Tuesday, June 13, 2006

Why your business will be using Open Source

Bernard Golden writes for CIO Magazine:

The first reason you need to begin using open source software is that IT budgets suffer from two simultaneous imperatives: low-growth and increasing demand. One important way to respond to these imperatives is to lower your cost of delivering technology. Open source can be an enormous help in this response.

The second reason for using open source is that the software industry itself is undergoing change and will increasingly resemble the open source model: the software itself being freely downloadable, but with far fewer ancillary services delivered by the vendor for free. [...]

Now, let's discuss the third reason you need to jump on open source -- and this one extends the impact past the confines of the IT organization: open source can offer competitive advantage to the overall organization -- in other words, open source can help businesses perform better financially.

Golden goes on to describe the economic forces that make Open Source a huge competitive advantage, and warns that businesses ignore it at their peril:

The counter-argument to the cost advantage of open source software is that the cost of licenses is unimportant in the overall budget of IT. [...]

This reminds me of the dismissivenss that Detroit used to evince toward Japanese automakers. It used to take US car manufacturers two weeks to perform annual model tooling changeovers. Toyota figured out how to do it in less than a day. So what, was the attitude of US automakers. The cost of model changeover is peanuts compared to everything else.

But Japanese car companies continued to incrementally improve their cost structure -- quicker changeovers, less inventory via JIT techniques, lower manufacturing cost by creating option bundles. One day the US industry woke up and Japanese makers had an unbeatable cost advantage; thirty years later, the domestic manufacturers are still trying to catch up.

Golden gives figures for the cost of licences: 10% to 20% of the cost or individual project, perhaps 6% of the entire IT budget, and warns that many people (especially Microsoft) argue the cost of licences is insignificent in the grand scheme of things.

Who's drinking that Kool-Aid? 20% of the project budget is insignificant? On what planet?

Failure to take a 6% saving is mathematically equivalent to a 6% increase. (Note: the two figures aren't quite equal -- it is actually equivalent to 6.38%, because the base is smaller. But let's not quibble about a few tenths of a percentage point.) So let's do a thought experiment.

Imagine that your head of IT goes to the company accountant and demands a budget increase of 6% "because it's an insignificent amount, you won't miss it." What reaction do you think he'd get? If your IT department is one Windows 98 PC, the accountant probably won't blink. If it is 3,000 PCs and 100 servers, well, blinking won't be the only reaction.

I'm sure that a good IT manager will be able to justify that 6% increase. Sometimes you really do need to put more money into IT. And sometimes the right place to spend it is on software licences. But to say that cost savings of 6-20% are insignificant is sheer poisoned Kool-Aid drinking insanity.

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