Exonovation: Leveraging the Innovation of Others

A few weeks back I was invited to attend an executive briefing on open, collaborative, community-based innovation. The speaker was Michael Tiemann, Vice President of Open Source Affairs at Red Hat. He titled his talk “Exonovation,” to avoid the connotation the word “innovation”, he says, has with internal organizational efforts at innovation. In his talk-he showed how organizations today (including his own company) are able to leverage the innovation of others to create sustainable competitive advantage that benefits not only themselves, but their community and industry ecosystem as a whole as well.

He gives examples of this happening in various areas, and cites as a historical precedent the development of the steam engine. He told us that as the technology in steam engines was opened up, so too did the number of its application expand. This resulted in a dramatic increase in its growth and development.

Later, he told of how this is becoming true of software as well-specifically with the emergence of open source software. With the emergence of open source, he says we are starting to see a shift from the traditional, closed-model of software development (with its emphasis in the creation and protection of proprietary intellectual property) to the development of a more open, collaborative and more community-based approached to software development, distribution and testing.

Michael is of course is able to provide deep and refreshing insights on the topic (which has been a growing area of interest in the business community with such new books as Wikinomics, Crowdsourcing, and others coming out to analyze and study the phenomena). Michael is an early pioneer in open source, having contributed to the community the GNU C++ compiler and debugger. This work led to him to start a company that was one of the first to incorporate community-based development and support in its business model. That company he founded was Cygnus Solutions, which was later acquired by Red Hat. (An interesting anecdote he shared was that several years back, he was trying to convince the Board of Directors of Cygnus to purchase a then struggling startup by the name of Red Hat founded by Bob Young. They refused. In a few years later, in an ironic twist, Red Hat would eventually come back and purchase them). Today he is also the President of the Open Source Initiative.

Michael showed compelling arguments and case studies in his presentation on the value that open source provides. Beyond cost savings and dollar discussions, the use of open source software is able to positively impact not only development time and cost, but (perhaps in an unintuitive way)-the quality of software as well. He says that more and more organizations are realizing this, and today open source software is now widely used and accepted. In fact he cites a study by Gartner that predicts that by 2011, 80% of all commercial software solutions will be based on, or incorporate, open source software. Today, in Gartner’s surveys, almost 50% of open source is used for mission critical applications.

The talk, although it lasted for only two hours, was full of insights. With a lot of top executives in the audience, I am hopeful that in the coming months, the interest in open source software will continue to grow in the local business community. The talk was timely in that it was actionable information many of them can apply in today’s business environment where cost savings and innovation are key to not only surviving but thriving.

Where the Value Lies in Open Source Code

ZDNet’s Dana Blakehorn posted an interesting article in ZDNet where he talks about ways companies can monetize open source code.

In a recent Slashdot article he cited, an executive of an open source company wonders if a business model around open source is an essentially flawed model as other open source projects produce free versions of the same extensions and utilities that they offer around their code.

In a recent blog post by Open Source software executive Steve Goodman of PacketTrap Networks, he states that model, essentially a “Freemium” or premium addons on top of free software, is essentially flawed, as “the interest of a commercial vendor is opposite to that of an open source project.” It is better he states, that project management and development be left to the open source community and to have his firm just concentrate on developing a commercial platform that works with the code that community delivers.

Now this was refuted by Acquia’s and Drupal founder Dries Butaert in a post, he says that his own experience points to the fact that the Freemium model works. He admits that “getting free users to convert to paying customers is hard.” Conversion rates of less than 1% are not uncommon. Free for many people is often “good enough” and only a few people choose to pay for additional features and services.

But MySQL’s Marten Mickos states that while there will always be people willing to spend time and save on money to learn and deploy open source applications themselves, there is still a market out there for companies where money costs less than time or immediate need–and will gladly pay for premium features or services.

Tim O’Reilly has a refreshing take as maybe companies should not be focused so much on monetizing the code itself–but identifying and monetizing the value it delivers. Going back to Dana Blakehorn, it seems he agrees as he outlines other ways open source companies can make money. They can provide:

1. A regular update service and security check.
2. Integration services, tieing your software into larger systems.
3. Selling what the software does as a service.
4. Teaching people how to use, or extend the software.
5. Putting your software into a piece of hardware and selling it.

