Open Source - Effective Business Model

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1 Open Source in the IT Market Outside In View by Analysts Inside In View by Customers, Partners and Oracle Oracle Schweiz Partner Advisory Board Meeting Dolder Zürich 28.October 2008 Basic source: Natixis securities.sector Report May/2008

2 Open Source - Effective Business Model based on a strong community of developers Clients Integrator & Vendor Developers Community market is structured around a services offer, that is to say the certification and maintenance of blocks of open source software. services to clients are undertaken directly or via a network of integrators. the client has the source code and the license revenues are replaced by more flexible and reactive services: installation services, personalization, configuration, maintenance. Source: PAC 2007

3 Types of freedom the freedom to execute the program for all usages the freedom to examine the functioning of the program and to adapt it according to needs the freedom to redistribute copies the freedom to improve the program and to publish improvements, so that the entire community benefits Source: Fabernovel

4 Quality of the Source Code Historically, open source is born of the user s frustration at not being able to correct problems in the software they have bought as the code source is not available. With open source, any developer can theoretically correct a program, but it gets harder even impossible with developed software. The platform for the management of users returns put in place by the vendor permits: Developers to report problems encountered and to supply a corrected version of the program Users not only to report problems encountered but also the functionalities they seek to incorporate. The project developer then takes on board the information to improve the following version of their product. These tools then permit a continual improvement of the quality of the code as well as ensuring that the code does not shift contrary to users desires.

5 Open Source - Economic Model Integration Services Installation/deployment of software Parameterized implementation Training in the utilization Creation of integrated software packages Maintenance and Support Level 1 corrective adaptive and scalable maintenance Level 2 guaranteed response time in maintenance Level 3 priority response time plus 24/24 availability Solutions for the pooling of economic costs Pooling of prepaid development by user clubs Ecosystems around software built by vendors Apache foundation, Eclipse foundation Turnkey Solution Clients pay to obtain a solution (firewall+antivirus+proxy+spam) Service Provider plays integration role ready to use solution The double license Vendors offer downloadable community version + corporate version for maintenance service subscription (MySQL, RedHaT, Novell Suse) Vendors offer licensable extensions (add-ons), source code available

6 Open Source - Legal Framework Free proliferated copylefted licenses Any modified software and any program including this software in a derived product must be placed under the same license (GPL, MPL) Free copylefted persistent licenses Allow users to mix the Open Source with proprietary software and place it under a proprietary license. Condition: the free module remains under a free license.(bsd) Free non- copylefted licenses Anyone can transform a source code under this license without acknowledging its original developer

7 Open Source - Strengths and Weaknesses Source: Natixies Securities Strengths Code flexibility scalability (??) TCO (cheaper hardware, no license costs) verticalised functionalities time to market security (??) production code quality (??) interoperability (open standards, multi platform/architecture medium), independence, long code duration, pooled procedures, much weaker marginal acquisition cost for the client. Weaknesses Open Source licenses constitute a risk of non interoperability: danger of persistence and permissiveness Open Source project lacks maturity for critical applications, lacking vertical modules, support/competence, and offering limited documentation (Administration of open source solutions is more complex) The line is blurred between community version and corporate version Open Source (on a pay basis). Open Source projects can be free Open Source and the idea that whatever is given away necessarily performs less well than a paid-for solution. Linux experts cost more and are harder to find. Migration costs towards open source tools. Optimized hardware for proprietary code, lack of certification.

8 Open Source - Opportunities and Threats Source: Natixies Securities Opportunities Growing competence of European engineers, involved in development of OS projects. Substantial presence of OS tools in Web 2.0. Large integrators offer a hub of competence Support from hardware vendors (IBM, HP..).. European CIOs mistrust proprietary licenses, prefer the personalized services of software integration. Public sector support: Europe s strong commitment to setting up open standards 80% of commercial software will contain an OS component in 2010 (Gartner) Concentration of software makers, search for independent producers, best-of breed approach. Java has moved to GPL, and future developments will be based on OS tools. Midmarket (less than 100 machines) and emerging countries (Brazil, Africa, China) Parallel development of the SaaS model. Threats Pressure from proprietary vendors to promote single star solution by software segment. IT services providers to large European accounts are less sensitive to OS layers, some large US accounts have adopted OS from hardware Subsidies from Brussels for European companies R&D is putting a brake on the adoption of OS by SMEs. Proprietary vendors are cutting their license prices, license costs on large projects have become modest versus total cost. The large media players hostile to emergence of a non commercial shared knowledge system. Software patents. In Europe, software cannot be patented because of the methods and algorithms it uses The Olivennes remit and the DADVSI law brings legal insecurity on the creators of OSS.

