Chapter 10 Software in Flux Partly Cloudy and Sometimes Free Learning Objectives Understand how low marginal costs network effects and switching costs have combined to help create a huge and important industry Recognize that the software industry is undergoing significant and broadly impactful changes brought about by several increasingly adopted technologies including open source software cloud computing and software as a service Define open source software and understand how it differs from conventional offerings Provide examples of open source software and how firms might leverage this technology 2 Learning Objectives Know the primary reasons firms choose to use OSS Understand how OSS can beneficially impact industry and government Understand the disproportional impact OSS has on the IT market Understand how vendors make money on open source Understand the concept of cloud computing Identify the two major categories of cloud computing 3 Learning Objectives Know how firms using SaaS products can dramatically lower several costs associated with their information systems Know how SaaS vendors earn their money Be able to list the benefits that accrue from using SaaS Be able to list and appreciate the risks associated with SaaS 4 Learning Objectives Distinguish between SaaS and hardware clouds Understand the concepts of cloud computing cloudbursting and black swan events Understand the challenges and economics involved in shifting computing hardware to the cloud Know that by lowering the cost to access powerful systems and software cloud computing can decrease barriers to entry 5 Learning Objectives Know what virtualization software is and its impact on cloud computing Be able to list the benefits to a firm from using virtualization Know the options managers have when determining how to satisfy the software needs of their companies Know the factors that must be considered when making the make buy or rent decision 6 Introduction Software is the two hundred billion dollar per year juggernaut Once a successful software product has been written the economics for a category leading offering are among the best you ll find in any industry Unlike physical products assembled from raw materials the marginal cost to produce an additional copy of a software product is effectively zero This quality leads to businesses that can gush cash 7 Introduction Network effects and switching cost can offer a leading software firm a degree of customer preference and lock in In many cases creates winner take all markets However the fundamental model powering the industry is under assault from Open source software OSS offerings Open source software offerings Software that is free and where anyone can look at and potentially modify the code 8 Introduction Questions facing big software firms How can we compete with free How can we make money and fuel innovation on free Cloud computing is making it more common for a firm to move software out of its own IS shop so that it is run on someone else s hardware Cloud computing Replacing computing resources either an organization s or individual s hardware or software with services provided over the Internet Software as a service SaaS A form of cloud computing where a firm subscribes to a third party software and receives a service that is delivered online 9 Introduction Hardware clouds can let firms take their software and run it on someone else s hardware Virtualization A technology that can make a single computer behave like many separate computers The function helps consolidate computing resources It also creates additional savings and efficiencies Smaller firms have access to the kinds of sophisticated computing power than only giants had access to in the past Startups can scale quickly and get up and running with less investment capital Existing firms can leverage these technologies to reduce costs 10 Open Source Open source software OSS is described as free The source code for OSS products is openly shared Anyone can look at the source code change it and even redistribute it provided the modified software continues to remain open and free 11 Open Source Open source openness is in stark contrast to the practice of conventional software firms Who treat their intellectual property as closely guarded secrets Who almost never provide the source code for their commercial Some firms see OSS as a threat undermining their economic products model Some other big name technology companies are now solidly behind the open source movement 12 Open Source Linux An open source software operating system Linux powers everything from cell phones to stock exchanges set top boxes to supercomputers Found on 30 percent of the servers in corporate America 13 Turn on the LAMP It s Free LAMP An acronym standing for Linux the Apache Web server software the MySQL database and any of several programming languages that start with P Example Perl Python or PHP LAMP software powers many of the sites you visit each day from Facebook to YouTube 14 Why Open Source Reasons why firms choose open source products over commercial alternatives Cost Reliability Security Scalability Agility and time to market Why would OSS be more reliable and secure 15 Examples of Open Source Software Firefox OpenOffice Gimp Alfresco Marketcetera Check out Hadoop Zimbra MySQL Ingres and EnterpriseDB SugarCRM Asterix Free BSD and Sun s OpenSolaris 10 16 Why Give it Away The Business of Open Source Open source is a sixty billion dollar industry but it has a disproportionate impact on the trillion dollar IT market By lowering the cost of computing open source efforts make more computing options accessible to smaller firms More reliable secure computing lowers costs for all users OSS diverts funds that firms would otherwise spend on fixed costs so that these funds can be spent on innovation or other more competitive initiatives 17 Why Give it Away The Business of Open Source Commercial interest in OSS has sparked an acquisition binge Red Hat bought open source application server firm JBoss for three hundred fifty million dollars Novell snapped up SUSE Linux for two hundred ten million dollars Sun plunked down over one billion dollars for MySOL an open source database provider then Sun got bought by Oracle who markets MySQL 18 Why Give it Away The Business of Open Source Vendors make money on OSS by selling support and consulting services The industry s evolution standards competition In the pre Linux days nearly every major
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