I presented at ActuateOne Live, a customer event for the company behind BIRT, last week. The subject of my talk was Analytics and Data Science: the breaking wave. My key argument is that cratering costs of processing, RAM and storage, combined with a new generation of data processing technologies built and open sourced by web companies (noSQL), are combining to allow enterprises unprecedented opportunities to do the things with data they always wanted to but the DBA said they couldn’t afford.

I also sat on a panel looking at mobile, cloud and “agile analytics”. Seems the panel went well. I evidently triggered some thoughts from a colleague at another analyst firm, Richard Snow at Ventana Research.

I like Richard’s use of the phrase “moments of truth” to describe the customer service experiences that traditional CRM apps do such a terrible job of capturing.

“After consumers interact with a company in some way (for example, see an advertisement, visit a website, try to use a product, call the contact center, visit social media or even talk to a friend), they are left with a perception or feeling about that company. If the feeling is good, they feel satisfied, if it is bad they are unhappy; in either case they have had a Moment of Truth. Adding up all these moments of truth, a company can gauge their overall satisfaction level, their propensity to remain loyal and buy more, and the likelihood they will say good or bad things about the company to friends or on social media.”

As Richard says

James put forward the view that companies need to focus more on customer behavior and the likely impact on customer behavior of marketing messages, sales calls, social media content, product features, an agent’s attitude, IVR menus and other sources, or as I recently wrote, how customers are likely to react to moments of truth in their contacts. Understanding this requires analysis of masses of historic and current data, both structured and unstructured. It will be interesting to see what Actuate does in this area as it develops more customer-related solutions

Tracking social media interactions can give us insight into these moments of truth. Actuate offers Twitter integration, as do many other analytics companies, while Facebook integration is also heating up fast – see for example Adobe SocialAnalytics and Microstrategy Facebook CRM.

This stuff isn’t getting any easier though. It used to be that you could track what people said on social networks. But with Facebook turning on “automated sharing“, so tracking your apps and creating implicit declarations about what you like on your behalf, the data deluge is going to get a lot worse before it gets better.

We’ll need to understand that online persona may not always give us the “moments of truth“, because people online are trying to create a persona. There is a difference, for example, between what they share, and what they click on – that is, Kitteh vs Chickin.

disclosure: Actuate and Adobe are both clients.

I have been watching the Systems market since 1995. In that time I have seen some fairly dramatic changes in terms of infrastructure choices. Given its now 2011, however, more than three decades into the PC technology or “commodity hardware”  era you’d expect that a lot of the margin had been engineered out of enterprise IT. You’d expect that the major players today sold solutions largely based on commodity hardware and open source software. But you’d be mistaken.

I have been covering the IBM mainframe since 1995 after all. The platform is doing so well right now that major competitors have even stopped calling it dead. Of course it helps that these competitors-namely HP and Oracle – both have some pretty isolated technology platforms to ringfence and maintain – namely SPARC and Itanium. IBM’s System z is benefiting from some hardcore divide and rule. Oracle and HP are now suing each other over support for Itanium- sending worried customers into the arms of the mainframe, now seen as a safe harbour rather than a risk factor.

In my time as a mainframe watcher I have seen IBM competitors spend hundreds of millions of dollars competing against the mainframe. But since the 1990s, particularly the early part of the decade, these investments saw a diminishing law of returns. Once we got to the core, committed, mainframe base, they weren’t going to budge, whatever Sun, Oracle or HP tried to sell them. That said- those vendors also have some incredible account control.

So just how much is a high end systems account worth to a systems vendor?

In a recent conference call IBM hardware supremo Rod Adkins updated the analyst community on his business since the SWG takeover (an Agenda for Smarter Computing).

Revenues were up+17% Q2 2011. System z, on the back of a major hardware refresh, grew a phenomenal 61% in Q2 2011.

