Big Software has duped us for decades – Part II
Undoing the dupe: A way out of your Big Software contracts
By Roger Burkhardt, CEO, Ingres
(Last month Burkhardt wrote about how Big Software companies lock customers into restrictive software licensing agreements and continue to raise prices, even during tough economic times. Here Burkhardt offers some tips for effectively renegotiating contracts with your current Big Software suppliers.)
Burkhardt tells how to untangle your company from Big Software. Photo: Ingres
For decades now many of us in corporations have been paying loads of money to work with Big Software companies like Oracle (ORCL), Microsoft (MSFT), IBM (IBM) and SAP (SAP). Our information technology employees are familiar with these software vendors and their technologies (and their proprietary licensing models) and may even identify their careers with them. So, while we may suspect we are being overcharged, and could spend millions less running our IT departments, we have remained comfortably, and expensively, locked-in.
But we want to be back in charge. And we deserve to be; we’re the customers that line the pockets of all Big Software companies. Without us, who would buy all that software?
But we question whether it is even possible to break away from this perverse reality where software leviathans dictate both economic terms and the technology road maps that are critical to our business.
Is there a way to move towards an alternative model, where IT costs are variable and aligned with actual business needs? Yes, but we just don't like change. And perhaps we lack 100 percent confidence in the ability of new, alternatives to perform the mission-critical processes that must run our companies 24×7, reliably and securely.
I understand these requirements well. In my former role, I was responsible for the New York Stock Exchange’s technology, and the continuous availability of our trading systems was paramount. My team showed me a better way to deliver that reliability by using innovative Open Source software and open standards. This gave me the tools to combat the hardball negotiating tactics of Big Software and to substantially drive down costs.
Over the last decade, alternative IT models have matured across a broad range of software technologies and a growing number of customer success stories demonstrate that it is eminently feasible for well-lead IT organizations to move to this better model. And in doing so, gain substantial cost savings and rapid innovation benefits of a New Economics of IT.
You don't need to continue signing over your business' bottom line to Big Software companies that keep you locked-in to contracts with no end to escalating costs.
A way out
If you’re ready to embrace change and begin looking at more cost efficient and innovative ways to run your IT infrastructure, here are five tips to help you extract yourself from expensive Big Software contracts that are holding your company hostage:
1. Introduce real competition to the software license cartel. We know that introducing real competition for any product or service is the key to avoiding expensive and inflexible contracts. The key in software is to introduce competition from companies with a disruptive and competitive business model. Consolidation in the proprietary software industry has created an oligopoly of proprietary players which demonstrate their power by raising prices in the middle of a recession. In fact, the software leviathans such as IBM, Microsoft and Oracle compete with each other about as vigorously as OPEC members and we need new business models to provide real competition.
The proven alternatives are Open Source software from companies such as Ingres and Red Hat (RHT) and Software-as-a-Service (SaaS) offerings from players like Salesforce.com (CRM). Both models provide low and variable costs and create real competition to the proprietary software model. By adopting these models for at least 10-15% of your software you can negotiate better prices on the other 85%.
2. Understand and adopt the new software business models.. Open Source software has no license fee and support is provided under an annual software subscription that is substantially less than the annual maintenance fee charged in the proprietary model. The subscription includes product usage rights, support services, access to new features and goes up or down year to year depending on your actual business usage. This subscription model is used by both Open Source and SaaS providers and aligns costs directly with the value the software provides in actual use. Another benefit: the end of Big Software shelfware. Consider donating your remaining unused software to not-for-profit organizations that could surely use it.
3. Strategically avoid technology lock-in. For competition to work, you need to be able to switch vendors over time and this requires an IT strategy that mandates open standards and so won’t lock your company into a particular vendor. This is true of proprietary software and Open Source and SaaS alike. Remember, having a low cost and variable cost model isn’t sufficient in itself; over time you may still want to switch technologies to support new business strategies. The good news is that mature open standards are available for the full range of software technologies and they bridge both proprietary and Open Source worlds. For example, half of all programmers use the open Java language and Ingres customers are running critical financial systems written in Java that process billions of dollars a day on a completely open source infrastructure.
