Cloud Computing's Ultimate Value Depends Open PaaS Models to Avoid Applications and Data Lock-In

Transcript of a sponsored podcast discussion on open markets for cloud computing services and the need for applications that can move from one platform to another with relative ease.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: WSO2.

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Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect.

Today, we present a sponsored podcast discussion on openness, portability and avoiding unnecessary application lock-in in the use of cloud computing.

A remaining burning question about the value and utility of cloud computing is whether applications and data can move with relative ease from cloud to cloud -- that is, across so-called public- and private-cloud divides, and among and between various public cloud providers.

For enterprises to determine the true value of cloud models -- and to ascertain if their cost and productivity improvements will be sufficient to overcome their disruptive shift to cloud computing -- they really must know the actual degree of what I call "application fungibility."

Fungible means being able to move in and out of like systems or processes, like a bushel of corn is fungible regardless of the market you buy it in. You can buy and sell a bushel of corn as a commodity across multiple markets and across multiple buyers: They know what they're getting.

But what of modern IT applications? Wouldn’t cloud models be far more attractive, and hybrid cloud models much more attainable, if applications (or instances of applications) were largely fungible -- able to move from cloud to cloud -- and still function?

Application fungibility would, I believe, create a real marketplace for cloud services, something very much in the best interest of enterprises, small and medium businesses (SMBs), independent software vendors (ISVs), and developers.

Fungible applications could avoid the prospect of swapping on-premises platform lock-in for some sort of cloud-based service provider lock-in and, perhaps over time, prevent being held hostage to rising cloud prices.

Today, we'll examine how enterprises and developers should be considering the concept of application fungibility, both in terms of technical enablers and standards for cloud computing, and also consider how to craft the proper service-level agreements (SLAs) to promote fungibility of their applications.

Here to discuss how application fungibility can bring efficiency and ensure freedom of successful cloud computing, we're now joined by Paul Fremantle, Chief Technology Officer and Co-Founder at WSO2. Welcome back to BriefingsDirect, Paul.

Paul Fremantle: Hi, Dana. Nice to see you again.

Gardner: We're also here with Miko Matsumura, author of SOA Adoption for Dummies and an influential blogger and thought leader on cloud computing subjects. Welcome back, Miko.

Miko Matsumura: Great to be here.

Gardner: So, as for this ability to bring an open vision of cloud computing, I think many people have a vision that it's perhaps a little bit more grand than the current reality. Let's go to you first, Miko. What's the difference between the popular vision of cloud computing and what's really available now? Is there much fungibility available?

Low fungibility

Matsumura: Fungibility is very, very critical, and one thing I want to emphasize is that the fungibility level of current solutions is very low. It's very logical to understand the history of this.

One of the things that really we need to understand about cloud computing is the word that you used in introducing the topic, which is this concept of "disruptive," the notion that you can have this kind of elasticity and the application can actually scale pretty radically within cloud a environment. This is one of the primary attractive aspects of entering into a cloud paradigm. So, that's a really neat idea.

The economics of upscaling and downscaling as a utility is very attractive. Obviously, there are a lot of reasons why people would start moving into the cloud, but the thing that we're talking about today with this fungibility factor is not so much why would you start using cloud, but really what is the endgame for successful applications.

The thing that's really intriguing is that, if your application in the cloud is unsuccessful and nobody uses it, it doesn’t really matter. You don’t need to move it. You don’t need to pay for it. In fact, the requirement that you don’t pay for an app that isn’t successful is a very good benefit to the business.

The area where we are specifically concerned is when the application is more successful than in your wildest dreams. Now, in some ways what it creates is almost an unprecedented leverage point for the supplier. If you're locked in to a very high-transactional, high-value application, at that point, if you have no flexibility or fungibility, you're pretty much stuck. The history of the pricing power of the vendor could be replicated in cloud and potentially could be even more significant.

In terms of a direct answer, fungibility, as its being offered today, is very poor and there are very few solutions in the market that offer a way for people to pragmatically move, once things start to take off and are successful.

Gardner: Paul Fremantle, do you also share this perception that there isn't very much fungibility? Why is it that people would allow themselves to get in a position where their applications are locked in, perhaps even more severely than had been in an on-premises deployment?

Fremantle: That's a really interesting question, Dana. The reality of cloud is that people are jumping on it, and I can understand why. In the current situation, many infrastructure teams and infrastructure providers within large organizations unfortunately have got to the point where it takes many months to provide a piece of hardware for a new app.

Just roll back a few years. Imagine it took 12 months to build the app, and it took 3 or 4 months to provide the hardware. That's fine. You have 8 months of developing, before you even need to go talk to the infrastructure guys and say, "I need some hardware for this."

Roll forward now, and people are building apps in a month, a week, or even a day, and they need to be hosted. The infrastructure team unfortunately hasn’t been able to keep up with those productivity gains.

Now, people are saying, "I just want to host it." So, they go to Amazon, Rackspace, ElasticHosts, Joyent, whoever their provider is, and they just jump on that and say,"Here is my credit card, and there is a host to deploy my app on."

No way out

The problem comes when, exactly as Miko said, that app is now going to grow. And in some cases, they're going to end up with very large bills to that provider and no obvious way out of that.

You could say that the answer to that is that we need cloud standards, and there have been a number of initiatives to come up with standard cloud management application programming interfaces (APIs) that would, in theory, solve this. Unfortunately, there are some challenges to that, one of which is that not every cloud has the same underlying infrastructure.

Take Amazon, for example. It has its own interesting storage models. It has a whole set of APIs that are particularly specific to Amazon. Now, there are a few people who are providing those same APIs -- people like Eucalyptus and Ubuntu -- but it doesn’t mean you can just take your app off of Amazon and put it onto Rackspace, unfortunately, without a significant amount of work.

As we go up the scale into what's now being termed as platform as a service (PaaS), where people are starting to build higher level abstractions on top of those virtual machines (VMs) and infrastructure, you can get even more locked in.

When people come up with a PaaS, it provides extra functionality, but now it means that instead of just relying on a virtualized hardware, you're now relying on a virtualized middleware, and it becomes absolutely vital that you consider lock-in and don’t just end up trapped on a particular platform.

One of the things that naturally evolved, as a result of the emergence of a common foe, is this principle of unification, openness, and alliance.

Gardner: Miko, we used to hear, going on 15 years ago, the notion of "write once, run anywhere," and that was very attractive in that time. But, I think what we're pointing out now is this ability to write once and deploy anywhere.

Maybe you could tell us how "write once, run anywhere" got going, because I know that at that time you were involved quite a bit with Java. Is there a sense of an offspring with cloud that we should look to in terms of this ability of fungibility?

Matsumura: That that's a very good and exciting parallel. On the development side, one of the things that naturally evolved, as a result of the emergence of a common foe, is this principle of unification, openness, and alliance.

It's a funny thing. It goes way farther back than even the ancient Greeks banding together to attack the Hittites at Troy, or the moon landing, where the United States was unified against the Russians. Every major advance in technology seems to be associated with everybody getting together in order to fight a common foe.

So, it's a very funny thing to see, because "write once, run anywhere" was really just a response, in Java terms, to the emergence of a dominant Microsoft, and in some ways it's an interesting emergent phenomenon.

Emergent players

The things to look at in the cloud world are who are the emergent dominant players and will Amazon and Google or one of these players start to behave as an economic bully? Right now, since we're in the early days of cloud, I don't think that people are feeling the potential for domination that would drive such a friendly, open behavior.

