Reports of the demise of e-commerce are highly overstated.
While the hype for everything dot.com is over, the reality is consumers and businesses continue to spend heavily online. Recent reports show that online spending is increasing substantially over last year, and companies are continuing to invest in the technical infrastructure necessary to power Web applications.
That said, we are witnessing a fundamental change in how companies view their e-commerce investments. Many, from the mid-market to the Global 1000, were burned first by the promise of enterprise resource planning (ERP) projects in the early 1990s, and more recently, by monolithic e-commerce projects. These projects promised benefits that either failed to materialize or required radical and painful, business process reengineering to bear fruit.
This phenomenon, combined with the recent economic downturn, has forced senior management to reduce IT budgets and to closely scrutinize Web outlays in search of return on investment. The projects that win the attention, and the dollars, are those that show ROI in a period of time measured in months, not years.
While this return to normalcy in IT investment is certainly healthier than the frenzy of the past couple of years, it presents a distinct set of challenges both for businesses and the technology vendors that supply solutions to them. These challenges are based on the economic and business models that underlie most of the software industry. Software and service vendors typically fall in to one of two categories:
- First are high-end enterprise application vendors that deliver functionality, scalability and customizability. The software vendors in this category have built cost structures and sales models that require them to recapture their investments in the form of large license and maintenance fees -- frequently charged to the customer before any implementation begins. In addition, the complexity of these solutions is often significant and requires large-scale, long-term consulting engagements for effective implementation.
- Low-end software and hosted offerings, which deliver a low price tag and rapid implementation but are severely lacking in key functionality, extensibility and customizability. The vendors in this space have built their businesses on bringing generic functionality to the masses, and their cost structures and pricing reflect this choice.
This dichotomy has traditionally forced businesses to make a seemingly unavoidable tradeoff between cost and quality. This problem is particularly acute for midsize businesses -- those smaller than the Global 2000 -- that have requirements similar to large enterprises, but budgets and resources that are much smaller. The ideal solution for these mid-market companies would be a set of software and service offerings that provide significant functionality, scalability, and customizability, but do not require large up-front investments.
Enter the open source movement.
Probably best known for the Linux operating system, the open source movement has changed the rules of the IT game. Open source has made high-quality, stable and feature-rich open source software available at a fraction of the cost of proprietary alternatives. It is distributed in source code form, allowing users and developers to customize it. It is typically available freely for download, or from selected vendors in packages that include value-added services, documentation and additional testing and optimization.
Companies that distribute open source software have developed business models that center on providing the services and packaging necessary to make customers successful with their software. This represents a fundamentally different model than traditional proprietary software companies. This software-as-service business model, combined with the favorable economics of open source development, enable open source companies to deliver what no proprietary company can -- high quality, feature-rich software at a price point accessible to mid-sized, value-conscious companies.
The open source development model captures the energies of thousands or tens of thousands of developers worldwide contributing to a software project. Developers typically contribute their modifications back to the community, which results in extremely rapid product evolution. Open source software is typically very high quality -- bugs are fixed in a matter of hours or days, rather than months or years. As a result, products evolve exponentially, rather than in the linear or step fashion associated with proprietary software. The economics behind the open source development model enable products and price points that are simply impossible under any other model.
Its project sponsors typically make open source software freely available for download. In addition, there are several vendors that make open source software available in commercial versions by adding technical support, documentation and other services and packaging. These commercial distributions of open source software are in high demand among corporate IT departments, which like the functional and technical advantages of open source but need additional support in order to effectively deploy and manage implementations.
Open source has typically been associated with highly technical audiences; however, in recent years, these technologies have enjoyed increased interest and acceptance in mainstream IT organizations. This is directly attributable to the rise of commercial open source companies that provide the services and support mainstream users require. The key to success in the mainstream market will be the effective packaging of key enabling technologies. Corporate IT buyers are accustomed to packaged applications, with the availability of support, consulting, documentation and training.
Companies of all sizes, worldwide, report a number of key benefits to open source technologies:
- Increased reliability
- Improved performance
- Enhanced functionality
- Lower cost of deployment
- Lower total cost of ownership
- Freedom from vendor lock-in
Open Source and E-Commerce
Most people associate the open source movement most closely with the Linux operating system and its role in the expansion of Internet infrastructure. Clearly, Linux has enjoyed great success; however, there are a number of other key open source technologies that have played a critical part in the growth of the Internet:
1. Apache Webserver -- the worlds most commonly used Web server
2. Sendmail -- extremely popular and widely used mail server
3. PostgreSQL Database -- Popular transactional database
4. Interchange E-Commerce Platform -- Powers thousands of Web sites worldwide
Each of these software projects has enjoyed a rich history in the open source community. Each has benefited from years of contributions from thousands of developers worldwide. As a result, each has grown rapidly in functionality, scalability, reliability and performance. Many Web developers have grown to depend on these technologies to power business-critical systems.
The Open Source Opportunity
Given the proven applications of open source technologies to crucial Internet systems, it seems that open source may be the answer to the challenges faced by todays businesses.
Open source offers the promise of significant functionality, customizability, reliability and scalability without the cost or complexity of high-end enterprise applications. Because the business model behind most open source companies does not depend on license revenues, the problematic economics of enterprise applications simply does not apply.
Companies can use open source software to deliver the functionality they need to build business critical e-commerce applications, but without bearing significant license penalties. The low entry cost for deployment of open source technologies enables corporate management to realize a more rapid return on their IT investment than was possible using traditional software models.
A new world order in the e-commerce world calls for a new approach. That approach is open source.
Mr. Gold is the director for product solution marketing for Red Hat, Inc.
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