Navigating Software’s “New Worldâ€
The combination of globalization and open source spells opportunity for the software industry.
By Kim Polese, SpikeSource
Jul. 28, 2005
Strange things are happening in the technology business today. In the global economy, the power of nations and corporate conglomerates is giving way to that of individuals and small businesses. At the same time, IT customers are reticent to buy, vendors are merging, and new technologies and business models are taking hold.
Today's software startups - and established vendors - need to navigate these new waters carefully, by understanding the net impact of globalization, innovation and consolidation on the software business.
Thomas L. Friedman's best-seller, The World is Flat, lays out the landscape in which businesses are operating today. Several hundred years ago, countries such as England and Spain explored the New World, gathering trading and political power as they went. In the last 150 years, the power passed from countries to large companies. Growth and profits flowed into these coffers powered by industrialization.
Now, we're entering what Friedman calls "Globalization 3.0." In this era, individuals and small groups are empowered to drive growth. The combination of the Internet, high technology and connectivity are enabling a whole new ecosystem and trading economy that plugs individuals into a system that only companies were able to participate in before. Whole new regions such as India, China and parts of Latin America have become connected and empowered because their people are empowered via mobile phones, broadband and other technological advances.
The Impact of Commoditization
Globalization 3.0 calls for a new set of available, affordable technologies. The rise of such models as open source, Web services and software-as-a-service is, in part, a response to the shift in power from vendors to buyers.
As these models take hold, the computing industry is maturing and becoming more commoditized. This has taken place many times during the industrial age. Consider cars, computers - even construction. Noted author, Doc Searls points out that construction is a $5 trillion industry full of commodities. No one monopoly company sets the standards, but there are basic building blocks available. It is on top of these blocks that innovation happens - in heating systems, flooring, and electronics - and continues to happen all the time. It is a very mature industry which continues to thrive and grow.
The same thing is happening in the software industry. The commoditization of software building blocks means that innovation can accelerate at the application layer. Open source is a major driver of this phenomenon. Moving beyond the silos of proprietary systems, open source is helping to commoditize the basic building blocks of software. It provides a foundation layer which enables innovation on the next level up - for both proprietary and open source products. The model where a few players continue to own software's major building blocks will soon be history.
Reconciling Industry Consolidation and the Power of the Individual
High-profile mergers make headlines almost daily. However, while consolidation goes on at the top of the vendor pyramid, an active, vibrant startup environment continues to support the base. As analysts and media focus on consolidation, it is important to see the contribution of startups as well.
Consolidation drives the startup culture. Increased M&A activity means there is a very viable and active exit strategy available to strong, young businesses. The current need for specialization in the software industry means large vendors need to partner with or acquire smaller players to fill out their product portfolio.
So rather than resulting in slow growth among a small group of vendors, industry maturation will keep the software business an industry with many players and constant waves of innovation.
Indeed, the industry continues to grow as it matures - albeit the fastest-growing markets may not be the same ones which provided the best growth, historically. Now entire new sections of the population in second- and third-world countries need software as their economies transform from agrarian and industrial to information-based, for example, and many cannot afford current licenses. In fact, Brazil, China, the United Kingdom, parts of Spain, Germany and Belgium - even the U.S. Department of Defense - have officially taken steps to embrace open source.
Advice for Vendors
Facing a new set of market dynamics is unsettling but it doesn't have to be. The advance of open source and globalization creates a new set of opportunities for all software vendors.
Software companies should leverage the global nature of open source and other new technologies to build businesses ready to compete in the Globalization 3.0 world. Most vendors will be selling software and servicing customers all over the world. Therefore, it is only natural to find the talent and partners worldwide which will best understand and serve these markets.
Established software companies need to figure out a way to embrace open source and make it work for them. Every company knows its core competency and enhancing it with an open source can strengthen its offerings. As a whole new middle class of people and businesses move online around the world, the market becomes bigger - not smaller. The smartest, most innovative vendors can leverage open source to achieve broader market reach.
For software startups, a sharp focus is critical. A good way to start is to identify the "pain." When Ray Lane and Murugan Pal launched SpikeSource, they did so in response to an outcry from IT managers that they were spending too much time managing open source software. Solving this problem of interoperability and creating a global, scalable, repeatable business based on it was our mission.
Too many new companies try to do too much at once. It is tempting to see what the company might become and try to jump there in one leap. But few successful companies would thrive if restricted to their original business models. Market dynamics change and new opportunities emerge. This is truer than ever in the new era of software, where the speed of change is constantly accelerating. One thing hasn't changed, though: solving one problem well is inevitably a better strategy than trying to boil the ocean.