People who are thinking ahead to the endgame are pretty clear that that power will emerge and that any rational, publicly traded company will maximize its shareholder value by applying any available leverage. Because, if you have leverage against the customer, that produces very benevolent looking quarterly returns.

Gardner: Paul Fremantle, as I mentioned a little earlier in the set up, it's now the time when enterprises are starting to do their cost benefit analysis to ask what makes sense to keep close to their vests, within their control, and on-premises, and what might be more of a commodity function, application, or service that we would look to a cloud model.

But, it seems to me that you can't really take that without considering what degree of fungibility is involved. So, from your perspective, what are the potential economics here?

Fremantle: The economics are really interesting, and there are two ways of looking at them. A lot of people are looking at economics to say, "What is the internal cost of hosting? Can I move my CAPEX to OPEX and pay-per-use?"

Unfortunately, the big issue that comes in there, in most people's mind, is security. Can they move things to a public cloud because of security? Do they need a private cloud? Those are the simplistic first steps people go through as they start looking at cloud.

That's a very important aspect to look at when you move to cloud, both software as a service (SaaS) and the lower level functions, because you don't want to move something that you consider a core strength out to be a generic service.

Two other interesting angles need to be looked at. The first of those is about exactly what you just came up with, which is, what is my competitive advantage? Where do I particularly gain advantage over my competitors, and through which services?

That's a very important aspect to look at when you move to cloud, both software as a service (SaaS) and the lower-level functions, because you don't want to move something that you consider a core strength out to be a generic service.

So, if you think that your proprietary algorithms for customer relationship management (CRM) are absolutely vital to the success of your organization, the last thing you want to do is dump those and go to Salesforce.com. That's the first aspect.

The second aspect, is can you apply a portfolio model? Can you look at the aspects that are high value to you, the aspects which are business as usual, and , "Well, I can get not just basic cost improvement by moving my customer relationship to Salesforce, but can I still apply my own special sauce, even when I am using low-value cloud services?"

Simple example

This is just a really simple example. When WSO2 uses our CRM, which is a cloud-based provider, it's a Sugar On-Demand. We also have mashups, which we host in the cloud, that take those Sugar On-Demand systems and mash them up to provide extra value to us.

So, we're going beyond the basic commodity service and starting to get extra value. To me, that's one of the really cool things to think about in cloud. Not just thinking about private cloud, public cloud, and hybrid, but about, how can I mashup the internal secret sauce of my company, the stuff that gives me competitive advantage, with the low-cost commodity services on the web, and start to get more out of those?

Then, if you think about that in a fungible environment, where to move those pieces of code, how to host it, where to run it, then you start to get a dynamic IT organization that can drive business value for the company.

Gardner: Miko, I mentioned a little earlier the idea of a marketplace, where competition and freedom of movement and transparency would have a positive effect and allow the buyers of services to pick and choose freely. Therefore the onus goes to the provider to have the best service at the best price.

What I think Paul just described is an opportunity where processes are composed of services, some of which might be coming from a cloud of clouds, both on-premises and off. So, it seems as if an insidious movement toward inevitable cloud services involvement with your business processes is under way, but without necessarily recognizing that you might not be in a true marketplace.

To some extent, there already is a marketplace, but the marketplace radically lacks transparency and efficiency. It's a highly inefficient market.

Do you think that this is going to happen whether people plan for it or not, and should they therefore recognize that they need a marketplace now, rather than waiting for these services to be actually put well into use within their organizations?

Matsumura: It's always wonderful to get the clear thinking rationality that comes from analyzing things, like you guys. From my perspective, to some extent, there already is a marketplace -- but the marketplace radically lacks transparency and efficiency. It's a highly inefficient market.

The thing that's great is, if you look at rational optimization of strategic competitive advantage, then what Paul says is exactly the perfect mental model. "My company that makes parts for airplanes is not an expert in keeping PC servers cool and having a raised floor, security, biometric identification, and all kinds of hosting things." So, maybe they outsource that, because that's not any advantage to them.

That's perfectly logical behavior. I want to take this now to a slightly different level, which is, organizations have emergent behavior that's completely irrational. It's comical and in some ways very unfortunate to observe.

To create a little metaphor, in the history of large-scale enterprise computing, there has long been this tension between the business units and the IT department, which is more centralized. In a way, the tension Paul alluded to is this idea that the business department is actually the frustrated party, because they have developed the applications in a very short time. The lagging party is actually the IT department.

It's a bit like what happened to the actor Mel Gibson. He left his wife and his kids and went off with a mistress. In the metaphor, the seduction of the cloud, and how easy it is, is really a wonderful attraction for a man (or enterprise) who is ostensibly married to his own IT department. And, that IT department maybe is not so sexy as the cloud service.

Eventual disappointment

So, there is this unfortunate emergent property that the enterprise goes after something that, in the long run turns out to be very disappointing. But, by the time the disappointment sets in, the business executives that approved this entry point into the cloud are long gone. They've gotten promotions, because, their projects worked and they got their business results faster than they would have if they had actually done it the right way and actually gone through IT.

So, it puts central IT into a very uncomfortable position, where they have to provide services that are equal to or better than professionals like Amazon. At the same time, they also have to make sure that, in the long-term interest of the company, these services have the fungibility, protection, reliability, and cost control demanded by procurement.

The question becomes how do you keep your organization from being totally taken advantage of in this kind of situation, and how do you avoid the Mel Gibson-esque disappointment of whatever happened after you left your wife and went with your new sexy girlfriend?

Gardner: Are you sure you don’t want to bring up Tiger Woods at this point?

Matsumura: Another, perhaps more universally understood metaphor.

Gardner: I was thinking of multiple clouds in that case.

Well, we've certainly defined the problem. Now, what can we do about it? Clearly, if you have some good lawyers and some history of dealing with software licenses, you're going to be very careful about how you craft your SLAs.

What we are trying to do at WSO2 is exactly to solve that problem through a technical approach, and there are also business approaches that apply to it as well.

We would hope that your business units would do that as well as your IT department or within consultation with the IT department or at least the legal department. Clearly, one buttress or defense against lock-in and lack of a good relationship over time with your cloud provider would be the agreement, the legal bond.

Also, we mentioned standards. There need to be standards that people can point to and say, "You must adhere to this or I won't do business with you." They seem to be slow in coming.

Paul Fremantle, what else is left? Is there a technology perspective, a middleware perspective, or something that might borrow from the Java approach that could reduce the risk, but allow companies to also pursue cloud computing in an efficient market?

Fremantle: That’s a very nice lead in, Dana. What we are trying to do at WSO2 is exactly to solve that problem through a technical approach, and there are also business approaches that apply to it as well.

The technical approach is that we have a PaaS, and what’s unique about it is that it's offering standard enterprise development models that are truly independent of the underlying cloud infrastructure.

Infrastructure independent

What I mean is that there is this layer, which we call WSO2 Stratos, that can take web applications, web application archive (WAR) files, enterprise service bus (ESB) flows, business process automation (BPA) processes, and things like governance and identity management and do all of those in standard ways. It runs those in multi-tenant elastic cloud-like ways on top of infrastructures like Amazon, as well as private cloud installments like Ubuntu, Eucalyptus, and coming very soon, VMware.

