Marketing Memos

Validation is a wonderful thing.

In our recent

Silicon Strategies Marketing white paper titled "Is IT Software Doomed"?,
we analyzed the shifting sands of the IT software market.  In this paper,
we noted that Open Source is encroaching on the application layer and that
traditional vendors are slowly reacting to the threat.

Now comes word that

Open Source solutions are taking measurable market share, and the situation
is slated to grow worse. IDC estimates that Open Source holds a good 7% of IT
software revenue.  Their projections (suspect as all linear curve
projections are) call for 15% of IT software budgets to go to Open Source four
years from now.

The interesting aspect in this report is that the percentage of IT software
spending is less than the percentage of software deployment.  Many Open
Source solutions are available for free, or for nominal support charges that are
typically far less expensive that licensing and support costs of traditional
packages.  Linux is a perfect example — most enterprises using Linux do
not pay a license or support fee for all the servers on which they run the
operating system.

Thus there are many deployments of Open Source that do not register as
"sales" per se, and the functional market share is under-reported by IDC. 
If we assume a mere 50% ratio, where by for every two licensed deployments there
is one free deployment, then the current functional market share for Open
Source solutions has broken the 10% barrier.

That’s better than Apple has ever dreamed of for OS X, oh these many years.

Normally I decry predictions made by analyst as they rely on linear
projections from past trends.  These typically overstate future sales and
deployments because they project from the highest growth phases for a market —
namely the

Early Majority phase.  Thus their future projections are skewed too
high.

But in this case, IDC may be shooting too low.

Adoption of IT software is based on several criteria:

• Need
• Suitable feature sets ( whole
  product definition for each market segment )
• Implementation and/or switching costs

Many Open Source applications have thrived by serving the low- and
mid-markets, providing a whole product that fulfills the limited needs of
smaller organizations.  But as time passes, as their market success is
established, and as their development communities grow, the feature sets of Open
Source solutions expand to address more market segments and larger enterprises. 
Thus, the addressable market for Open Source solutions expands as time goes on.

The end result is that in a few years large enterprises will evaluate Open
Source applications as replacements for existing suites, or as
peer-level alternatives to new deployments.  IDC’s linear projections
may be low given the larger slice of the pie Open Source applications can
acquire in the future.

Where does that leave the traditional, license-based vendors?  In a
tough spot.  Some vendors may need to fundamentally change their
development and licensing models to stay afloat, or develop entirely new
products.  I suspect they will also lean ever more heavily on

intellectual property (IP) rights to forestall Open Source competitors.

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Just when things looked bleak for SCO, the skies turned completely black.

Last week, the judge in SCO’s lawsuit against the entire universe tossed out 61% of all SCO’s claims made against IBM.  The quantity of the judges
dismissal pales in comparison to the bluntness of her assessment of SCO, their
lawyers, and their claims.  When a judge says that you "willfully failed to
comply" with court orders, then you know just how botched your case, and
intoxicated your lawyers are.

To be fair, SCO’s approach to the case was less graceful than a hippo on
roller skates.  Their path to discovery showed their hand, which was empty. 
In essence their approach was:

• We think IBM violated our patents and copyrights
• We are not bright enough to prove this
• So we want the court to force IBM to give us the evidence we need to win

Right!.  And I want a million dollars in small, unmarked bills, non
consecutive serial numbers please.

The judge was fairly confused by this approach to litigation, saying "SCO’s
arguments are akin to SCO telling IBM, ‘Sorry, we are not going to tell you what
you did wrong because you already know’" 

I do have to hand it to SCO’s legal team … the very ones who represented Al
Gore in the 2000 election circus (and we all know how well they did on that
case).  They concocted the best strategy possible from a losing
proposition.  They appear to have used the courts as a financial and PR
hammer, hoping to make the cost of legal defense so great that even the mighty
IBM would buckle.

Idiots.  IBM held off the federal government in court for decades. 
SCO and their lawyers didn’t even raise a yawn in IBM’s council strategy room.

So now the clock ticks, and in the favor of IBM.  There are still 112
claims in play, but these are murky at best, and are entangled in the long
history of UNIX intellectual property (which Novell claims is theirs, except for
the bits of BSD UNIX, which belong to nobody).  Technical experts could
spend years deciphering the boundaries of any possible IP infraction in the
remaining claims, and a judge not versed in matters technical will take a lot
longer.

Thus, SCO’s mortality clock is ticking.

At their current burn rate, SCO has enough cash to last little more than a
year — less really since their top-line revenues are dropping (on average) 10%
a quarter.  All IBM has to do is delay the game as much as possible. 
Raise every minute technical and chronological issues imaginable.  Ask for
as much discovery of SCO materials as necessary to cross check each of the
remaining 112 claims.  Doing so will financially bleed SCO dry, and leave
nothing but a leathery corporate corpse to remind us of the key lesson in
technology and marketing — IP is nice, but market acceptance is essential. 
Invention and market share are the true cornerstone of success.

It also teaches us not to kick a giant in their shin.  That just annoys
them.

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