Apr 17 2012

Why Open Source in this Cloud World?

When speaking of Enterprise Software, everybody talks about the Cloud, the Cloud, the Cloud. It's today's buzzword. The new gold rush

There are plenty of good reasons why companies can be interested in cloud offerings. Similarly there are plenty of good reasons for providers to be delivering solutions through the cloud. 

One of the questions that is frequently asked is whether the "old" way can still be successful. The same matter was brought into discussion during the e-commerce boom. At the time "bricks and mortars" where opposed to Internet's pure players. History has shown however that there was room for both types of players and that offline players benefited from additional growth by creating an online presence. New companies were developing original business models in which, since day one they were combining their online presence with physical locations.

It's the same for Enterprise Software. There will be room for everybody and everything that exists need not be thrown away. 

The more interesting question is whether Open Source is still relevant in the cloud. At XWiki, we actually believe it's more relevant than ever. There are many reasons why Open Source is compelling in the software business. Let's just take a couple:

  • from the vendor's side, because of the low sales cost
  • from the customer's side, because of the lower lock-in for the customer

(To avoid debates with Open Source critics we're not talking about how the product gets better thanks to the community or about its openness.)

From the vendor side, Cloud is not a panacea. While you can indeed get lower sales costs when you manage to get your software to "sell itself", in the initial stages of development it won't be that easy, as a lot of marketing is needed to make the product known. Additionally, the initial revenue per client will have to be quite competitive, which will make funding R&D difficult, unless you raise a lot of capital.

We've seen that with Open Source software we get lower sales costs with bigger project sales per client (including support and services contracts). In the initial stages this drives funding to the R&D. It continues to be the case as you grow the business. You'll still need to add features to the product and the Open Source side of the business will mostly fund this work, while the cloud business will reuse that work to drive additional revenue. In this sense Cloud and Open Source are perfect matches.

From the customer's side, in the 1990s, Open Source gained a lot of traction not only because of the low costs, but also because of proprietary software companies starting to abuse their lock-in position. These companies were increasing prices and they¬†were not giving anything back to clients, even though production costs had diminished as a result of scaling (one just needs to look at Microsoft's financial results to see that they made absolutely no efforts in this area). Open Source software allowed companies to invest progressively once they had new needs. After the value of the software was confirmed, they'd be able to decide to invest more by buying Enterprise Support or additional services. In the Cloud, the "lock-in" situation is much more worse. Imagine complaining about a bill to your online cloud email provider who tells you to pay or he will cut the connection. With enterprise software, you might have gone off support, but at least in most cases you would have "acquired" the licence, so you would not be cut off. Also Cloud providers have full control of the solution they deliver to you. If they upgrade their system, you'll be forced to upgrade in most of the cases, without having time to prepare or even refuse the upgrade. If for whatever reason you are dependent on a feature from the previous version that they decide to phase out (because it's "beta") then you are out of luck. The same applies if the cloud provider raises his prices. You'll have to comply or stop using the system. 

Generally, in the Cloud world you might get interesting prices, but you have very little control on the way things evolve and you are fully locked-in to your provider, even more so than with proprietary software.

Now Open-Source exists in the cloud, and it's called Open-Cloud. We believe that if you are going to choose a Cloud provider, you're better off choosing one that does Cloud AND Open Source. It's similar to shopping in an online shop that also has an offline presence and will allow you to have the same experience, both online and offline. It's even more important for software, since you cannot switch providers all the time. When you choose a provider you're stuck with that choice for a while.

With an Open-Cloud provider you can start on the cloud, then if you need to make more customizations or are constrained by the cloud setup (there are always constrains, so that costs are shared across clients) you can decide to move to the Open Source Software offering. You'll be able to get back your data and deploy it on your own install. You'll still be able to have support and will also have access to services. Lock-in is minimal, as Open-Source solutions often are more open in terms of API and support of standards, which means you can migrate your data easier. You can also decide to keep the Open Source software and change service or hosting providers, as the software can be serviced or hosted by other companies. Open Source promotes competition.

Today things might look nice in the Cloud because providers are in customer acquisition mode (they are trying to get as many customers in as possible). But we all know what happens once the market consolidates and you get less actors that get close to monopolistic power, especially when the customers are fully locked-in as we explained earlier. Prices will go up, options will go down. When this happens it will be too late for those who chose the wrong providers.

With Open-Cloud offerings you get an open future with much less risk of being locked in.

This is why at XWiki SAS we believe that Open-Cloud is the future of Cloud offerings and that Open Source is even more relevant in the cloud world than in the non cloud world. Since the sales and marketing costs are still kept down versus cloud sales costs, we believe it's a good business for the software provider as well.

Ludovic Dubost
XWiki Founder and XWiki SAS CEO