But what struck me was the simple maths around just how much a major customer is worth, and why these firms will fight so hard for competitive winbacks. Of course I knew the numbers were big, but Adkins laid them out with clarity in context of reported competitive wins, which IBM claims have grown from a total of 65 in Q1 2009 to a total of 244 in Q1 2011.

Adkins claimed that these wins led to approximately $2.3 billion in revenue. Across 244 customers – nearly $10m per customer. Certainly worth fighting tooth and nail for.

Generally I prefer to avoid vendor spitting matches. If a company claims to have won a thousand customers from their arch-rival in a quarter, its funny how they haven’t counted the losses. Its actually called churn.

But cloud certification is kind of a big deal. Major waves in the tech industry tend to have an associated certification- think CNE, MCSE, ITIL and so on.  Today a VMware Certified Professional commands a premium in the market. Simples.

But the Cloud market has yet to coalesce around a standard set of certifications.

Chuck Hollis documented EMC’s introductory play in this area December 2010, with a follow up in March 2011, calling it the “first ever cloud certification”.  At that time 482 people were enrolled for classes.

I worked closely with IBM though on its Cloud Certification program, so I was a bit surprised when EMC claimed it was first to market – given IBM launched at Impact in May 2010. By March 2011 400 people had completed the course, and become IBM Certified Cloud Solution Advisors.

The obvious question is – why the hell did you wait til August to post about something that happened in March? You can blame WordPress draft mode for that…

More seriously, its not a big deal. Chuck is a good guy, and I suspect just had no idea IBM had already entered the market. The numbers of people going through the vendors’ courses were not that different at the time. No clear leader has emerged.

Of course other players are in the mix – including for example the Cloud Credential Council. Another obvious potential dominant player in cloud certification is Amazon Web Services. It is no surprise at all to see AWS pimping the University of Washington Certificate in Cloud Computing.

Meanwhile as far as I call tell Microsoft is so far focusing on Azure education rather than certification and authorisation.

I will write a follow up in the Fall where I get the latest numbers from EMC and IBM. They will just be reported numbers though- I don’t have an elaborate methodology for testing claims. Any other certification programs I should be looking at?

disclosure: IBM and Microsoft are both clients. VMware is too, but the EMC mothership not yet. Amazon is not a client.

I was chatting to Atlassian founder and CEO Mike Cannon-Brookes recently when I asked him what comes next. You know… the “plastics” question. It was Mike that first turned me on to OpenSocial’s potential as an enterprise technology – as far as I know Atlassian was the first enterprise vendor to adopt the technology, to allow smooth flow across different elements of its product Suite: you can pop in a context from another app into a smooth user flow. Today IBM, SAP and Jive are onboard (OpenSocial apparently made a bit of a splash at IBM Innovate recently – given how many tools are in the Rational portfolio its no surprise IBM would see the advantage of using the technology). Lotus is also playing with OpenSocial containers.

OpenSocial has even hit the desktop. Xobni, the Outlook integration specialist, now supports OpenSocial, which means web apps can be easily integrated with Outlook. Using Xobni Atlassian now gives users to access Jira issue and project tracking via Outlook. Xobi is also supporting DropBox, Evernote, Salesforce.com and Webex.

As ever I’m madly off topic in the intro. Mike said to me the next Big Thing would be online IDEs. Given Everything as a Service its no surprise IDEs would come up (indeed, the idea of online IDEs has been kicked around, then kicked into touch, a bunch of times.)

But Mike just said:

We’re watching a lot of the emerging amazing tools. People say “an IDE will never go to the web”…. Well people say tools will never go to the web and they have been proved wrong every single time.

He has a point. Web performance is frankly staggering these days. Javascript is super fast in modern web browsers like Google Chrome. So why not an online IDE? Everything else is moving to the web. It was no surprise then when I got a press release this week about Atlassian and Accel Partners investing $5.5 million in a series A funding for Cloud9IDE – a web-based IDE. It currently only supports Javascript and HTML/CSS, with highlighting support for Coffeescript, Ruby, PHP and others. The investment should mean more language support sooner rather than later.

