away from its dependence upon that core database revenue but wrong in trying to replace one software revenue stream with another. IBM is the only one of the tech giants that seems to clearly understand the future -- software is something you give away in order to lock customers into your other revenue streams.

Maybe Oracle should be trying to buy Accenture...