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What a Difference a Year Makes

Roger Burkhardt is president and CEO of Ingres. Prior to joining Ingres, Roger was CTO and executive vice president of the New York Stock Exchange.

Last year as we stared into our crystal ball to determine the future of open source in Seven Predictions for Open Source in 2009 the world was a much different place. We were saddled with the tightest credit market since the Great Depression, and a faltering economy with increasing unemployment and a stock market that was in virtual free-fall.

Fast forward one year as we prepare for 2010 and the credit market has thawed considerably, banks have paid back nearly 75% of their TARP money, green shoots in the economy have turned into saplings and the stock market (as measured by the Nasdaq) is up over 40%. Unemployment has not yet rebounded, and we remain above 10% unemployment in the U.S. Busnesses large and small are still trying to navigate the growth trajectory of the economy and the phrase 'do more with less' is commonplace, especially as it pertains to IT budgets. So how has this roller coaster ride impacted open source software adoption and usage? Before we look forward again, we would be remiss if we didn't look back and see if our crystal ball was in fact clear or cloudy.

2009 Predictions: How Did We Do?

2009 Prediction #1: Adoption of open source software will increase as the economy worsens.
Accuracy: Grade B+

We can say with some conviction that this indeed was the case in 2009. While we obviously do not have financials for all open source companies we can parse through the data that is available to prove our point. Red Hat subscription revenues (RHEL and JBoss) increased 15% annually to over $600 million in 2009 and their deferred revenues (a proxy for Bookings) increased 17% and Novell grew its Linux Platform 21% to $150 million. The impressive thing to note about these growth figures is that they were achieved with the backdrop of overall server revenue and shipments being down over 20% for the year. Our own business saw a dramatic increase in the opportunity pipeline including many customers and partners who were new to open source.

2009 Prediction #2: Open source adoption will accelerate across the full infrastructure software stack and into applications.
Accuracy: Grade B

This has been a consistent theme in 2009. We have seen and heard about increased adoption of open source applications such as ERP, open source business intelligence, as well as open source integration. As customers become more comfortable with using open source for infrastructure they are more willing to use open source applications. These applications have also had time to mature and the increased functionality opens up adoption to a wider range of companies from SMBs to larger enterprises.

2009 Prediction #3: SaaS and cloud-based computing solutions will grow and pull open source with it.
Accuracy: Grade A

If there was an enterprise technology theme in 2009 it had to be cloud computing. Nearly every software and technology vendor has a strategy to monetize the still nascent cloud. Cloud computing is the future and vendors and CIOs alike are increasingly investing in cloud-based technologies. Despite the focus from proprietary vendors such as Microsoft (Azure), IBM (Smart Business), and Oracle, we firmly believe that cloud computing is the sweet spot for open source technologies. Red Hat has been the one vendor to date that has benefited the most; however we believe that over time other open source technologies will begin to see outsized benefits.

2009 Prediction #4: M&A of open source vendors will continue to change the open source landscape.
Accuracy: Grade A

The Oracle acquisition of Sun and the subsequent fight to keep MySQL with the EU is certainly going to change the open source landscape. The question is how? Oracle has been saying the right things of late about maintaining the various storage engines, not abandoning the community and investing real money into MySQL. However, practice might be a different story and only time will tell. Another deal we believe has the potential to be a landscape changer is the VMWare acquisition of SpringSource for $420 million. Just how VMWare will leverage the large SpringSource community is unknown but it appears that VMWare has goals well beyond virtualization.

2009 Prediction #5: Competition from open source will drive proprietary vendors to take the first steps in changing their business models
Accuracy: Grade B

In June 2009 Oracle launched a subscription-based licensing model for ISV partners called "SaaS for ISVs". As part of the program, ISV partners can purchase license and support for components of Oracle's Platform for SaaS (includes Oracle Database, Fusion Middleware and Oracle VM). Many SaaS ISVs have avoided proprietary license models due to their onerous upfront costs and the potential of being locked into a platform that would be very costly to migrate from in the future. The subscription licensing model is obviously a way for Oracle to reduce the upfront cost and become more competitive with open source and subscription models.

2009 Prediction #6: Open source stacks emerge from strong market partnerships.
Accuracy: Grade C

Open source stacks have been around for a decade with the LAMP (Linux, Apache, MySQL, PHP/Perl/Python) stack. 2009 saw a larger variety of stacks emerge with our own Ingres Development Stack on top of Red Hat Enterprise Linux (RHEL) and JBoss as well as appliance partnerships with open source vendors such as Jaspersoft and Alfresco. However, as with most business partnerships, the time to market and material revenues often takes more time than originally anticipated. We believe like most of our predictions in 2009, this one is a multi-year trend that is still in the early stages.

2009 Prediction #7: SI partners will guarantee first-year cost savings for migrations to open source.
Accuracy: Grade D

Okay, so we went out on a limb last year with this one. Conceptually, this made a lot of sense as a way for systems integrators to drive business. However, in a recession the first thing that all companies look to do is preserve cash and stabilizes their balance sheets. While we continue to look to SIs to be market leaders and thought leaders for end customers, we do not anticipate them altering their business models in the near term to make cost savings guarantees to end users. We have seen major players like Accenture introduce systematic global programs to deliver customer's cost savings by moving to open source but they are still building the experience base that is required to make the kind of cost saving guarantees that we've seen in business lines such as outsourcing.