Code9 isn’t alone. Our client the Eclipse Foundation now has an IDE project in play called Orion, led by IBM (client). “Tools For The Web, On The Web”. The big concern people have about online IDEs is that desktop apps should in theory perform faster. On the other hand what’s going to parse Javascript faster than a superfast web browser? In our first briefing about Orion, one thing that really struck me was that the developers told me that for some large files at least, Orion is faster than the Eclipse IDE. I am sure some haters are now thinking this is about Eclipse performance, but that really isn’t the issue at hand.

Bespin is a Mozilla experiment to build an online IDE. Ecco is another.

What is DaaS? Development As A Service – which really goes beyond IDE as a service. You see developer toolchains are changing dramatically. Where IDEs traditionally needed to integrate with heavyweight systems like Maven, the game today is all about Github and distributed version control systems enabling forking and rapid developer-led innovation. Developer services are moving online, and so are the developer tools.

Its early days for the trend, but I think we’ll see major development in the next 12-24 months. I am sure some of you are thinking “an online IDE could never do x”. But as Mike said, we’ve said that about the web before.

Final point before I go. In terms of immediate developer experience the Eclipse guys seem to have the edge over Code9. Orion’s web site is beautiful and you don’t even need to register to start using the editor. Its always great when clients do impressive work.

I have written about Software AG before – namely after the German firm announced it was acquiring process modeling firm IDS Scheer. Software AG is not exactly a household name, well except in those households running Adabas, but it has quite a portfolio – the marquee name for US readers is likely to be webMethods, which it acquired in 2007, but also of note are Infravio and The Mind Electric. The company’s recent acquisitions have been very much in the BPM meets XML vein – who needs coders when you have business analysts and highly configurable XML runtimes?

So it was interesting to see a press release from Software AG this morning which said it is acquiring Terracotta, a very different proposition – one based on writing code and scaling it. I know Terracotta pretty well, and its always been about post-Enterprise scale: the company began life as a project at walmart.com under its now CTO Ari Zilka. Ari was building Java apps designed to scale using network-attached memory back in 2003. Today distributed cache is a well understood concept – the idea being that with the right approach to garbage collection and memory management, with plenty of physical RAM in the system, Java apps can scale well beyond normal expectations. Distributed cache is well known enough to be seen as a “competitor” to NoSQL approaches. Both take load off the database – less database work generally means greater scalability.

Indeed I remember pitching Terracotta on the idea of an Offload Alliance – selling against relational – before NoSQL was fashionable.

One of the drawbacks of distributed cache as an approach is that it can mean application changes, or proprietary approaches outside the normal Java stack – that is a lack of transparency. Terracotta moved to solve the problem by acquiring the Apache-license ehcache, which is widely used by Java developers, and integrating that with its BigMemory tools.

The focus on physical memory is noteworthy because we have so much of it now. RAM is certainly a lot cheaper than it was in 2003.

Where am I going with this? Broadly speaking Terracotta has the makings of a interesting Platform As A Service (PaaS) – joining other models such as Cloud Foundry (my coverage here), Heroku (coverage) Red Hat etc.

According to the press release on the deal:

This acquisition will allow Software AG to provide innovative cloud solutions and dramatically increase the performance and scalability of its Business Process Excellence platform. Terracotta’s product portfolio provides leading edge in-memory technology and is the de facto caching standard for enterprise Java. Terracotta’s in-memory processing will provide the foundation technology for Software AG’s cloud offerings. With in-memory data access up to 1,000 times faster than database access, this will enable Software AG to increase revenue with existing and new customers through significantly larger business process excellence projects encompassing complex event processing, mobile technology, cloud distribution and virtualization. The acquisition also extends Software AG’s business model options by adding a large and thriving open source community.

In memory is scorching hot right now. Software AG’s German competitor SAP is all about In Memory database in the shape of its HANA architecture. But while HANA is about analytics, Terracotta is all about homegrown applications and scaling code. The Java renaissance continues, and this deal seems a good indicator of same (see Stephen on the Rise and Fall and Rise of Java).