4. Demonstrate an open competitive environment. In order to drive down your software costs, you need to adopt mature alternatives for a significant portion of your software and use this leverage to negotiate better terms overall. Proven alternatives to Big Software are available at virtually all levels of IT – from the operating system up to the application layers. You won’t eliminate proprietary software overnight – you are often dealing with multi-year contracts after all – but by eliminating 10% to 15 %, you will save up to 95 % in those areas and will be empowered to negotiate substantial cost reductions for the remaining 85% of your environment.
5. Re-read your software contracts and plan your escape from Big Software. Check the fine-print of your Big Software contracts to make sure there is a cap on the maintenance costs after the license deal ends. If not, ask for one well in advance of the renewal date and if you don’t get it (surprise!), re-double your efforts to build your negotiating leverage by bringing in open subscription-based software technologies for 10-15% of your portfolio.
Software subscription models make it easy to prove the value of software before you make significant investments. They reduce the total cost of ownership by eliminating expensive license fees and a whole range of subsequent “gotchas”. It’s simply a better, smarter way to buy, one that finally puts the customer back in charge.
No duping involved.
Burkhardt is president and CEO of Ingres. He previously spent six years as CTO and executive vice president of the New York Stock Exchange, where he and his team transformed the NYSE to a fully electronic model.
Can I install SAP ERP on data created by Oracle ERP or can I ask salesforce.com to point to my SAP CRM database or Siebel CRM database, without the need to migrate my data across these various applications? Cost effective switching, even after a long use of a particular enterprise software is possible, only if all these software have exactly the same name for their database tables and their columns and they mean the same. We did this sort of standardization in auto industry and in almost all of the other mature industries. Why this can not be done in Software industry?
Hardeep and a couple of others seem to have actually bought what people like the writer and Marc Benioff would like to him to believe (that Salesforce is somehow the 'end of software' and that 'Open Source' is somehow changing the laws of gravity in the world – as opposed to the truth that they are just alternate means to an end, pros and cons against other solutions, etc. etc.).
There is arrogance everywhere in software just like every other industry – no news here.
What the writer of the article tries and fails to convince us on is that his company's 'open source' software is somehow the nirvana solution to ending the duping of Big Software (whatever that means).
This comparison is ludicrous (like saying I can buy a new set of tires and then don't need my car anymore because I've started my exit from 'Big Auto')
As a couple of posters noted correctly, at the end of the day this is about running a business (or more correctly, a set of business processes). The wasted emotion around open source as somehow superior would be better spent actually building products that are useful (as a few people do). Then real customers with real money will buy them and decide if they actually can be integrated.
But don't forget – every time I add a new application, I add an integration problem (or 20). The IT departments that Hardeep is trashing unfortunately spend far too much of their time figuring out how to make applications and databases talk to each other – the thankless work of IT that Roger doesn't want to acknowledge with his fine little 15% plan.
And no, I don't work for open source or Big Software.
As usual the 'computer club' has come out of the corner to start bemoaning the merits of opensource … without looking at the bigger picture which is the underlying business itself. This is an all too common trait of the IT industry where the business appears to be run around the needs of the IT department rather than the other way round. I truly despair at seeing this time and again making it depressingly familiar whenever technology is involved within business.
The big software companies have been and still are drunk in their own self beliefs and thus unable to see a client's business in any other way than through their own blinkered prism. This shortcoming is then burdened upon an unsuspecting company that pays for the privilege of being tied into not just the immediate cost contracts of purchase but the ongoing restraints of the propertiary software company. What results is an arrogant ‘take it or leave it’ approach by big software towards their clients and a sense of self appointed superiority over and beyond the customer's needs. Like some high school queen the big software brigade are troublesome, expensive and just not worth it in the long run! It's all just vanity at it's worst and you pay for it too, not the smartest move I'd say….. In such economically lean times we need further options that allow people to get a more tailored fit to their business needs rather than contribute to the revenue and dare I say it egos of the big players within the software world. Linux would never amount to much they said, the reason was simply that they couldn't think outside of the Microsoft mindset and look at it now. We are in an ever dynamic world with shifting fundamentals and it's big software's refusal nay inability to change that's dragging others down. Time to cut costs you bet the Dollar, Euro, Pound, Yen on the bottom of your company's balance sheet speak volumes. Paying big software is like regular payment concessions to a union, what you make simply goes back out the other door enriching others leaving you no further forward. Opensource helps give a company the flexibility to control it’s IT expenditure as and when it wishes to without long term implications.