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What we're trying to do is to say that there is a set of open standards, both de facto and de jure standards, for building enterprise applications, and those can be built in such a way that they can be run on this platform -- in public cloud, private cloud, virtual private cloud, hybrid, and so forth.

What we're trying to do there is exactly what we've been talking about. There is a set of ways of building code that don’t tie you into a particular stack very tightly. They don’t tie you into a particular cloud deployment model very tightly, with the result that you really can take this environment, take your code, and deploy it in multiple different cloud situations and really start to build this fungibility. That’s the technical aspect.

Before I hand it back to you, I also want to talk about the business aspect, because technology doesn’t live on its own. One of the things that’s very important in cloud is how you license software like this. As an open source company, we naturally think that open source has a huge benefit here, because it's not just about saying you can run it any way. You need to then be able to take that and not be locked into it.

Our Stratos platform is completely open source under the Apache license, which means that you are free to deploy it on any platform, of any size, and you can choose whether or not to come to WSO2 for support.

We think we're the best people to support you, but we try and prove that every day by winning your business, not by tying you in through the lawyers and through legal and licensing approaches.

Of course, we think we're the best people to support you, but we try and prove that every day by winning your business, not by tying you in through the lawyers and through legal and licensing approaches.

Gardner: Miko, we seem to have quite a few technologies, open source, licenses, and standards in place for doing enterprise software. Can we overlay what is a longstanding approach to openness and interoperability in the traditional enterprise on to the cloud and, in a sense, virtualize the cloud services in such a way that we can still use the tools and middleware, so we don’t get locked in?

Matsumura: The great thing that Paul is articulating is essentially in regard to a sort of promise. What's exciting about the promise is that trust has some very interesting properties, which is that one of the things you need to do is to look at the will and the ability of the partner.

As a consumer of cloud, you need to be clear that the will of the partner is always essentially this concept of, "I am going to maximize my future revenue." It applies to all companies, and dare I say, WSO2 included.

WSO2, as a new entrant, as a disruptive entrant, and as a company that has built this incredible technology, is both from a technological perspective and contractual perspective, using open source and empowering the promise in a very manifest form by providing value-added services.

As Paul said, to prove to you each day that they are going to be the best support for your deployment, is almost like a laying down of arms. If the opponent is disarmed from the get-go, then their ability to stick you in the back, when you are not looking, is gone.

Thing that’s fascinating about it is that, when a vendor says "Believe me," you look to the fine print. The fine print in this case is the Apache license, which has incredible transparency.

Free to go

It becomes believable, as a function, being able to look all the way through the code, to be able to look all the way through the license, and to realize, all of a sudden, that you're free. If someone is not being satisfactory in how they're behaving in the relationship, you're free to go.

If you look at APIs, where there is something that isn’t that opaque or isn’t really given to you, then you realize that you are making a long-term commitment, akin to a marriage. That’s when you start to wonder if the other person is able to do you harm and whether that’s their intention in the long run.

Fremantle: This is really interesting. Let me tell you a slightly opaque story and I'll try and bring it back around to this.

The school I went to was run by monks, and one of these monks was 80 years old and had been in the monastery for 60 years or something. A reporter asked him, "Don’t you miss the freedom? Don’t you hate being locked-in to this monastery?" And the monk said something really interesting, "I choose every morning to remain here," he said.

Now, what’s WSO2's lock-in? What Miko has been trying to politely say is that every vendor, whether it’s WSO2 or not, wants to lock in their customers and get that continued revenue stream.

Our lock-in is that we believe that it's such an enticing, attractive idea, that it's going to keep our customers there for many years to come.

Our lock-in is that we have no lock-in. Our lock-in is that we believe that it's such an enticing, attractive idea, that it's going to keep our customers there for many years to come. We think that’s what entices customers to stay with us, and that’s a really exciting idea.

It's even more exciting in the cloud era. It was interesting in open source, and it was interesting with Java, but what we are seeing with cloud is the potential for lock-in has actually grown. The potential to get locked-in to your provider has gotten significantly higher, because you may be building applications and putting everything in the hands of a single provider; both software and hardware.

There are three layers of lock-in. You can get locked into the hardware. You can get locked into the virtualization. And, you can get locked into the platform. Our value proposition has become twice as valuable, because the lock-in potential has become twice as big.

Gardner: If you were to find a cloud provider that shared that long-term view, they don’t lock in, but their value proposition locks in, but for the right reasons, then the other cloud providers would be at a distinct disadvantage. So, do we have an opportunity now for a marketplace with an open middleware approach? And who are the cloud providers that should or perhaps will follow suit?

Fremantle: There is definitely an opportunity for an open market. I don’t want to go into naming names, but certainly you're bound to see in the cloud market a consolidation, because it is going to become price sensitive, and in price sensitive markets you typically see consolidation.

Two forms of consolidation

What I hope to see is two forms of consolidation. One is people buying up each other, which is the sort of old form. What would be really interesting, to circle back to what Miko said at the very beginning, is that it would be really nice to see consolidation in the form of cloud providers banding together to share the same models, the same platforms, the same interfaces, so that there really is fungibility across multiple providers, and that being the alternative to acquisition.

That would be very exciting, because we could see people banding together to provide a portable run time.

One of the really interesting things that you can get with fungibility is what we have in various markets, the idea of options, derivatives, and all of that. That would be cool. Imagine that you need to get your jobs done every Friday at lunchtime. And, Friday lunchtime is an expensive time to get your jobs done, because everybody needs compute time at Friday lunchtime.

In a truly fungible marketplace, you could buy options on having compute power on a Friday lunchtime at a certain price. If you don’t end up needing them, you could sell that at a higher price to someone else who does need it. Then, you start to get the real flexibility that markets provide in the computing industry. That would be pretty cool.

Gardner: So what about that Miko? If Paul’s vision holds out, at least a critical mass of cloud providers pull together and recognize they have a common destiny and that working together at a certain level will provide them a better future long-term, one that involves cloud fungibility.

People are branding electricity as wind power, renewable power, green power, and that has certain different economic dynamics. I think we will see similar things emerge in the cloud.

Then these options and derivative models, where you can basically eke out the most efficient way -- both from the supplier as well as the acquirer of the service, and incidentally probably reduce the carbon footprint across the board -- that would be a good outcome. Do you think that that’s pie in the sky? What needs to happen for that sort of vision to unfold?

Matsumura: What we're talking about is the inevitable market consequence of commoditization. So what Paul is speaking to is something a lot like the spot energy market, which already exists. You have direct conversion of one form of electricity, which is a sort of common denominator of power transport, into other forms of electricity. That’s a very interesting thing.

People are branding electricity as wind power, renewable power, green power, and that has certain different economic dynamics. I think we will see similar things emerge in the cloud.

The thing that really critical though is when this is going to happen. There is a very tired saying that those who do not understand history are doomed to repeat it. We could spend almost decades in the IT industry just repeating the things of the past by reestablishing these kind of dominant-vendor, lock-in models.

A lot of it depends on what I call the emergent intelligence of the consumer. The reason I call it emergent intelligence is that it isn’t individual behavior, but organizational behavior. People have this natural tendency to view a company as a human being, and they expect rational behavior from individuals.

Aggregate behavior

But, in the endgame, you start to look at the aggregate behaviors of these very large organizations, and the aggregate behaviors can be extremely foolish. Programs like this help educate the market and optimize the market in such ways that people can think about the future and can look out for their own organizations.