In terms of market for distributed cache or datagrid players see Oracle Coherence, IBM has eXtreme Scale, with smallers players such as Hazelcast (go Turkish developer guys!) or Gigaspaces.

So what does Ari Zilka say about the deal?

The good news for Software AG’s customers is that Terracotta’s snap-in performance and scale works equally well with packaged software such as WebMethods—enabling WebMethods customers to scale up with BigMemory and scale out with Ehcache—as it does for the direct integrations that many of our customers have done to-date. Software AG and Terracotta intend to bring a whole new level of cost-effective, massive scale to existing products in the portfolio.

We also intend to deliver more features faster for the Terracotta user community. Working to solve customer problems at Software AG’s scale will help us achieve another level of simplicity and performance. Our goal is to deliver petabyte-scale solutions.

And there’s another important benefit for customers from this acquisition: a better cloud. In addition to enhancing Software AG’s already-great products and accelerating Terracotta’s roadmap that much faster with more resources and more concentrated feedback, we also intend to embark on a new vision and strategy for cloud-enabled applications. Call it a stack, a platform, a service, or whatever you like. But rest assured, the enterprise application development community – whether you work in Java, .Net, or C++ – will soon have a powerful and exciting new option for building applications in the cloud. This new option will include the most scalable, widely used in-memory data store on the market today, Ehcache with BigMemory coupled to Terracotta Server Arrays.

Like I say – its all about the PaaS, where job one is attracting developers, and key to success is removing barriers to participation. It will be interesting to see whether or not Software AG gets enough of an open source injection from the deal to really change the culture in terms of customer base. The bar for open source PaaS, driven by developers, has been set awfully high by VMware. Everyone else needs to get inline. I suspect we’ll see more Github checkins sooner rather than later. Also interesting to see Ari already talking about apps outside Java. But then PaaS is increasingly looking like it has to be polyglot.

So a lot of smart people have already written up the news from Google I/O this week – notably our very own Stephen O’Grady in a piece entitled Google I/O: The Android Story.

So I decided to look at something different. To try and provide some industry context, if you like.

In case you missed it Google this week announced it would soon launch its Chrome OS-based portables- or “Chromebooks”. The idea behind these machines is that they are a lightweight front end for cloud services – Chrome is Google’s browser, and Chrome OS is designed to be the lightest-weight operating system that can support a browser-based computing model. Boot in eight seconds? Of course its Linux, packaged. Chromebooks are network computers for an era when networked applications really are the norm. Chromebooks are designed to ride the HTML5 wave.

Rather than storing data on a hard disk, it will be stored in the cloud. I am not sure how well a two day outage for Blogger, a Google service, in the same week advertises the model, but stuff happens. Lets just assume Cloud computing works for now.

One of the really interesting things about the model Google is proposing is that client hardware will no longer necessarily be an asset to depreciate, rather it will be a service. Just like SaaS applications, the customer will be able to to adopt clients on demand, and turn them off accordingly. Google has announced the model will be rolled out to both schools and businesses, for $28 or $20 per user, per month for three years, respectively, with support.

So far so good. Cheap, simple, easy to maintain web clients, taking advantage of a rich cloud services ecosystem.

I was thinking about this model when it suddenly struck me – Google is effectively offering financing deals. Which put in mind of recent news from IBM about tablet financing. Weirdly I can’t find the IBM press release to point to, but tablet lease pricing will be between $20-$25 (US) per month on an average of a 2-3 year lease. IBM will of course finance laptops or notebooks too, and is vendor agnostic. It has some interesting healthcare deals for tablets in the pipeline now.

Of course, if you want to acquire hosted IBM apps for mail and collaboration – it will be happy to offer enterprises deals on LotusLive and Lotus Connections.

Its not clear how we got here, exactly, the the end game remains the same- an enterprise can now go to Google or IBM and get a next generation client infrastructure for a little over $20 a month for three years.

