There was an interesting series of articles on Businessweek.com last month about the financial benefits of using enterprise level open source software. It appears that the software industry is moving towards a business model that is very similar to that of pharmaceuticals. It takes a great deal of time, money, and effort to research and develop new software technologies, as is the same with FDA approved medicines. Innovative software products, that provide companies with a true competitive advantage, and which are able to be patented, should command a premium price in the marketplace. On the other hand, enterprise software whose features and functionality were first delivered, or whose underlying algorithms were first published, over twenty years ago, should be priced like generic drugs.
The open source model of freely distributed software, created by potentially thousands of programmers across the globe, for which minimal fees are charged for support, bug fixes and perhaps a warantee, is one whose time has come. Many commercial vendors today are going to need to rethink their pricing policies, as open source initiatives reach a critical mass, and the level of stability of the underlying source code becomes acceptable to business users. Open source packages now provide a significant portion of the features and functionality of more established proprietary enterprise offerings, for a mere fraction of the cost.
One example of the changing business landscape of the software industry, is the rise of innovative start-ups like Mobile Agent Technologies. They have aggregated five separate open source initiatives, including a rules engine, data mining and predictive modeling tools, a complex events processor, relational database, and content management system, and combined them with their own patented cloud computing environment. Together the subsystems form the foundation of a platform for building and deploying intelligent software applications, called Einstein Enterprise. Like Cirque du Soleil in the entertainment industry, who combined the most vital aspects of the circus with features normally found in broadway theater, they have created a brand new market segment without any competitors. But at a price point at which they can be considered true “value innovators”.
Herbert A. Lowe