9 TCO Comparison proprietary Software Open Source Installation - The installation tools are more complex than for proprietary software Integration in the IS + The respect of open standards guaranteed by the open source software permits to ensure a lower cost of insertion in the IS Equipment + Open source software requires cheaper equipment and network configurations Licenses + By definition, the license cost is nil Security + The open source development mode provides better assurance of the security of developments, evolution (updates) and data uptake Training - IT employees trained in proprietary systems need to be retrained, lifting the transition cost Assistance = Assistance in terms of open source software is being built up, which makes it at least as expensive as its proprietary counterpart Evolution + The respecting of standards permits the separation between software bricks, which can be developed independently Archiving + The respecting of open standards ensures that archiving formats are respected

10 TCO RHEL compared with Windows (Microsoft) 250 users with 3 years of maintenance MS Windows platform Licence + support 3 years Quantity Price USD RHEL platform support 3 years Quantity Price USD Windows server ,991 MS Commerce Server 1 19,999 MS SQL Server 1 1 9,999 MS XP p ,750 MS Office ,750 Client Acces Licences MS Exch ,750 MS software Assurance Program for servers 74,934 MS software Ass. Program for workstations 136,498 Total 504,712 RH Desktop Satellite Pack 1 40,500 RH Desktop Extension Pack 4 42,000 Total 99,411 Employees over 3 years Administrators 3 444,000 Consultant 1 45,000 Training 1 30,000 Total 519,000 Total 1,023,712 Employees over 3 years Administrators 3 474,000 Consultants 1 135,000 Training 1 30,000 Total 639,000 Total 738,411 TCO lower for Linux by 28% over 3 years on an unchanged hardware configuration Source: Cybersource 2005

11 Comparison sales and costs proprietary model Open Source Open Source 50% 17% 7% 2% 5% 18% Services Cost of sales R&D Sales &Marktg. G&A Earnings Proprietary 22% 50% 14% 38% 50% 8% 18% Licenses Services Cost of sales R&D Sales &Marktg. G&A Earnings Source: OpenBravo, Natixis Securities

12 Comparison Revenues and Costs Pentaho Business Objects Sales&Marketing Cost of Sales R&D G&A Sales&Marketing Cost of Sales R&D G&A Source: Business Objects, Pentaho, Natixis Securities

13 Adoption of Open Source by Software Layer Server Integration Services Process Management Enterprise Applications Virtualization Collaboration Search Directory Services Content Management Application Servers Operating System Security Development Tools Enterprise Service Bus (ESB) RDBMS Embryonic Emerging Growing Maturing Most Mature Source: Gartner (2007)

14 Growth The world open source market is growing from the bottom up, the IT system infrastructure layer through Linux for servers, The world open source market represented sales of around $18bn in 2006 (sources: IDC and Gartner) The market share of open source in the software segment was 10% in open source infrastructure layer accounted for 15% of total market in 2006 with sales of $15.5bn (Gartner) Sales generated by proprietary software in the infrastructure layer $86.7bn in 2006 increasingly spreading to the tool and application layers. Strong growth in the next few years (+25% per year between now and 2008 for IDC and around 30% per year for Gartner). should grow to 12% in 2007 then 14% in should grow by 28% in 2007 and expected by 10% in In 2011, Gartner expects Open Source infrastructure software sales of $46bn, CAGR 24,3 %, market share 27%

15 Leaders in the Open Source Market Company Type 05 sales 06 sales Novell Vendor $1,039m $967m Red Hat Vendor $196m $278m MySQL Vendor $50me Ingres Vendor $25m3 Sourceforge Mixed $30.6m $43.6m Zend Vendor $10m $15m SugerCRM Vendor $7.5m3 HP1 Constructor $25m nd Open Trust Vendor 10m Linagora2 Mixed 3.1m 4m ( 8.5m 07) Mandriva Vendor 5.4m 5.7m Open Wide Integrator $4m 4.5m Nuxeo Vendor 1.9m 3.2 / 3.5m Smile Integrator 9.1m NetAktiv Integrator 352K 500K Proformatique Vendor 100K 300K Source: Companies

16 Market Trends Infrastructure Layer (1/2) Operating Systems 2007 Windows 40,5 % market share 2007 Linux 13 % market share Market dominated by RedHat (RHEL) and Novell 2011 Linux 16 % market share CAGR 8% Middleware (Web/Application Servers) % of Internet Sites operating on Apache Success of LAMP

17 Market Trends Infrastructure Layer (2/2) Data Base management Systems 2006 Market sales $ 17.6 bn Oracle, IBM, Microsoft market leaders 2006 OS database market $ 400 m 2008 Open Source database market $ 1bn 2010 Open Source database market $ 4bn Open source development platform 2006 license revenues $ 2.1 bn IBM and BEA systems market leaders 2006 market share IBM WebSphere 36 % 2006 market share JBoss 32 % 2009 licenses revenues $ 5.2 bn Open Source IDE s Eclipse : 2006 market share Eclipse 70% of Java dev.