Its not clear the Chrome OS total cost of ownership stacks up. As Google’s own Tim Bray (on the android team) says:

Is a Chromebook, hardware and software all in and upgraded for as long as you pay $28/month, cheap or expensive? From the point of view of an organization that’s not IT-centric, seems like a real bargain. From the point of view of many mid-size IT shops, it smells like death and will thus be hotly resisted.

But I think the real kicker is perhaps a question of upfront costs, particularly as we migrate from one model to another. As Stephen notes in his post:

Of the companies that court developers, it’s difficult to conceive of one that’s more generous with hardware than Google.

Never mind developers- when you have as much cash as Google of course you’re going to consider financing your customers. This is another perspective on virtualisation… never mind the software, lets virtualise the upfront costs of hardware… But the $28 will need to come way down. Price competitive with IBM Finance and choice won’t cut it…

Last week I was at IBM Impact (see my first take here). Wednesday evening we filmed this preview of the developer unconference on Thursday – which ranged pretty widely and encapsulated a lot of RedMonk’s thinking on developer-led industry trends. Its about getting developers close to the business again rather than seeing them as a commodity. Where else would you find the phrase- “the instrumentation of Andy’s Cheese”, expressed in clear terms of business value? The video is a perfect ten minutes long. I think you’ll enjoy it.

These days IBM’s Impact Conference is as much about sales as education, but one of the things it sells is ideas, and ideas can change the world. The first and last main tent keynotes contained two of the best, most-inspiring speeches I have ever seen in any context. TED-class.
 
The two talks that really nailed it for me came from Doctor Jeffrey Burns of Boston’s Childrens Hospital and Grady Booch – IBM Fellow and inventor of UML. Both talks deserve their own posts – hopefully the videos will be posted soon and I can recommend you. just. watch. them.
 
Burns is leading a revolution in healthcare that could see infant mortality rates around the world plummet – with a tool inspired by IBM’s web site for the 2009 Masters in golf. We hear a lot in enterprise tech about “business-IT alignment” – Burns never used any of that kind of language, but he spoke beautifully and eloquently at the interstice of business and IT.
 
Booch meanwhile gave us a poetry lesson.

“Software is the invisible thread and hardware is the loom on which computing weaves its fabric, a fabric that we have now draped across all of life.”

His presentation continued in that vein, but made it clear that every software development decision has an ethical dimension. Beautiful, or even workable, code just isn’t enough. Development decisions in the small, can have a large impact on the world. The history of IBM in its 100 years, tells us a lot about capability vs responsibility. I for one, am grateful to see the firm committing to a long term, mature view of sustainable development. If only its customers were so inspired.

In terms of main tent presentations IBM was mostly pitching its business process management tooling again this year, having made recent acquisitions in that regard, most notably Lombardi, which are now integrated with the mothership. I don’t think there were any main tent coding demos. Redmonk is more about code than modeling and drag and drop configuration but that’s not to say we can’t see the value of both approaches – modeling can certainly help, for example, with maintainability of otherwise brittle interfaces. RedMonk though generally has a code and data, rather than process-centric, view of the world. For those looking for code introspection at Impact the real action is in the sessions rather than the main tent keynotes. The comparison with Microsoft MIX, also in Vegas last week, was stunning. Demo after demo after demo, live coding, forgotten syntax, remembered syntax, rapid fire fingers making the change and hitting f5. Subject of a different post but the new, somewhat more humble Microsoft is kind of charming. Developers, developers, developers.

But back to the world of models and scenario-based tech purchasing and deployment. And if you’re going to understand BPM it might as well be from someone righteous like Phil Gilbert, Vice President, Business Process Management for IBM Software Group. He was the CTO and President of Lombardi Software at the time of its acquisition. As impressive a tech leader as I have come across lately, he has a laser focus on user experience and design which is rare at IBM and he brings a much needed front end focus to the business of BPM . Too often enterprise software users are faced with crappy interfaces but Phil brings a welcome touch of consumer-like tech thinking to the party. BPM has to be user, rather than IT-centric, to be valuable.