At ComUnion ERP, we are looking at these perspectives with interest as we get ready to launch. While ComUnion is released and will continue to be released as open source code, we are upfront in our desire to be able to monetize somehow the effort put into the project. In this regard we are open and have no plans as of yet. I wonder if anyone reading has any comments or suggestions?

Lessons the Software Industry can Learn from Manny Pacquiao

For those reading this blog who are not fans of boxing, Filipino boxer (and what many say is the best pound-for-pound fighter in the ring today) Manny Pacquiao, beat American-Mexican Oscar, the “Golden Boy” dela Hoya last December 6 in Las Vegas Nevada (December 7 in Manila, Philippines).

What was widely considered a mismatch with a fight pitting the taller and naturally heavier American versus the smaller Filipino fighter proved true but not in the way many pundits expected. By the beginning of the ninth round of the fight, a badly beaten and tired dela Hoya surrendered to the smaller, faster and more accurate punching power of Pacquiao–ending what was largely a one-sided fight.

Now this fight has already been widely dissected and analyzed by experts and boxing fans for its place in history. I want to look at it from a different perspective by using what happened as an analogy to describe what I feel is happening in the enterprise software industry today.

In the software industry, there is brewing match up between the bigger and more established enterprise software vendors versus the smaller, faster, entrepreneurial software startups in the industry today.

In areas as diverse as business applications, network and systems management, unified communications, office productivity, security, and many others; a growing force of software startups are becoming a disruptive force in the industry for the incumbents.

In a talk I did on CRM a few weeks ago for an executive briefing organized by Computerworld Magazine in our city, I mentioned two potent and disruptive forces in the industry that together make up the “perfect storm” for change in software and services:

The first is open source. Open source as a business, software development, and distribution model has allowed communities of people–working on their own or within small entrepreneurial companies, to develop software in a quicker and more agile way than traditional software development approaches.

In enterprise software, an interesting case study is SugarCRM. In the CRM market, SugarCRM competes with the likes of Microsoft CRM, Salesforce.com and to some extent Siebel CRM (now Oracle). Like Manny Pacquiao, SugarCRM is a David in a market of Goliaths. To compete, it tries to continuously outflank the big guys and hit them on all sides by offering customers more options in terms of platform (it runs on Windows, Linux, Mac, Unix), extensibility (it has a growing ecosystem of third party developers), and delivery (it is available “on-premise” as installed server software or “on-demand” in the Cloud).

The second is SaaS and/or cloud computing. SaaS or cloud computing is another interesting development. In SaaS, software is delivered, used and consumed purely online (or as marketers call it–in the “cloud”). Companies with SaaS as a delivery platform compete like Manny Pacquiao against the big guys by using speed. SaaS deployments, unlike traditional enterprise software, don’t require the time consuming setup of supporting infrastructure such as servers, operating systems and databases to get started. SaaS deployments and updates are also faster with its one platform-to-many users architecture. When users log in, they get instant access to new features as they are added and rolled out–providing a superior customer experience and not to mention a more economical and efficient method of delivery.

Take the case of up and coming SaaS player Zoho. In the span of just three years, it has come up with a veritable smörgåsbord of applications used by over 1 million users. Virtually every month or quarter, it posts a slew of new features and updates that has competitors scratching their heads as they are left in the dust in terms of features and functionality.

Other areas. There is a whole lot of case studies where the Davids of the enterprise software world are beating the Goliaths. Companies such as open source IP-PBX vendor Fonality going against the Avayas and the Nortels. Companies such as unified threat managament vendor Untangle going against the SonicWalls. Companies such as open source document management solutions Alfresco going against the Documentums.

And then there is us and our open source ERP project. When we started out a lot of people were telling us that it was a pipe dream at best to develop software in what many say is a mature space, dominated by mega vendors such as SAP and Microsoft. We hope to prove them wrong.