That brings me neatly to the opensource brigade who are simply offering people a choice just like every business wishes to do for their clients. It's clearly evident in every shopping mall, every restaurant, airport, etc. If you're the paying customer then you get to chose what you want and match it against your budget. That in short is what opensource is hoping to achieve and enpowering people along the way, what's wrong with that? I recall how low cost airlines would never take off (forgive the pun) yet today they're operating across the world with exceptionally strong demand. The reason being is that they allowed the customer to pay for what they want and save money on those things they didn't need or couldn’t afford. Why can't the same mental template by superimposed upon the IT world why am I paying Microsoft a small fortune for functionality that I will never use? Choice and competition are the bedrocks of not just the corporate world but underpin the very fabric of our every day lives and what opensource does it simply afford the choice to a greater number of people, groups and organisations. Charities, universities and smal family businesses that would previously have been denied such technologies are now able to get in on the act and why not? Just like the budget conscious passenger from yesteryear that can now travel to the Vancouver to see their relatives onboard a low cost airline so opensource is enpowering many more clients than before. It's competition and it works.
No bias here from the CEO of Ingress. Next time Fortune should get Larry Ellison to write an equally non-biased article on the merits of perpetual software.
good points. However, SaaS comes with its own lock-in and is no different from the other big software companies. SaaS is new so there are no big players but it the current practices will converge with those of the conventional license providers. It may help provide the disruption needed to get the 'cartel' to think differently but not much beyond that: 1) you are still on the hook for a 2-3 year contract under SaaS (you just pay quarterly but most providers expect that the customer signs up for a fixed period for a minimum duration). You can't just exit the contract in in a few months as most people perceive.
2. Switching cost are too high if the customer wants to switch from one SaaS provider to another. You have a worse situation in terms of negotiation leverage with your SaaS provider at renewal. In theory you may own the data, but without your own infrastructure, its useless. Your data is only 'readable' in the Saas providers environment. And you can't switch it to another SaaS competitor. Theoretically, given enough time and energy, it may be possible, but practically, you won't do it because of the disruption / uncertainty with it.
Very self serving article and nice plug for your current company. Since you worked at IBM for 15 years (see Bio on Ingres website vs. the one at the end of the article) You must feel terrible about being part of Big Software and the duping of customers for all those years. Any plans to give some of the blood money you made back to those that were swindled by IBM? Yeah, I didn't think so.
Well, the article has clearly upset a few people judging by the comments – or abuse to be more accurate!
The fact of the matter is that the world is going open source. The world's fastet growing IT markets are in China and India where it's not "why open source" but "why not?". The European Community is adopting open source (again "why not" rather than "why?") nad has published some very damning reports about "Big Software" business practices that support their position on open source.
And Fortune 500 companies DO run their businesses open open source – ever herad of Google or Amazon?
You can argue specifics in the article but the general tenor is accurate in my view
Glad to see this article recognized for what it is … propaganda from Ingress.
There is significant value in SaaS and open source. Both are options from big and small IT vendors. Both big and small IT vendors have a role to play in our overall solution; though in many cases we're significant value to our business in vendor consolidation, rather than diversification.
"But we want to be back in charge"
Who is "we"? The author is the CEO of Ingres, a direct competitor of the companies he is complaining about.
"Burkhardt tells how to untangle your company from Big Software"
What a crock. He is a used car salesman posing as a fellow customer.
I found this article very lacking – I've worked for both the small shop and the big one even Oracle. The complexity of building systems that save large Org's mucho money in just operational stuff takes a large number of technologies and people to make it all work.
Even just the simple things can require lots of testing and reconstructing to get a product that saves a company millions in operational costs. Oracle's own IT support for its own employees was switched to an oracle solution just a few years ago and that alone saved Oracle millions of dollars in a single year. Unlike many "solutions" companies Oracle actually runs its entire business with its own stuff if something doesn't work Oracle knows the issue and gets it sorted out or its own business internally suffers.
The largest challenge and one of the biggest costs given the people hired to do it make big bucks is trying to patch together old systems and new systems. There isn't a single software maker period who has 100% solved this issue due to the complexity involved. Though there are very clear winners when it comes to having the skill sets and products that are flexible enough to ensure a implementation that eventually works vs one that totally fails.
MS – systems beyond its OS is not used in massive corporations – its used by small and middle sized business where both the cost and the complexity of needed systems are rather small and simple.