Finally- something that struck me clearly at Impact when thinking about its expanding portfolio is that IBM now blue washing it’s own products. Bluewashing is the term that IBM uses to describe the process whereby it absorbs an acquisition, getting its products ready to market as an IBM product.
 
Mike Rhodin, Senior Vice President, IBM Software Solutions Group, explained to me over cocktails that the rules were pretty simple. If a product contains elements from more than one IBM brand then it’s a “solution” and as such will be branded as an IBM, rather than a “legacy brand” product.

So now we’re seeing IBM corporate bluewashing of products previously branded as Websphere, Lotus or DB2. This repackaging makes sense, but also may orphan some practioners. I look at Lotus renaming here.

When it comes to sales, and company purpose however, IBM has no problems of alignment. It even has a little poetry going on.

disclosure: IBM is a client and paid my T&E for the trip to Vegas. Microsoft is also a client

A couple of weeks ago I went to New York City as a guest of IBM’s mainframe group for an analyst summit. You may think mainframes are long gone by now but if you use a bank, or book a flight, or use the Post Office, you’re using a mainframe. These systems continue to be the basis for a huge percentage of transactions worldwide. System z isn’t just about legacy though- 20% of new sales are to run Linux workloads.

I am interested in mainframes – they have quite literally defined my career. I have written before about the effective framing job IBM was doing in terms of mainframe skills resurgence – mainframe = youth. But I was still taken aback by the level of aggressive self-confidence from IBM leaders at the event about the mainframe skills issue. The mainframe has suffered a lot over recent years over fears about the greying of the workforce- the human resources equivalent of the year 2000 problem. Basically the mainframe workforce was getting older, and more expensive, which was a hobble on new mainframe skills. After all, why would you invest in new workloads on mainframes when all the kids out of college were used to Windows or Linux, Oracle, and all the other fruits of the client/server revolution? This frame is a hard one to counter – especially given ongoing retirements in the sector (some people made enough in year 2000 remediation to retire comfortably.)

But according to Tom Rosamilia, general manager of the z business:

“The [mainframe skills] issue is a Red Herring”

Now it would be easy to dismiss Tom’s contention out of hand – except that he didn’t make the claim from a position of weakness, but of strength. I have written before about the the IBM Academic Initiative for System z, and it is going from strength to strength. There are now 814 schools involved, and just under 33,000 students have gone through the program. They all get jobs. The economic case is really clear. You don’t learn mainframe skills to futz around. The program may be academic, but its benefits are not.

IBM had representatives from Bank of America and Fidelity Investments at the event, and it was interesting to hear them talk about how things had changed. They used to compete for aging mainframe talent – rather than hiring new graduates, but that has all changed now, given how many new students are available. It was also interesting to hear about retraining – it turns out graduates in languages (not the computer kind) make pretty good systems programmers.

IBM also had a young black guy, an alumni of the program, at the event: I was taken aback when he grinned sheepishly and decribed it as caring. Caring? An IBM mainframe education program? How about that… And diversity is one of the factors I really like about IBM’s efforts – North Carolina Central University is a strong supporter.
The latest initiative from IBM is Systemzjobs.com. They must have been reading Stephen on enterprise skills marketplaces. Educating students is just the first step. IBM then helps them get jobs in match-making fashion.
It would be interesting to try and pull together some data to find out if the median age of a mainframe systems programmer is now falling. IBM could maybe help with that. But all in all, things have definitely changed.

Finally I just want to comment on IBM’s skills revitalisation efforts in terms of developer relations. The thing about DevRel is that its easy to confuse developer interest, with a great developer program. That is, Apple, Facebook or Google hardly need a program at all – developers are going to target their shiny APIs regardless.Of course these firms run great developer conferences, and things like Google Summer of Code- which hooks into academia. I recently spoke to one of the smartphone platform vendors and they were looking to establish an academic program on the cheap – they really thought there was a way they could bootstrap an education program to target their platform without paying for it. I think the phrase is good luck with that.

