Software like Linux, Apache and MySQL has already rewritten the rules for how business software is licensed and used. Now it's computer services' turn.
Staff Writer, CNET News.com
The open-source movement has already rewritten the rules for how software is licensed and used. Now the computer services market is changing to keep up.
With the number of open-source products on the rise, there has been a surge in services offerings—such as consulting and support—designed specifically for open-source software like Linux, the Apache Web server and MySQL database.
Big companies looking for help in assembling new systems based on unfamiliar open-source programs are fueling a race among providers—some new, some holdovers from the dot-com boom and long before—to become the trusted name in open-source services.
Analysts expect the market to come to a head in 2005. "Open source won't be about the software at all—it will be about the services," said Julie Giera, an analyst with Forrester Research. "The recognition will dawn on people that this is a services play, not a software play."
Sensing that opportunity, a number of companies specializing in open-source services have sprouted up in the past year. The former CEO of professional services outfit Viant—which flourished briefly, then crashed during the dot-com bust of the late 1990s—last month launched a company called Optaros, which will provide IT consulting for open-source software. SpikeSource, a new company specializing in ongoing support and certification of open-source components, last month launched a beta program for its maintenance services. A competitor to SpikeSource, called SourceLabs, formed last year.
"More and more, the emphasis is going from the bits to the services wrapped around those bits," said Kim Polese, an industry veteran who helped develop the Java programming language and who is now CEO of SpikeSource.
Established professional services firms are raising the stakes as well. IBM and Hewlett-Packard, for example, are expanding their services offerings for open-source components.
Industry executives and analysts expect to see a flourishing of services for open-source software, with vendors tackling up-front consulting and installation to ongoing support and maintenance. As providers chase services-related dollars, corporate customers will have more options to experiment or expand their use of open-source software.
"There are opportunities for newer companies to try to latch onto the success of some of the biggest names in open-source projects and gain some brand recognition," said Stephen O'Grady, an analyst at RedMonk.
Open-source software, especially the Linux operating system and Apache Web server, are commonly used in businesses already. Now, the palette of software available with an open-source license is extending to browsers, infrastructure software, desktop software, development tools and even packaged applications.
Most open-source licenses allow people to download and use the software for free. That cuts down on the cost of acquiring the software but business customers still require services, ranging from upfront consulting to ongoing support once the software is installed and training for internal staff.
Building an application from open-source software components generally requires more integration work. Proprietary software providers, including Microsoft and Oracle, have engineered their products, such as databases and management tools, to fit together well, which cuts down on initial installation and simplifies the process of introducing updated versions.
By contrast, Optaros, which announced last week that it landed funding from Charles River Ventures and CEO Bob Gett, is taking a more traditional IT consulting tack to open-source services. The company will provide up-front consulting and application development for specific projects.
To Gett, open-source represents a major shift in computing, similar to major technological changes that have shaken up the industry in the past, namely client/server and Internet computing.
"The world is full of professional services firms and it's become a pretty tough business. However, at the beginning of adoption of a new platform, there's an opportunity to create new companies that are specialized," Gett said.
According to a survey done earlier this year by Forrester Research, about 60 percent of companies have installed or will install some form of open-source software by the end of this year.
Despite the buzz in the technical community among developers and entrepreneurs, actual corporate customers are still assessing where use of open-source software is viable and makes sense, Gett said. Also, corporations may lack the appropriate skills to implement large-scale projects.
"(Open source) needs a corporate face so enterprises can use it in ways they are used to and are comfortable with it," Gett said.
Over time, services companies will likely specialize in certain open-source products and areas, such as applications for specific industries, analysts say. With so many companies chasing open-source revenue from services, Forrester's Giera foresees a surplus of services outfits and consolidation among them in a few years.
Seeking services revenue is not restricted to the open-source crowd. With corporate spending on software restrained, established providers of proprietary software increasingly rely on ongoing revenues, such as maintenance rather than new license sales. In an earnings call earlier this year, Oracle CEO Larry Ellison touted the company's "subscription" maintenance business as "an extremely high-margin business."This year's model
Professional services firms have had practices for proprietary software—such as SAP or Oracle software—for many years. But in open source, most service providers are still relatively young and the market is unsettled, which means that companies that partner today could become competitors in the future.
In the meantime, though, upstart open-source companies are expanding their services and partnering with established professional services firms.
Last month open-source database MySQL launched two service offerings through which the company's consultants work on-site with customers for a few days at a fixed price to tackle common problems. The new services for performance tuning and migrating from other databases are in response to business customers looking to beef up their internal skills in open source, said Zack Urlocker, vice president of marketing at MySQL.
SpikeSource, which focuses its services on ongoing maintenance and administration, is partnering with systems integrators for applications development, including offshore outsourcer Cognizant. Many offshore systems integrators are developing open-source services practices, Polese said.
"We're going to see medium-size and larger systems integrators develop open-source practices because it's a top-level agenda for CIOs who want to wring more from their budgets," Urlocker said. "But CIOs don't want to be on the bleeding edge adopting technology without having expertise."
Like MySQL, open-source Java server software company JBoss provides support services for the software written primarily by its employees. That model stands in contrast to other services firms that may service a range of different products.
JBoss founder and CEO Marc Fleury said that his company's support structure will ultimately give it an advantage over others crowding into the field. He said scaling up its support offerings so that the company can handle many clients with large-scale applications is one of the biggest challenges the company faces.
"Customers want to know their provider is viable," Fleury said. "Getting support directly from the vendor who wrote the software is a better model...What's the credibility (of others)?"
Because of potential legal problems associated with open-source software, enlisting a service provider for open-source projects may be more important than in the proprietary world because of risk, said Forrester's Giera.
Apart from potential intellectual property issues, open-source can pose risks from version incompatibilities among different products, training, security and the like. Enlisting a third-party provider is a time-proven method for mitigating risk, she said.
The buzz of activity also underscores how software providers, ranging from Red Hat to IBM, will need to compete increasingly on the quality of their services, rather than on a checklist of software features.
"One of the biggest frustrations on the part of IT with the vendor-dominated industry is that you had over-engineered products with so many features stuffed into them that 80 percent of them were not used," Polese said. "With open source, you strip down the code and use exactly what you need."