But when your are dealing with a massive number of transactions per minute – 1000's of employees who need access to various content to do their jobs and also need oversight and control on sensitive data there are only a couple of companies capable of meeting this need. SAP and Oracle being the top of the pile.
Ermm the main point he suggested was that you run 15% of your organisation on Open Source.
Jim (twice) and another couple of commenters immediately leaped on the 'You cannot run an entire company on Open Source'
The writer never said you should.
Reread the article and if you miss the 15% bit again then ask a young person to help with reading and comprehension.
As always these kind of posts attract several people whose lifetime skills probably include Oracle or some other proprietary stuff and are afraid that they might become less relevant.
He is not trying to put you out of a job, just trying to strengthen his hand in financial negotiations (as any good businessmen should)
If Ingres mattered you would still be locking people into large support contracts for your database.
I don't know why you lump Microsoft in to the whole "large support" contract stuff.
MS doesnt even use real support contracts unless you ask for them. You can buy 90% of their software without a support contract. Try that with Oracle or IBM.
Go price Oracle vs MS SQL Server vs IBM Db2… the price difference is staggering. MS is like 1/8th the cost of Oracle.
"Another benefit: the end of Big Software shelfware. Consider donating your remaining unused software to not-for-profit organizations that could surely use it."
Not possible under most SLA's. You'd think a CEO of a software company would know this. Then again, after reading his article, I guess he's say anything to for his "cause".
Fact is that Open Source software could never run an mission critical enterprise for a Fortune 500 company. There is a reason why SAP and Oracle are the most successful business software companies in the world. They're reliable, scalable and invest in new technologies to help customers become better run businesses.
The article is a 'dupe' on the readers- why dont fortune editors consider prefixing author bio to the article- let me be clear- to the "head" of the article- so we know what to expect from the article when it is CEO of a moffussil software company writing this!
This is a good infomercial, and like good informercials, does contain some truth. But it misses the two most important points that the real people who have to support business processes in actual companies with software tend to know or learn very quickly:
1. You cannot run a business with just open source database and development tools. It's a good story but it doesn't get you a general ledger, an order processing system, inventory control or Sarbanes compliance reporting. There's a little more work to it than just that (which is why people do business with Oracle, SAP and Microsoft).
2. SaaS is an alternate way to license software that centralizes and consolidates tasks and investments that companies have traditionally done on their own. It doesn't eliminate licensing (it just repackages it into subscriptions), it doesn't eliminate patches, upgrades, development, servers, or security for that matter. It's a tactical solution (not a strategic one) that may be a good fit for certain businesses and is a great way to spend extra money for others.
I think if you work for Ingres – you need to pull together an article like this to get some press. Who is Ingres? That ancient database company that vanished forever ago – that's who… I'd love to see a fortune 500 company that went all Ingres opensource – would be a beautiful case study for the Big Software folks.
Great article and point. Couldn't agree more and it transcends to more than just enterprise software. One point I did want to make though. In IBM's defense they at least are firmly behind and have contributed largely to Linux and it's growth. In many ways IBM's commitment to Linus and opensource has helped to alleviate fears (legal and otherwise) of outsiders. And don't forget IBM is the good guy at the table In the SCO case.
They aren't perfect but they have been a good friend to FOSS
hmmm. No agenda there. Just an unbiased editorial article. Let's see… The CEO of a company writes how his company will save you money, while competitors will soak you for millions. He doesn't have a vested interest? Right? I feel like I am reading an infomercial. This article should be labeled advertisement at the top.
Proven software WORKS.. New software get ready for three finger salutes .. Ctrl+Alt+Del and NONE ever work as well as the proven solution.. Its never cheaper..
Productivity gains over the past 20 years would not have been possible without the investments in technology and open standards made by "big software." Ingres is not a technology leader, couldn't compete on its merits and capabilities and has now turned to 'giving' away its software. You get what you pay for.
F500 not using open source??…that's history…now you have atomic power plants, railways, airlines, manufacturing, defence forces, governments, web 2.0 companies running their critical apps on open source…just go to websites of companies such as Redhat, Ingres, Alfresco and get a sampling of who is using open source for what apps. Incidentally another great article on the the changing business models in IT driven all the more by the recession:
"Big Software: Finally Dead" by Deborah Gage in CIO Insight: http://www.cioinsight.com/c/a/Trends/Big-Software-Finally-Dead-446604/