The thing that’s really funny is that people have historically been very bad at understanding exponential growth, exponential curves, exponential costs, and the kind of leverage that they provides to suppliers.

People need to get smart on this fungibility topic. I appreciate, Dana, that you're helping out with this. If we're smart, we're going to move to an open and transparent model. That’s going to create a big positive impact for the whole cloud ecosystem, including the suppliers.

Gardner: Paul Fremantle, Miko seems to think that this bright possible future could happen fast, or it could happen 30 years from now. How do we make sure it happens fast?

Isn’t there a built-in economic incentive? If there is a sufficient level of transparency, where the most efficient model becomes the most low-cost model, and therefore in a commoditized environment, it's where the most consumers go.

It's up to the consumers of cloud to really understand the scenarios and the long-term future of this marketplace, and that’s what's going to drive people to make the right decisions.

Is there something about WSO2’s approach and this notion of a shared destiny that almost guarantees it to be the lowest-cost provider? That is to say, wouldn't the commercial lock-in provider naturally have to be more expensive in this cloud environment?

Fremantle: There is that. One of the most important things, though, is what Miko just said about education. It's up to the consumers of cloud to really understand the scenarios and the long-term future of this marketplace, and that’s what's going to drive people to make the right decisions. Those right decisions are going to lead to a fungible commodity marketplace that’s really valuable and enhances our world, rather than dis-enhances it or makes it less good.

The challenge here is to make sure that people are making the right, educated decisions. From my perspective, obviously, I'd like people to try out WSO2 Stratos. But, at a higher level than that, I'd really like people to make informed decisions, when they choose a cloud solution or build their cloud strategy, that they specifically approach and attack the lock-in factor as one of their key decision points. To me, that is one of the key challenges. If people do that, then we're going to get a fair chance.

I don’t care if they find someone else or if they go with us. What I care most about is whether people are making the right decision on the right criteria. Putting lock-in into your criteria is a key measure of how quickly we're going to get into the right world, versus a situation where people end up where vendors and providers have too much leverage over customers.

Gardner: So, as you're doing that cost-benefit analysis and looking at these new models of cloud, you need to go beyond just the notion of doing away with CAPEX costs and move to OPEX cost. You need to think about what the long-term operating cost would be if there is a lock-in variable involved?

Fremantle: Not just the operating costs, but the flexibility, the freedom, and the ability to achieve your long-term objectives.

Gardner: Any last words on this notion of what to look for in terms of your cost-benefit analysis, Miko?

Worth exploring

Matsumura: Without being overly skewed in this discussion, WSO2 has provided a very interesting topic of conversation worth exploring. Smart organizations need to understand that it's not any individual's decision to just run off and do the cloud thing, but that it really has to combine enterprise architecture and ... cautionary procurement, in order to harness cloud and to keep the business units from running away in a way that is bad.

One of the culprits in this emergent behavior is the short lifespan of the CIO. The CIOs tend to job churn and they tend to be a little shortsighted about cutting costs. So, they get into an unholy alliance with business units that just want to slash and burn expenses for all existing IT. All of these unholy alliances create these negative choices.

In the long run, having a vendor agreement and relationship that forces them to be continuously pleasing to you and having agreements that you can walk away from at a moment's notice -- both technologically and from a business perspective -- is a completely new way of looking at this cloud market. WSO2 has a unique offering in this regard. So it’s certainly worth a look. That's my perspective.

Gardner: I'm afraid we'll have to leave it there. I want to thank you both very much. We've been discussing how enterprises and developers should be considering the concept of application fungibility, both in terms of technical enablers and standards, in order to best understand what their real potential cost over time would be for enjoying the best of cloud, but also looking out for the inevitable risks in a commercial environment, and avoiding potential lock-ins.

I want to thank our guests. We've been joined by Paul Fremantle, Chief Technology Officer and co-founder at WSO2. Thank you very much, Paul.

Fremantle: Thank you very much, Dana. It's been a fascinating discussion.

Gardner: And we've also been joined by Miko Matsumura, author of SOA Adoption for Dummies and an influential blogger and thought leader on cloud-computing topics. Thanks so much, Miko.

Matsumura: Great to be here. Thanks again for a great talk.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. You've been listening to a sponsored BriefingsDirect Podcast. Thanks and come back next time.

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Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: WSO2.

Transcript of a sponsored podcast discussion on open markets for cloud computing services and the need for applications that can move from one platform to another with relative ease. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.

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Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 39 on open source software and whether it has hidden risks or undercuts viability of commercial software models.

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Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Volume 39. I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions.

This periodic discussion and dissection of IT infrastructure related news and events, with a panel of industry analysts and guests, comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS, visual orchestration system. We also come to you through the support of TIBCO Software.

Our topic this week on BriefingsDirect Analyst Insights Edition, and it is the week of March 30, 2009, centers on open-source software. The recession, virtualized data centers, cloud computing, and rumored mergers involving the likes of Sun Microsystems and Red Hat have all stirred the pot recently on the role and impact of open-source software.

We are going to look at open source in the context of economics, complexity, competition, and the disruption of the shifting business models in software, away from traditional per-processor licenses, to the pay-as-you-go and ongoing support and maintenance models.

The major question we want to answer is, does using open-source software pay off in a total sense, compared to commercial offerings? Furthermore, how will this change over the coming several years?

Here to help us dig into the changing world of IT and how open source fits into all of that are our analyst guests this week. We're joined by Tony Baer, senior analyst at Ovum. Hey, Tony.

Tony Baer: Hey, Dana. How are you doing today?

Gardner: Doing great. Jim Kobielus, senior analyst at Forrester Research.

Jim Kobielus: Hi, everybody. Hi, Dana.

Gardner: JP Morgenthal, independent analyst and IT consultant.

JP Morgenthal: Hi, Dana, glad to be here.

Gardner: David A. Kelly, President of Upside Research.

David A. Kelly: Hey, Dana. Hello again.

Gardner: We're also joined by several guests this week. I'd like to introduce Paul Fremantle, the chief technology officer at WSO2 and a vice president with the Apache Software Foundation. Welcome, Paul. [Disclosure: WSO2 is a sponsor of BriefingsDirect podcasts.]

Paul Fremantle: Hi, Dana. Hi, everyone.

Gardner: We're also joined by Miko Matsumura, vice president and deputy CTO at Software AG. Welcome, Miko.

Miko Matsumura: Hi, everybody.

Gardner: And, Richard Seibt, the former CEO at SUSE Linux, and, in 2006, the founder of the Open Source Business Foundation. He also serves on the board of several software companies. Welcome, Richard.

Richard Seibt: Hi, Dana. Hi, everybody. Glad to be here.

Gardner: Great. Let's dig right in. JP, let's start with you. You mentioned in a past show that you detected some downside to free open source and open-source software, particularly in the implementation in the real world. I wonder if you could take the opportunity now to fill out what it is about open source that, from your perspective, provides risk.

Short-term thinking

Morgenthal: Sure, Dana. The issue, as I've been following it, is one of unexpected consequences. I don't believe we're accounting for more of the short-term thinking that has placed us in the situation we're in now in the United States or even probably worldwide, and less of the long-term thinking about how things impact everything else.

For the record, so that I don't end up Slashdot fodder, let me say that I believe that open source and noncommercial licensing is a good thing and has been very positive for the industry as a whole.