Kim Polese is CEO of SpikeSource.
Today's software startups - and established vendors - need to navigate these new waters carefully, by understanding the net impact of globalization, innovation and consolidation on the software business.
Thomas L. Friedman's best-seller, The World is Flat, lays out the landscape in which businesses are operating today. Several hundred years ago, countries such as England and Spain explored the New World, gathering trading and political power as they went. In the last 150 years, the power passed from countries to large companies. Growth and profits flowed into these coffers powered by industrialization.
Now, we're entering what Friedman calls "Globalization 3.0." In this era, individuals and small groups are empowered to drive growth. The combination of the Internet, high technology and connectivity are enabling a whole new ecosystem and trading economy that plugs individuals into a system that only companies were able to participate in before. Whole new regions such as India, China and parts of Latin America have become connected and empowered because their people are empowered via mobile phones, broadband and other technological advances.
The Impact of Commoditization
Globalization 3.0 calls for a new set of available, affordable technologies. The rise of such models as open source, Web services and software-as-a-service is, in part, a response to the shift in power from vendors to buyers.
As these models take hold, the computing industry is maturing and becoming more commoditized. This has taken place many times during the industrial age. Consider cars, computers - even construction. Noted author, Doc Searls points out that construction is a $5 trillion industry full of commodities. No one monopoly company sets the standards, but there are basic building blocks available. It is on top of these blocks that innovation happens - in heating systems, flooring, and electronics - and continues to happen all the time. It is a very mature industry which continues to thrive and grow.
The same thing is happening in the software industry. The commoditization of software building blocks means that innovation can accelerate at the application layer. Open source is a major driver of this phenomenon. Moving beyond the silos of proprietary systems, open source is helping to commoditize the basic building blocks of software. It provides a foundation layer which enables innovation on the next level up - for both proprietary and open source products. The model where a few players continue to own software's major building blocks will soon be history.
Reconciling Industry Consolidation and the Power of the Individual
High-profile mergers make headlines almost daily. However, while consolidation goes on at the top of the vendor pyramid, an active, vibrant startup environment continues to support the base. As analysts and media focus on consolidation, it is important to see the contribution of startups as well.
Consolidation drives the startup culture. Increased M&A activity means there is a very viable and active exit strategy available to strong, young businesses. The current need for specialization in the software industry means large vendors need to partner with or acquire smaller players to fill out their product portfolio.
So rather than resulting in slow growth among a small group of vendors, industry maturation will keep the software business an industry with many players and constant waves of innovation.
Indeed, the industry continues to grow as it matures - albeit the fastest-growing markets may not be the same ones which provided the best growth, historically. Now entire new sections of the population in second- and third-world countries need software as their economies transform from agrarian and industrial to information-based, for example, and many cannot afford current licenses. In fact, Brazil, China, the United Kingdom, parts of Spain, Germany and Belgium - even the U.S. Department of Defense - have officially taken steps to embrace open source.
Advice for Vendors
Facing a new set of market dynamics is unsettling but it doesn't have to be. The advance of open source and globalization creates a new set of opportunities for all software vendors.
Software companies should leverage the global nature of open source and other new technologies to build businesses ready to compete in the Globalization 3.0 world. Most vendors will be selling software and servicing customers all over the world. Therefore, it is only natural to find the talent and partners worldwide which will best understand and serve these markets.
Established software companies need to figure out a way to embrace open source and make it work for them. Every company knows its core competency and enhancing it with an open source can strengthen its offerings. As a whole new middle class of people and businesses move online around the world, the market becomes bigger - not smaller. The smartest, most innovative vendors can leverage open source to achieve broader market reach.
For software startups, a sharp focus is critical. A good way to start is to identify the "pain." When Ray Lane and Murugan Pal launched SpikeSource, they did so in response to an outcry from IT managers that they were spending too much time managing open source software. Solving this problem of interoperability and creating a global, scalable, repeatable business based on it was our mission.
Too many new companies try to do too much at once. It is tempting to see what the company might become and try to jump there in one leap. But few successful companies would thrive if restricted to their original business models. Market dynamics change and new opportunities emerge. This is truer than ever in the new era of software, where the speed of change is constantly accelerating. One thing hasn't changed, though: solving one problem well is inevitably a better strategy than trying to boil the ocean.
Kim Polese is CEO of SpikeSource.