IBM, on the other hand, has taken an unfashionable platform and built a successful skills program for it directly targeting a great economic opportunity- a likely career in financial services. IBM has invested heavily, and is getting a return on its investment. Younger cooler platforms could learn a lot from IBM’s mainframe developer relations efforts. Seems funny IBM would stop worry about a greying workforce issue in its centennial year…

A core research thesis for me is that the best packager in any tech wave wins, and wins big. The number one position in a market, with all the network dominance that implies, goes to the best packager, not the best inventor. Packaging is where you cross the chasm- where geek stuff goes mainstream. Tim O’Reilly tracks the Alpha Geeks to understand how the world will change- but generally the mainstream chooses a different implementation that the geeks- Apple being an honourable exception to the rule (when application developers and the mainstream are pulling in the same direction then network affects really kick in).

Think of Compaq packaging Wintel. Or IBM packaging all of the inventions in mainframe computing as the System/360. Windows packaging the IP stack to take out Novell. SAP packaging ERP/MRP/etc for client/server in the shape of R/3. Or lets look again at Apple for a second: Nokia and even Microsoft had delivered all of the same phone technologies Apple later did, touchscreens and so on- but they packaged them far less effectively, focusing on functionality rather than user experience. On the desktop Apple packaged FreeBSD on Intel and made it beautiful.

Geeks love great packaging. So much so they fetishise the “unboxing” of new gear.

So what about open source, and the news this week that Red Hat is set to break the $1bn annual revenues barrier? Matt Asay argues that the company is one off. It seems to me that Red Hat, more than any other company in the space, simply realised the value of enterprise packaging – with all the documentation, certification, authorisation, training and platform testing that implies – across a wave of open source technology – namely Linux, and latterly Java application servers. Red Hat is a not a distribution for geeks – its a distribution for suits. While other commercial open source companies trumpet the fact the lead developer of an open source project works at their firm, Red Hat just gets on with business.

Last June my colleague Stephen said, in a post entitled The Economics of Open Source: Why the Billion Dollar Barrier is Irrelevant:

Open source as an application development model enjoys many advantages over proprietary, in-house development; distribution and usage among them. But revenue extraction has not traditionally been a strength, for obvious reasons. When payment is optional, as it is with most open source software, fewer users become commercial buyers.

Stephen was responding to Glyn Moody, who had simply asked: Why No Billion-Dollar Open Source Companies?

These days all software companies use open source methods- even Microsoft. Open source has won the battle as to what is the best development model for quality and agility. But packaging is where the value is. Red Hat won the shrinkwrap and enterprise wave of Linux, and deserves the money its making. It turns out though that the Cloud though seems to be the best commercial model for packaging open source technology, not least because it removed some of the restrictions of distribution-based open source licenses. It will be interesting to see how Red Hat sustains its momentum – after all Amazon is currently doing by far the best job of packaging Red Hat for the cloud – in the shape of Amazon Web Services. [update: realising I should spell this out- AWS runs on Red Hat Enterprise Linux, and uses its virtualisation engine.]

Packaging is how to make money from open source. But then its been the way to make money from every tech wave. Unix – a packaging exercise that Sun won until they took the eye of the Intel ball. What’s your favorite example? Packaging is innovation, everything else is devs writing code. Finally- a few words about broader economics. One of the great advantages of packaging is the margins it enables. Nestle packages water, and sells it at a huge profit. Bayer is the aspirin packager. Branding is packaging, and that’s where the money is.

If you’re interested in the packaging angle you might also enjoy this recent post Smarter Computing: An Agenda For (Re)Packaging IBM Software and Systems in the Age of The Cloud.

I also argue that Google’s Android is a packaging exercise – Towards a Permission-based Web. Wherefore Net Neutrality? Or: Maybe Open Source Wins After All

disclosure: IBM, Microsoft, Red Hat and SAP are clients.