Seven Predictions for Open Source in 2010

And with a wrap on 2009, here are our predictions for the year ahead:

2010 Prediction #1: Adoption of open source will increase even as the economy improves.

The genie is out of the bottle. As we saw coming out of the recession in 2003, end users who experimented with open source (specifically Linux) did not automatically shift back to proprietary systems just because they had a larger budget to work with. In fact the opposite happened. Adoption of Linux soared as customers were able to tackle larger projects and were more comfortable and satisfied with open source performance and support. We are encouraged by the increased demand that we built in our pipeline in 2009 and believe that 2010 will continue to usher in increased adoption of open source. Despite the improved economy, we maintain that end customers are focused on maintaining strict IT budgets and will continue to look to open source to lower their overall IT spend both in the near-term and in the long term by avoiding vendor lock in.

Independent Software Vendors (ISVs) are moving to adopt open source infrastructure for both their existing on-premise model and for their new "cloud" offerings and given the multiples they sell and their much greater numbers and resources they provide a very substantial "force multiplier" for open source infrastructure players.

Governments will accelerate their open source programs as they need to reduce costs and increase efficiency to handle the major budget deficits driven by bailing out the financial sector and massive stimulus spending. A second generation of government policies target the procurement lever, for example by fencing off budget dollars for open source solutions.

2010 Prediction #2: We will see an IPO from a non-Linux open source company in 2010.

The growth rates of certain open source companies has been impressive (50% +). We also believe a few have crossed the Wall Street friendly $50 million in run rate Billings barrier. The investment community is itching for new ideas and open source has been a theme (along with cloud computing) that resonates well with investors due to its highly visible model. The open source Enterprise Content Management (ECM) space has been hot and we would not be surprised to see an IPO candidate emerge from that area in 2010.

2010 Prediction #3: SaaS and cloud-based computing solutions will grow and pull open source and open standards with it.

We said it in 2009 and we'll say it again. We are not exactly going out on a limb here with this prediction. Cloud computing is the future. This could be a decade long cycle as enterprises build out their cloud computing technologies. The venture capital (VC) world has latched onto the cloud concept and we have spoken to many VCs who will not invest in software unless it is a cloud computing play. As we stated earlier, open source stands to benefit because of its superior economic and innovation models. We believe 2010 will be the year that open source adoption moves up the stack in cloud applications to include application servers, databases, integration tools and systems management.

2010 will be the year that open standards are recognized as a critical success factor for the SaaS and cloud computing industry segment. Customers run 100s to 1,000s of applications that they need to interoperate smoothly whether they are delivered in the traditional on-premise model or under the SaaS model. The initial SaaS model of proprietary systems interfaces such as is similar to the "private garden" of AOL that was swept away by internet standards and won't scale beyond converting a handful of on premise applications such as CRM. The industry will recognize that to convert a significant fraction of those 1,000 or so customer applications open standards are required at all levels including application level interfaces like the trading interfaces in the securities industry (FIX and fpml).

2010 Prediction #4: Merger and Acquisition (M&A) of open source will continue and IBM will finally make a big splash.

For all their rhetoric about being open source friendly (which they are), IBM has only made very small fringe acquisitions in open source. We think this will change in 2010. They could go a number of ways by either acquiring an OS vendor, a database vendor or possibly even an application vendor (they are quietly getting back into the application market after a decade absence). Stay tuned…

2010 Prediction #5: Proprietary vendors will take the second step in changing their business models.

We think that other vendors such as Microsoft and IBM will follow Oracle's suit and offer some or all of its infrastructure stack as a subscription-based offering. Given our earlier assumption that cloud-based computing is the future of software, we believe that the proprietary vendors will have to begin to acquiesce to the market's demand for more flexible pricing. This isn't just a prediction for 2010 but really how software will get bought and sold long into the future.

2010 Prediction #6: Open source stacks begin to generate meaningful revenue for open source vendors.

Customers buy solutions rather than point products. This is the genesis behind creating open source stacks as well as the evolution of the open source appliance market. We believe 2009 was a year that Ingres and other vendors laid the groundwork and developed interest from customers. Our message around the New Economics of IT and the prevalence of an alternative open source stack to LAMP has resonated well with customers. Significant industry investments are being made in the software packaging technology that is required to allow ISVs and customers to automatically create and maintain a broad variety of software stacks and 2010 will see a substantial conversion of this investment into revenue for the participating open source providers.

2010 Prediction #7: SI partners will continue to adopt open source solutions.

SI partners skate to where the puck is going and where customers are willing to invest in IT solutions. The two areas we continue to see SI partners migrate to are cloud based solutions and open source. We expect that in 2010 large global systems integrators will continue to expand their open source and cloud practices as customer demand and focus continues to be in those areas. As customers further adopt open source systems integrators play a vital role in the integration of open source projects as well as how open source fits into the overall IT strategy. Systems integrators have also played an integral part in advising clients on licensing issues and indemnification issues. We believe that systems integrators will continue to play a critical role in the next few years in helping customers cross the chasm of open source adoption.

That's a wrap on our 2010 predictions. If Dr. Dobb's will have us, we'll be here again next year to take a look at how we did this round and then we'll be ready to look into our 2011 crystal ball. Until then, happy holidays and look forward to being in the open source industry with you in 2010.

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