SaaS, Open Source and the Migration of Burden

Last week, I recorded a podcast with Dennis Byron, analyst at eBizQ. Dennis wanted to talk about how open source is the fundamental enabler of Software as a Service, an idea he started writing about after a conversation with some guy named Jim Zemlin.

I was happy to talk about this with Dennis because I think it’s an under-the-radar topic. Just the week before I had a reporter ask me how Linux is going to deal with the threat of cloud computing. The threat? I told her that virtually all of the major cloud computing initiatives (except Microsoft’s) are built on Linux. (There is a potential displacement there for Linux distribution vendors but that’s another topic.) Linux as a platform is the enabling backbone of software as a service and cloud computing.

Recently, Bernard Golden at CIO Magazine wrote a very interesting article on the “migration of margin” in the software industry. He say that in the future there will be no open source Bill Gates or Larry Ellisons, meaning there will be no open source billionaires. But that there will be plenty of billionaires built on the backs of open source. Namely they will be the founders of these software as a service companies like Google and Facebook today and similar companies tomorrow.

Is this a problem? (Well, some of my friends at software start ups may say yes, but not me since I work for a non-profit. ) Seriously, no, I don’t think so. As Matt Asay so adroitly says, open source eliminates the vendor lock in that created the enormous margins of the proprietary software world. It has eliminated the terrible inefficiencies created by companies competing and trying to differentiate on platform components that should be commodities. Now they collaborate, as they do with Linux. So just as the margin has migrated, I would say so has the development burden. Just as we use pooled money in the form of taxes to create roads or airports, you want to share the development costs of your computing infrastructure, in this case the operating system. Open source makes starting a software company so much easier today.

Do you think Google could have built their business without Linux? I believe there has been more wealth created via Linux at Google than anywhere else. At the beginning, they could add 10,000 $1,000 no name servers at a time as they grew instead of needing a half million dollar investment. When you’re starting out, this is crucial. Open source is the enabler of these new companies’ innovation since it allows you to grow incrementally when you’re still trying to figure out your business

Google, Paypal, Amazon and others were able to build a mesh of low cost Linux servers from the lowest priced vendors. I’ve worked at software start ups before Linux and the cost of building out at the data center with expensive Sun hardware and software (back before the .com bust) made the cost of entry so high, very few companies could innovate and build the products they wanted to build without burning through millions of dollars. Then you had to go pay a lot of expensive sales people to sell it.

If Amazon had to pay a large amount of money for the foundational components of EC2, they couldn’t make it make sense economically for these small developers. The cost would be so high only very well funded companies could afford to use it. (Here I question just how much margin has migrated to something like Amazon’s EC2 network as the costs are pretty low.) Open source brings that barrier to entry so low we are seeing a burst of innovation. But the question remains: do people see this as a “free rider” problem where companies build wealth from free software without giving enough back?

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