My concern is for the proliferation of free software, that is, the commercial software that businesses use without paying any license and, optionally, only have to pay maintenance for to run their business. They earn their profit using that software to run their business, and yet nothing is given back to the software industry.

In my opinion, it's like a flower that's not getting fed through its roots, and eventually that flower will wither and die. To me, it’s almost parasitic, in that there are good parasites and bad parasites. Right now, it's proving itself to be a little bit on the good parasite side, but with a slight permutation, this thing can turn around and kill the host.

Gardner: So, your concern is that there might be short-term gain, but in the long term, without a good commercial, viable, vibrant commercial software market and industry, innovation and ultimately the capabilities of software will deteriorate.

Morgenthal: Exactly.

Gardner: Let’s take that over to Jim Kobielus. Jim, you've been tracking software for many years. Do you share concerns that commercial industry will wither and die as a result of open source?

Kobielus: I have to respectfully disagree with JP on that. What's important is to sustain innovation in the software world, and open source has accelerated innovation. The whole open-source phenomenon across all market segments, where open source has invaded parasitically, has stepped up competition, stepped up innovation, and expanded the range of options for enterprise customers -- options in terms of software components to address a broader range of requirements.

Also, there's a broader range of options for the buyer in terms of how they can acquire this functionality through open-source or commercial licenses, appliances, cloud, and so forth.

So, it's been a good parasite. I agree with JP, though, that the issue is that the open-source phenomenon is causing a hollowing out of all the traditional software solution providers' business models. It's causing a deconstruction and a destruction of formerly viable companies all across the board.

What's happening though is that as more organizations license open-source programs, and with or without premium maintenance, a lot of the understanding of the guts of this software is now migrating to the user organizations. The user themselves understand the guts of these open-source packages, as well or better than the vendors who are supporting them. So, the expertise in software is being privatized out to both the IT groups within enterprises and also out to the world of open-source devotees.

So, innovation is going like gangbusters, but the business model of being a pure software vendor based on pure commercial licensing is dying out.

A growing conundrum

Gardner: Tony Baer, there's a conundrum, if you will, where software seems to be innovative and growing, but the business model is perhaps weakening. What about the advent of cloud and software-as-a-service (SaaS), hosted services, and co-location?

It seems like just at the time we are concerned that enterprises won't be buying software commercially and therefore reducing the innovation in the field, they might, at the same time, be going to outside hosts that can, in fact, really focus on the software combination of commercial and open source and offer services, rather than software. How do these two things fit together?

Baer: I was just running down a couple of things during Jim's response and during what JP was talking about with the hollowing out. In terms of dealing with the cloud, it’s part of a larger trend toward commoditizing -- I'm going to sound very redundant here -- the commodity aspects of the software market.

Part of this is, "I'm not necessarily in the business of trying to provide myself, as a business, unlimited computing capacity. Therefore, I'll rely on the cloud for that." The other side of the coin is that, in general, there's been a commoditization as a result of several factors.

Part of it is open source, but you have to take into context what's been going on in this decade. There was a popping of the IT bubble back around the 2000-2001 time frame. It's been called dot-com, but it also happened the same time that everybody got finished with their Y2K work. At that time IT could no longer just demand infinite pay rates.

That happened along with the globalization of IT, where we had offshore, which provided much cheaper alternative. SaaS, with its subscription model, changed the business model for software companies. Forget about open source for a moment. Just consider the fact that subscription was a major disruption to any existing software company whose business model was predicated on licenses.

Cloud is just one of many commoditizing factors. I just concluded a study for Ovum on application lifecycle management (ALM) tools and looked at which tools seemed to be best suited for the cloud. The fact is, and I will say the same thing with regard to open source, certain areas are better suited for the cloud and certain areas are better suited for open source than others.

In terms of just ALM, I found that collaborative tools are well suited, whereas tools that required lots of maintenance of intellectual property, such as coding, you really didn't see in the cloud. There's a new Mozilla project that just came out, but that doesn't necessarily disprove the theory.

With regard to open source, I agree with Jim that it has hollowed out the enterprise software market. On the other hand, where open source has made its maximal impact is in areas that are commodity, for example open operating systems. Where Unix was supposed to be open, Linux made it very open.

Look at content management. Unless your content management is part of an enterprise middleware platform, chances are you're using open-source content management. Anything that does not require extensive domain expertise is fair game for open source.

Gardner: Let's go to Miko. Miko, we're hearing that the enterprise software business is hollowed out. The last time I looked, some of the major players in enterprise software were holding up quite well. They're actually growing in the last quarter of recorded earnings and results, even though there is a recession. You're at a software company that's commercially viable and is happy to sell software. What gives? Is open source really hurting the big vendors like Software AG?

The power of complexity

Matsumura: Well, Software AG is characterized as being a medium-sized vendor. We just crossed $1 billion in revenue, and we're growing at a pretty healthy clip.

There's a thing that's interesting from our side. You mentioned a real interesting word, complexity. Complexity is a really powerful force in the economy and in enterprise software in general. One of the things that open source is doing is helping to simplify some of the infrastructural components and to decrease the overall condition of heterogeneity.

One of the things that we have learned in the business from service-oriented architecture (SOA) and then business process management (BPM) -- which are called middleware businesses -- is that chaos is perpetual, in the sense that there are two major driving forces in the economy: competition and consolidation.

As people contract from the downturn, they start buying other companies and this creates heterogeneity in the local enterprise. It's what people in complexity theory would call a hold-on. Then, the notion that there is complexity within that local domain is just the function of consolidation. As soon as you start to see economic expansion, then you start to see more heterogeneity in terms of things like business process and the opportunity to capture information.

Sure, there is commoditization in the IT platform, which is advanced by open source. Contrary to what JP was saying, one of the great things about open source is that it forces IT organizations like Software AG to selectively pick where they make their investment. They will put their investments in at the leading edge of complexity, as opposed to where things have slowed down and are not changing quite as fast.

Gardner: Paul Fremantle, you've seen this progression. We've seen a lot of use of open source earlier on with Linux and Apache Web Server, and it's progressed into databases, middleware, and SOA infrastructure. Do you see this as a progression, and how far does open-source software move up the stack before it does what JP fears, which is to undercut a commercial software marketplace?

Fremantle: This is a really interesting subject and it's something I think about a lot, obviously, running an open-source company. One of our main questions is, how many people will pay us for what they use of our technology that we spend a lot of money and effort writing?

There's a change in the marketplace, if you look back to the traditional open-source model. A traditional open-source model is to come along with something that doesn't exist in open-source and costs a lot. Build an open-source version of it. Be the first of a kind. Therefore, everyone who wants an open-source version downloads your software, uses it, and you get a very small monetization out of that.

It was typical in early open-source projects like MySQL and so forth to have incredibly small percentages of people paying you for that software, but to have such a large volume that it still worked out.

That's not how I see the open-source model moving. What I see is what you might call "managed commoditization." In a way we've had commoditization of all sorts of things. No one pays money for the TCP/IP stack. That's a piece of open-source software that has now become ubiquitous. It's not of interest to anyone. It's just a commodity that's free.

It comes with every operating system and it works. I don't think we need innovation in that space. Yes, there were some companies that were trying to make money out of TCP/IP stacks 20 years ago, and those companies aren't making money out of it. That's tough luck. They have to find something more interesting today.

Interesting and innovative

My experience with customers is that, if you do something interesting and innovative, whether you are open source or not, if you partner with your customers and really add value, then they will pay you, whether or not your license forces them.

