Microsofts Tolerating Piracy strategy and open source

Reading the story in Fortune was an eyeopener for me and it started a debate in my mind regarding what open source evagelists have been saying and Microsoft's strategy. (NASDAQ: MSFT)

The open source story has been that there are three kinds of consumers
- People who will never spend on Software (students , startups , etc)
- People who will always spend for Sofware ( As they want indemnification , Software contracts etc). generally Publicly traded companies.
- People inbetween.

Companied like Sun (NASDAQ: SUNW) have taken this to the core and have a go to market strategy that is inline with this concept.

The Fortune article and specifically the comment from Bill Gates

tolerating piracy turned out to be Microsoft's best long-term strategy. That's why Windows is used on an estimated 90% of China's 120 million PCs. "It's easier for our software to compete with Linux when there's piracy than when there's not," Gates says. "Are you kidding? You can get the real thing, and you get the same price." Indeed, in China's back alleys, Linux often costs more than Windows because it requires more disks. And Microsoft's own prices have dropped so low it now sells a $3 package of Windows and Office to students.

was an eyeopener because to me Microsofts strategy is more evolutionary in nature and also protects its interest recognizing the fact that customers will evolve and hence pay later on. Students will move into organizations and startup's will turn into public companies at some point of time. I do not mean to imply that SUN does not recognize the evolutionary nature of customer , but they are giving an option to the customer - not to pay if they think they can maintain SUNW software themselves. While Microsoft will use its Legal muscle later on in the evolution of the customer and force them to pay.

Comparing Commercial Open Source and Traditional Software company’s business models

The world of open source now has a host of players in different forms. Here is my attempt to classify the two different business models taking a style used earlier by Tim O Riely to describe Web 2.0.

My aim is really to compare Commercial Players. I consider Software Organizations like Apache and Eclipse as NGO’s in the open source world as the aim for these organizations is not to make money, it is really to benefit the industry by having common standards in the industry and leveraging shared development.

Yes it can be argued that IBM makes money from Eclipse via Rational Tools and that member organization benefit from Apache by reducing production costs in producing a commoditized product like a webserver. I still consider these examples as Not for Profit because the monetization on the product is not a guarantee for the company doing the contributions. As an example IBM has been able to monetize on Java more so then the founder of Java -Sun and that Apache Webserver is benefiting an entire industry as compared to a direct player like IBM.

	Traditional Software Companies	Open Source Commercial Companies
Some Names	Microsoft , ILOG , Chordiant	Red Hat and JBoss , mySQL , Sun(Solaris) , Spikesource
Supply Chain	Integrated. One integrated provider that creates the product, tests it , supports it , consults on it	Loosely coupled. Generally different entities creating the software , distributing the software , testing the software. Generally each layer has to have a value add or else will be removed
Marketing	Traditional Top Down Marketing	Bottom up Marketing
Sales Function	Commission based sales agents OR Distributors	No Sales function. Order processing and operations only. refer death of cold calling
People	Designations are important - Product Manager , VP Software development etc	Brand Name Individuals - Linus Torvalds , Rod Johnson
operations	Similarities to Manufacturing (where you do Market Analysis , Product Design , Develop the product and roll out in the market). Products have a low barrier to entry if coming from establised vendors like Microsoft	Similarities to Movie Studio's where the aspect of running the business is a very different function from creating the Intellectual Property. Movies run on Brand name individuals like Tom Cruise and not on studio name
Monetization	at the time of distribution and potentially each Customer / vendor interaction	Monetization : several models (advertising , Conversion , professional Services , several more) but not necessarily for each interation
Product Lifecycle	Market Analysis , Business Case around revenue potential, Product Design , Develop , Test , Marketing , Sales , Maintenance then Next Release	Personal Situation Analysis , (develop , Release , Test) , (develop , release , test ) , Market and Revenue Potential , Bottom Up Marketing

Google and SaaS Stack Vendor

Following my earlier blog about Google as an SaaS stack vendor , I started thinking about what is next for google to complete its stack.

Prediction : Google will come out with a Hosting Service in an years time

This hosting service will probably be very different from Yahoo or Go Daddy . It will be something that will have a built in IDE option (like MashupEditor ) and will have native support for things like GWT . It will be an environment where you can pick and choose the Google out of box services , can create your Services and will be integrated with Google Apps. It could be based on Java Runtime Environment (because of GWT) but I would be surprised if Google would expose the J2EE directory structure to the consumer.

The big question I do not have an answer to is what would be the Database option. Giving a plain old mySql connection does not seem to be the style for Google. Mybe they will come up with their own DB ?

UPDATE: It is 4/7/08 - less than an year from the prediction. My prediction has come true . check out. http://appengine.google.com/

They have exposed BigTable , GFS and made python to be their development platform. I am waiting to see GWT and Java getting exposed as well.

Why Google Gears ?

Andy asks the question : Why google gears ?

Yes with 3G cards and Wifi do we need an offline option. Probably not. (I could potentially use it in planes - but my expectation is that by the time applications comply with an offline option airlines will figure out a better business model around selling internet on the plane. We did have a failed first step).

Here is why IMHO Google does gears
1. Google does stuff just because they are cool so ROI is not necessary when they start working on it. (Example Google Sets)

2. From a business perspective. Google needs to have an offline option to compete with Flash and Java webstart to complete its SaaS stack of GWT , Google Apps , MashupEditor etc.
Google is in the business of SaaS Development for the Enterprise (look at its recent acqusitions like postini). It is creating an alternative to Java , .NET , FLASH etc and make no mistake about it. Yes their revenue now comes from Advertising but I would be surprised to see if it is the same 5-6 years down the road.

So where is the money going to come from for Google after 5-6 years. --> From using there grid. From using there SaaS platform. You might end up paying on a subscription based model OR pay via getting targetted ads served to you.