18 Market trends Applications Layer ERP Open Source Solutions like Open Bravo, SugarCRM provide basic functions of ERP Obstacle of OS ERP Solutions to grow is in the investments already done. SaaS will support Open Source ERP in the midmarket segment For large account no threat for the next three years. Business Intelligence Open Source BI long way from being standard in IT systems. Midmarket will be favored segment for the growth.

19 Open Source im Schweizer IT Markt (1/2) Unterschiedliche Wahrnehmungen von hat eine sehr hohe Bedeutung. bis noch nicht wichtig (bei ca. 1 Mia Hardwareverkauf nimmt Linux Mio Anteil ein) Produkte vielfach nicht sichtbar, kommen in vielen Komponenten /Produkten vor. Auch Oracle braucht Open Source Produkte, z.b Apache. Die höchste Reife ist auf dem Layer Betriebssysteme, insbesondere Linux. Markt im Bereich Middleware ist im Entstehen. DB gibt es für kleinere, nicht Mission Critical Systems, wie MySQL CRM, BI ; ERP am Anfängen. Bei hochverfügbaren Anforderungen zb. CRM erfolgt vielfach ein gemischter Einsatz. So werden Basisfunktionen mit Open Source abgedeckt, hingegen für spezielle Funktionen kommt kommerzielle Software zum Tragen. Auf dem applikatorischen Layer praktisch noch wenig spürbar. Aber es gibt immer mehr fertige Lösungen im content management, web content, portal (ESCO,Trupal). Aber auch im CRM-Umfeld gibt es inzwischen etablierte Lösungen.

20 Open Source im Schweizer IT Markt (2/2) keine Ressourcen, die ihnen die Installation zum Beispiel einer ERP- Lösung auf Linux vornehmen. Mit dem Wechsel der Unternehmen zur On Demand Strategie könnte Open Source Aufwind erhalten und die traditionellen Produkte unter Druck bringen. Es könnten sich Open Source Lösungen im CRM ergeben, die einen Umbruch des Marktes zur Folge hätten, die schmerzen könnte. Im Finanzbereich Mission Critical Applikationen und Datenbanken noch kein Thema. Open Source hauptsächlich öffentlicher Sektor, Versicherungen und Banken aber auch immer mehr andere grössere und mittlere Kunden. Für kleinere Kunden noch kein Thema.

21 Open Source und Oracle/Partner-Network Gefahren Man sieht grundsätzlich weniger Gefahren als Chancen Für einen Integrator/ISV ist die Verwendung von Open Source attraktiver, weil er Marge selber behalten kann. Dies kann dazu führen, dass sollte hier nicht ein Schritt entgegen von Seite Oracle kommen der Partner eher eine Open Source wählt als ein Oracle Produkt, wenn er die Wahl hat. Produktehersteller könnten mit den Preisen unter Druck kommen. Immer mehr Open Source -Konkurrenzprodukte zu Oracle kommen auf den Markt. Integrator schaut ich für den Kunden beide Seiten an. In diesem Sinn ist z.b. das Partnering mit Alfresco Konkurrenz zum Oracle Partnernetzwerk. Passive Grundhaltung gegenüber aufkommendem OS Markt.

22 Open Source und Oracle/Partner-Network Chancen Kommunikation der Positionierung von Oracle aber auch des Oracle/Partnernetzwerkes gegenüber Open Source Das Open Source Netzwerk hat keine Marktmacht, keine Lobby, Oracle kann die Marketingkraft zum Tragen bringen. Für das Partnernetzwerk attraktive Projekte akquirieren, mit den Partnern gemeinsam auftreten. Quasi als Gegenpol das Netzwerk stärken. Matchmaking. Oracle sollte aufzeigen, auf welchem Layer sie welche Partner haben. Möglichkeit wäre auch, wenn man gewisse Services von Oracle aus zur Verfügung stellen würde. Es ist aber noch nicht klar, was diese beinhalten würden. Es gibt heute wenig Open 22Source Ressourcen. Wenn Oracle auf weniger komplexen Open Source Umgebungen installiert werden könnte, würde auch das Marktpotential grösser. Die Partner müssten darauf vorbereitet und geschult werden, das Partner Konzept müsste angepasst werden. Kunden erwarten von Oracle vor allem die Sicherstellung der Interoperabilität ihrer Produkte mit Open Source. Durch die offene Architektur ergeben sich mehr Geschäftsmöglichkeiten.