The license is a blunt instrument. It's a blunt way of getting people to pay you for stuff you've written. To me, that's something that was abused by software companies for many years. What open source is doing is sorting the wheat from the chaff. It's sorting out, is this something that is a commodity that I don't want to pay for, or is this something that has real value and is innovative, and that I need the support, the subscription, and the help of this company to help me implement?

Gardner: Okay, Richard Seibt. Now, we've heard from some of the analysts the fear that innovation will suffer because of open source, and we have heard from some commercial software people that say, "We'll be happy to go to that bleeding edge of where the complexity is. We'll add value there and we will be able to charge appropriately for it." You are an innovator at the board level in several software companies. Isn't the ability to innovate also quite rich within startups that are focused on an open-source model?

Seibt: It's absolutely true that open-source companies are very innovative. If you look at SaaS or even cloud computing, there are many startups that probably lead the way. For open source, we look at that market from a customer perspective. They use the software because of its innovation, its quality, and its cost, and they wouldn't use it for any other reason. It is the innovation, quality, and cost.

I agree with some of the people who talked before. Open source is moving up the stack and has reached the SOA level. For example, large corporations are using open-source SOA frameworks, because they want to be fully independent from any vendor. They trust themselves to develop this piece of software together with the bigger community, which becomes a community of enterprises.

Therefore, innovation is not only from startups, but it's from large corporations, as well. They jump on the wagon and start to involve themselves in open-source projects, especially as being part of the Eclipse Foundation.

Gardner: Right. We saw a recent announcement of Swordfish, which is an enterprise service bus (ESB), an open-source ESB through Eclipse that was a result of work and coding done at Deutsche Post. Isn't that correct?

Seibt: Yes, it's absolutely right. This is a perfect example. The CIO of Deutsche Post mentioned, when he opened the conference, that large software vendors and the IT system integration companies can't help them anymore, because they don't understand their business as they should. Therefore, they have to do much more from a software development perspective on themselves. They have now joined many logistic companies and are doing a joint effort as part of the Eclipse Foundation, and this is the project, Swordfish.

Gardner: David A. Kelly, we heard that innovation could or couldn't be positively or negatively impacted -- business models also. What gives? What's going on now?

It seems that a lot of the reasons for open source was to prevent lock-in or overly powerful pricing in the market by commercial vendors. In a sense, that's been mitigated, but now we are in a recession where cost becomes even more important. We're also looking at this idea of increasingly having applications and services acquired as a service.

Does that mean that we are now looking at not so much being concerned about lock-in at the code level, but perhaps lock-in at the service-provider level? We also saw this week the announcement of an Open Cloud Manifesto, still rather loose in terms of its details, but which purports to try to keep the cloud from being another abstraction of lock-in.

The most efficient will win

Kelly: I'm not sure that cloud computing necessarily opens up the field for open-source computing. To some extent, it almost shuts it down, because it then becomes cloud as a series of application programming interfaces (APIs) or a series of standardized connections or services out there that could be supported by anything. Open source is one solution. The one that's going to win is going to be the most efficient one, rather than the lowest cost one, which may or may not be open source.

To some extent, as you look at cloud computing, some of the initiative that we saw with original open-source roll out over the past ten years has been almost mitigated from my perspective. The original open-source roll out leveled the table as you said. It mitigated that price difference in terms of the traditional, proprietary software vendors and software models.

It said, "Okay, maybe there isn't as much value in some of that software, whether its TCP/IP software, basic operating system functions, or Web servers, as the large software companies are suggesting there is." That really did help enormously on innovation, but it takes the lower 10 percent or 20 percent of the software infrastructure off the table.

My question really is how far the open-source innovation can go. As organizations move into business processes and business-driven value, all the executives that I talk to don't want to focus on the lower-level infrastructure. They want to focus on what value this software is giving to me as a company in terms of supporting my business processes. They're not allowing me to compete more effectively. They don't want to be in the software-development business, for the most part.

So, how far can open source go up that stack to the business process to support custom applications, or is it always going to be this kind of really lower-level infrastructure component? That's the question that I think about.

Gardner: We'll take that to JP Morgenthal. You've heard a little bit of the back and forth. Dave Kelly's point is that the new era of competition is at the business-process and API level, regardless of how it's supported. We would assume that organizations, be they Amazon, Google, Yahoo, or Microsoft, will be providing services, but with economics in mind, and they might be utilizing open source as best they can. We know that Google, Amazon, and Yahoo already do.

Is that right? Are we talking about a dead horse here? Do we not really need to be concerned about open source, but focus more at the API and business-process level?

Morgenthal: Dave is absolutely correct with regard to the cloud. The cloud actually hides a whole other layer of the "what and the how" from the user and the consumer, which could work in favor of open source or it could work against open source. Nobody really cares. As long as that thing works, it's reliable, and can be proven reliable, it can be put together with chewing gum and toothpicks and no one would know the difference.

Gardner: Well, wouldn't that really be a good thing for open source?

Morgenthal: In what way?

Gardner: Well, if people could choose between free software, were building a data center, had the skills on hand, and knew what their requirements were for the cloud infrastructure, they'd be able to do that and probably focus on the open-source alternative.

Coming full circle

Morgenthal: Again, it takes us full circle back to my initial premise, this concept of free software. There's no such thing as free software. What I see happening is this belief that software should be free. It's actually penetrating the market on many levels. I see that there is a whole concept outside of IT people, who actually understand what it takes to deliver.

Let's take Twitter, for example. What does it take to deliver Twitter infrastructurally, as that thing begins to grow? An IT person understands about scalability and billing, pub-sub engines that have to pump out a single message from a hub to 20,000 spokes, which equate to followers. The amount of infrastructure required to make that happen grows daily.

Not to mention that, there's no plan behind it for monetization right now. It's completely venture backed. It has built this huge community, and it could go away tomorrow, leaving a complete vacuum. There is no free lunch. The value of software, and software delivered as a service, extends this even further and diminishes in the eyes of the consumer, when they don't have to pay for something.

Anytime you have a model where something is given away for free, and, at some point, the free stops, it's very difficult to monetize going forth, because every buy is a buyer's remorse. "I could have had that for free."

Today, it happens very easily with software, because it's intangible. We have vendor lock-in in a lot of other industries. If you drive a Toyota, there are proprietary parts in there. The auto parts market didn't say, "Hey, with your oil change, we'll replace all these proprietary parts for you, because we don't want vendor lock in." Your vacuum cleaner has a proprietary bag. A market didn't pop up that says, "Hey, if you let us service your vacuum cleaner, we'll give you a lifetime supply of vacuum bags free."

Gardner: Isn't software different? Software is published. Software is code. Software is something you can change, if you have the permission. It's not the same as a physical part or a wheel?

Morgenthal: Well, a product is a product. Now, you're going on to the edge of the industry that wants to say, "This isn't something I can touch. It's not real, so it doesn't deserve the same protection at the same level of credibility in the marketplace. It's not something that I can physically touch and feel."

I'm not placing judgment on that. Maybe that's the case, or maybe it's not. I'm just pointing out what you said is the opinion a lot of people in the marketplace have, which is, because it's not tangible, because I can't touch it, it doesn't deserve the same level of respect.

What's going to happen with e-books versus physical books? I can't go into Borders and steal a book. Hey, should I pass around that PDF? I can't go into Borders and steal a CD, but hey, can I give that MP3 to my friend? We feel a change in the market.

