In a commodity market, the cheapest producer always wins. In the partially commodified market of software, the cheapest producer isn't a software company, it's a movement: open source, developed by the mostly anonymous group of software hackers who do their work for free and collaborate in a cheap meeting room--the Internet.
A for-profit software company cannot compete with the economics of open source--free is as cheap as it gets. Nor, it turns out, can it compete with open source's quality testing process. Though the pace of open-source development can be languid and tends to create products less functionally rich than their proprietary counterparts, the stuff gets tested so often and so brutally by so many different people that most open-source programs are judged to be more stable and reliable. In a commodity market, low cost and reliability count more than bells and whistles.
The question for CIOs in 2003 is, Which pieces of the corporate software architecture will become commodities, ripe for replacement by open source? The operating system for website servers is already there--the open-source Apache program has 70 percent of the market. Other areas will follow as proprietary software hits a development dead spot and stops changing--word processing, for example, or, some would argue, the PC operating system, though Microsoft says it still has many more tricks up its sleeve to make PCs run better.
To Matthew Szulik, CEO of Red Hat Inc., the Raleigh, N.C.-based distributor of the open-source GNU/Linux operating system, commodification will go much higher in the software food chain than even PC operating systems. "We get business plans from companies all the time saying, 'We can deliver [complete] open-source software platforms for particular vertical industries,'" he says.
The creeping legitimacy of open source was given a big boost in 2002 when major vendors including IBM Corp., Oracle Corp. and Sun Microsystems Inc. pledged support. On the surface, it seems like the vendors are just thumbing their nose at Microsoft Corp. But something big is at stake here. By offering customized services for open-source software, vendors stand to lock in customers on service--a much more lucrative market than software licenses. A retail CIO, who did not want to be identified, explains: "If I buy Windows, I may use IBM to maintain my infrastructure or I might not. But if I hire IBM to retail-harden open-source software and support it, I'm much more likely to stay with them." Small, startup GNU/Linux vendors like Red Hat have not had the muscle to offer that kind of service to vertical industries, so big-company CIOs stayed away in droves.
With the support of those major vendors behind open source, 2003 will be a turning point in the software's viability as a cheap alternative to proprietary systems. The retail CIO has 20,000 cash registers that are essentially PCs with Windows operating systems. They could all be replaced with GNU/Linux as early as 2004, he says. In retail, and likely in other industries that deploy thousands of PCs as terminals, a big wave of open-source pilots will occur in 2003, followed by deployment in 2004, he predicts, adding that "CIOs are saying, I just can't live with [the cost of proprietary software] long-term."
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