My only point here is economically long-term, I don't believe anybody has thought about where these changes stop and what they end up cannibalizing. Maybe we end up with a great market, and maybe we don't. I'd just love to see some attention paid to detail before people just willy-nilly go do these things. What is the long-term impact here?

Looking at risk

Gardner: JP brings up an interesting issue. It's about risk. If I go down a fully open-source path as an enterprise or as a service provider, is that going to lead me into a high-risk situation, where I can't get support and innovation? Is it less risky to go in a commercial direction? Perhaps, the best alternative is a hedged approach, where there is a hybrid, where I go commercial with some products and I go open source with others, and I have more choice over time.

Let's go back to Miko. Miko, is that the way the world is shaping up, that we are going to have a hybrid? We're going to have a hybrid of commercial and open source? We are also going to have a hybrid of on-premises and as-a-service or cloud base. Does that make sense?

Matsumura: Absolutely. Frankly, we're already beginning to hybridize. Even with customers who are acquiring our technology, our technology takes advantage of a lot of open-source technologies, and we have built components. As I said, we're very selective about how we choose to make our investments.

We're investing in areas that obviously are not as commoditized, just because a rolling stone doesn't gather any moss. The big sections of the market, where things have cooled off a lot, where open source can kind of create pavement, is somewhat irreversible.

What makes me hopeful for the industry is in, once again, turning to the notion of the fractal component model. Imagine a fractal image. You've got the major portions in the operating system. That whole thing has been commoditized. The thing that's unique is that while a fractal image occupies a finite amount of volume, which you could see as kind of a market share, it has an infinite surface area. As you diversify, the forces of consolidation are mirrored by the forces of competition.

Our customers need to be able to successfully compete in the market, not just on the basis of lowering the cost of operations through free stuff, but really to be able to differentiate themselves and pull away from the pack. There is always going to be a leading edge of competitive capability through technology. Companies that don't invest in that are going to be left behind in an uptick.

Gardner: Suffice it to say that we are really still in the early stages of IT and that there is always going to be for the foreseeable future a great deal of innovation and change, and therefore a growing pie for those companies that are at that adoption edge.

Let's go to Paul Fremantle. Paul, if what we are describing is accepted as the premise -- that we're going to have hybrids of commercial and open source and that we're going to have hybrids of self-supported, on-premises IT functionality, as well as service acquired -- it seems to me that the real differentiator for enterprises is how well you choose.

It's how well you decide. Should you stay with commercial? What should go with open source? What should you keep on-premises, and what should you go to a cloud for? How are those decisions being made now and how should they be made?

Opportunity for frameworks

Fremantle: It's not just how you choose, but what framework you apply to that. There is an opportunity here to build frameworks that really scale out.

For example, you may have an internal cloud based on Eucalyptus and an external cloud based on Amazon. You can scale seamlessly between those two, and you can scale up within your internal cloud till you hit that point. Open-source software offers a more flexible approach to that.

I just want to come back to something about the use of the term "free software." Most open-source software is not free. If you want the same things that you get from a proprietary vendor -- which is support, bug fixes, patches, service packs, those kind of things -- then you pay for them, just as you do with a proprietary vendor. The difference is in the partnerships that you have with that company.

What a lot of this has missed is the partnership you have in an open-source project is not just about code. It's about the roadmap. It's about sharing user stories more openly. It's about sharing the development plan more openly. It's a whole ecosystem of partnership, which is very different from that which you have with a standard commercial vendor.

Gardner: Let's go back to Tony Baer. As we think about what choices to make in terms of how we provision and acquire technology, we might consider a lower risk in terms of what Paul was describing, in being a member of a community of development, rather than just as a customer of technology. How do you view that?

Baer: First, I do agree with Paul, but I want to make a careful differentiation here, which is, there is a difference between an open source, if I am consuming the software and being an active member of the community or being a customer who is basically buying commodity software.

A good example of that is the difference between the Red Hat Enterprise Linux base and the Fedora base. The Red Hat Enterprise Linux customer base is not looking to get on the latest bleeding edge distros or anything like that. They want stable, supported software. They'll pay for that, and there is a viable business model for that as commodity software.

If you're in the Fedora base, that's where you want to be. That's where basically you don't have a life, you work at 3 a.m., and you're working on trying to improve the distro or trying to mess around with it.

Therefore, in terms of the level of risk, if I'm a commercial customer, I'm going to want software that is essentially release supported. I'll want to lower my risk. Where I'm willing to take risks is the same as I would do with normal commercial software. I'll take, let's say, an early beta release or take some of the community technology previews and I'll have some of my developers work with it in a sandbox. So, I don't think it really changes that equation at all.

I agree with Paul and I disagree with JP. I don't think that open source will be the death of the commercial software market, because the other thing that open source requires to be viable is skill. You need enough of a developer base, enough of a community, to innovate the software. Otherwise, the whole model crashes down.

By definition, what that will not include will be software that is not commodity. It may be, as I said before, where that requires domain knowledge or where there is a huge cost of switching.

I don't think you're going to see any enterprise customers pull out their SAP systems tomorrow for an open-source equivalent. That's just not going to happen. On the other hand, they might move their SAP systems to Linux instead of Unix. So, you need to take this whole question about risk in context.

Monetizing in a different way

Gardner: Jim Kobielus, we're talking about how code, intellectual property, and research and development get developed, monetized, and then brought back into a market. We have these powerful cloud providers, and they monetize in an entirely different way. They sell advertising, subscription services, or retail goods and have a margin. They can monetize their infrastructure in another way.

If they use open source and contribute back to the community, then in fact we have a richer monetization ecology of how software is developed. How do you view that? Look at Yahoo and Hadoop, as an example, where a MapReduce technology has been brought to the open-source environment because it was cultivated at a company that makes money from advertising. [UPDATE: Amazon gets on the MapReduce bandwagen.]

Kobielus: That's a very interesting observation, Dana. Basically, everything you said is exactly right. The whole cloud community, the public cloud provider, is attempting to build their business models based on subscription revenues. It's not so much from advertising. It's the monthly charge for access to the Google or the Amazon cloud. To a great degree, many of them are relying on various open-source components to build up their infrastructure.

To the degree that the cloud providers are active participants in open-source communities and essentially contributing their personnel's time to further develop and extend open-source software that's then available for free, essentially that is the whole open-source community being funded or subsidized by the cloud community.

In many ways, the cloud community, as it grows and establishes itself as a viable business model, will increasingly be funding and subsidizing various open-source efforts that we probably haven't even put on the drawing board yet. That will be in a lot of areas, such as possibly an open-source distribution of a shared-nothing, massively parallel processing, data warehousing platform for example. Things like that are absolutely critical for the ongoing development of a scale for cloud architecture.

If there is going to be a truly universal cloud, there is going to have to be a truly universal open-source scale-out of software.

Gardner: Let me pause you there. Let's take that to Richard Seibt. Richard, you mentioned that it's a very rich and fertile way for software to get developed when a large enterprise like Deutsche Post does work and then contributes it back to the community. Wouldn't the same be the case for large cloud providers, such as Yahoo, Amazon, and Google?

Lack of contributions

Seibt: I think it would help, but I don't believe that they want to do that. They see themselves as a kind of proprietary open-source development shops, and, as you know, they don't contribute back a lot.

But, from a large enterprise perspective, it would absolutely make sense to do a lot of contributions, to be able to move their application and their complex infrastructure to the cloud, because you have to solve cloud security, cloud storage, and cloud systems management, and this is not available yet. This needs to be developed to solve their issues. This is possible in a cooperation between open-source projects or commercial open-source companies and large enterprises, and I am sure they will do it, because they get the value out of it.

As one of my colleagues just said, it's about how you work together, and this is the value of open source. You have influence on the roadmap. You have influence to get what you need, and this makes you agile and more flexible. At the end of the day, software is too important, because all of your business is running on software. Every part is running on software, and that's the reason people want to use software that is open and can be influenced. It's not only about cost.

Morgenthal: Dana, do I get one counterpoint, since somebody said that they don't agree with JP that it's going to be the death of the commercial vendors. I never said that. I just want to clarify. I never claimed that it was the death of commercial. I think you summarized it well with the risk factor. All I pointed out is that there is a long-term risk potential here that nobody is talking about.

Gardner: Well, let's talk about that. In the context of on-premises or private clouds, as I mentioned, there was a rumor -- and something might happen by the time this show airs, we don't know -- that IBM and Sun are in some kind of a merger discussion.

One of the rationales that was theorized for that was that Sun has a great deal of open-source software that could be used to create a cloud, an on-premises cloud infrastructure of some sort. That could for IBM be an opportunity to enter that market more quickly, or it could be an opportunity for IBM to stop development in that direction in order to preserve its own ideas about how a private cloud might be constructed -- perhaps of a System Z mainframe platform.

So what do you think JP? Is this whole potential for an on-premises cloud market a new battleground for commercial versus open source?

Morgenthal: I see it more as breathing new life into platforms that were getting harder and harder to justify, because you had commoditization. Commoditization is a real market thing that we've got to deal with. We've had commoditization in hardware to the point where it is relatively inexpensive to get very powerful server architectures, and that reduces the need for some of the larger processing machines that are offered by the likes of IBM and Sun.

So for them, it's being able to target some of this existing investment into a new direction, to build some sort of coherence around how this makes sense to a buy-side community, in building out this compute infrastructure that is easily oriented towards different applications and different uses, allowing for scalable demand, taking advantage of things that they've already built and never really had a model for selling. It actually puts the ball back into their court where its been taken away for them for so long.

Gardner: Okay. So, from your vantage point, the notion of an on-premises cloud infrastructure is great news for commercial providers.

Morgenthal: I think so.

Gardner: David Kelly, how do you see it? Do you see that the open-source versus commercial risk continuum is now being placed at this on-premises cloud market that's just only very nascent? It's really not even off the ground. How do you see that tension?

Services not hardware

Kelly: Just talking about the IBM-Sun deal is great for a services company, which is where IBM is making a huge amount of money -- services. They don't care so much about the hardware anymore. This plays right into the direction that they want to go, because open source is all about the services. There is no revenue in the upfront. So, there is opportunity there.

I don't know how fast that market, in terms of on-premises cloud, is going to develop. That's where my hesitation would be. But, it makes sense from that shifting traditional software model that was pushed off the cliff perhaps 10 years ago by this kind of change that we are seeing across the economy. But, organizations still need services. They need the software. We're just going to be paying for the services and the software as we go forward.

Kobielus: I want to add a quick comment here. In terms of the risk for software vendors from the whole cloud phenomenon, the issue on business models is, what is the razor and what are the blades in the old Gillette model? Well, the razor and blades used to be just the commercial software licenses themselves, and then primarily the razor has always been the maintenance and support service, as well.

Open source has made that the dominant revenue model for a growing range of software vendors. But now, professional services are, in many ways in this new world, becoming the blades.

Professional services are now able to deploy like a global services organization to help customers put together their private clouds, leverage all the SOA and the virtualization technologies, and to really pour deep business domain content into building custom services. That's becoming, in many ways, the blades in this new world. The risk factor for vendors is that we don't have that.

Gardner: Hold on, Jim. If that's the case, what about these external cloud services, where the APIs and the business process are the differentiator? The blades and the razors are really about not professional services involved with creating the infrastructure, but with, how you leverage these business processes in innovative new ways across markets, across ecologies of participants, cutting your IT costs while improving your ability to develop products without upfront capital and without professional services.

Isn't there another side to this, which is the shift from the concern about creating infrastructure into, how do I leverage someone else's infrastructure?

Kobielus: It comes down to either you, as a vendor, bring your professional services to bear on integrating all of that, or you bring your partner ecosystem in to handle that integration and tweak those business processes. So, in many ways, you rely on your partner ecosystem to build the blades.

Gardner: Miko, let's take this to you. It seems to me that if you're building complex event-processing infrastructures and you're creating fabrics of SOA support, you might want to create the enticement of the business-process benefits, while at the same time, monetizing around the infrastructure. Is that a viable go-to market in this new year?

Matsumura: Absolutely. The areas that you describe are the areas where the stones are rolling and there is not a lot of moss. If you look at the rolling stone gathering no moss theory, IBM services would be the moss, in a way. They are just trying to grow over anything that's kind of stabilized and cooled off sufficiently to build their own ecosystems.

The 'uncommons'

It's the thing that I see happening with the Sun acquisition. It's kind of funny. Sun actually had a lot of fairly speculative ventures in different kinds of models for leadership, standards, and open source -- things like JCP, NetBeans, these hybridized models and complexities. The thing I think IBM is trying to prove with this acquisition is basically that professional services are the way that they provide what I would call the "uncommons."

One of the things that I've seen as a pattern in open source is that open source tends to be driven by the needs of the commons, in the sense that the more community, the more common infrastructure, one has, the more you can drive towards an open-source model.

The remaining question for commercial providers is, where are the uncommons? What are the forces that drive organizations to differentiate? Where can you find those differentiation points? The IBM answer to that is, pour in a bunch of consultants. There is plenty of room for other models.

Kobielus: The uncommons is actually the solution provider's ongoing relationship with the customer, the ongoing engagements whereby the solution provider has the expertise to solve the customer's problems and continues to bring that expertise to bear in engagement after engagement after engagement. That is the lock-in. You know your customer better than any other potential provider.

Baer: It's all about relationships.

Kobielus: Yeah, relationships.

Gardner: Paul Fremantle, how about that last word on relationships versus code? You were talking about the community. Isn't that, in effect, a different kind of relationship, perhaps even a lower risk relationship member of a community than simply a buyer from a large seller?

Fremantle: I hate to use jargon, but if you look at where the free and open-source business model is going, if you were going to have a 2.0 business model, it would be all about relationships, and no longer about just being the only open-source project in a space and then everyone jumping on it.

The community is the key to that. The key to using open source to be more powerful than a proprietary model is completely about building a community in which your customers participate. At WSO2, we have some amazing customers, who really participate in the roadmap of the products, in helping out other customers, in working together and building a shared community. That is what's powerful, and that's what's much harder to do as a proprietary vendor. You own the source code, and that ownership is kind of a weapon against your customers. In open-source models, that isn't true.

Gardner: We'll have to leave it there. We're out of time. I want to thank our panel. I also want to thank our charter sponsor for the BriefingsDirect Analyst Insights Edition Podcast series, and that's Active Endpoints, maker of the ActiveVOS, visual orchestration system. We also want to thank TIBCO Software.

This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening and come back next time.

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Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 39 on open source software and whether it has hidden risks or undercuts viability of commercial software models. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.