Chapter 14 Key Takeaways (Week 6)
14.5 Why Give It Away? The Business of Open Source
- Business models for firms in the open source industry are varied, and can include selling support services and add-on products, offering hosting to run and maintain customer projects 'in the cloud', licensing OSS for incorporation into commercial products, and using OSS to fuel hardware sales. - Many firms are trying to use OSS markets to drive a wedge between competitors and their customers. - Linux has been very successful on mobile devices and consumer electronics, as well as on high-end server class and above computers. But it has not been as successful on the desktop. The small user base for desktop Linux makes the platform less attractive for desktop software developers. Incompatibility with Windows applications, switching costs, and other network effects-related issues all suggest that Desktop Linux has an uphill climb in more mature markets. - OSS also has several drawbacks and challenges that limit its appeal. These include complexity of some products and a higher total cost of ownership for some products, concern about the ability of a product's development community to provide support or product improvement, and legal and licensing concerns.
14.6: Defining Cloud Computing
- Cloud computing refers to replacing computing resources—of either an organization or individual's hardware or software—with services provided over the Internet. - Software as a service (SaaS) refers to a third-party software-replacing service that is delivered online. - Platform as a service (PaaS) delivers tools (a.k.a. a platform) so an organization can develop, test, and deploy software in the cloud. These could include programming languages, database software, and product testing and deployment software. - Infrastructure as a service (IaaS) offers an organization an alternative to buying its own physical hardware. Computing, storage, and networking resources are instead allocated and made available over the Internet and are paid for based on the amount of resources used. IaaS offers the most customization, with firms making their own choices on what products to install, develop, and maintain (e.g. operating systems, programming langauges, databases) on the infrastructure they license. - SaaS typically requires the least amount of support and maintenance, IaaS requires the most, since firms choose the tech they want to install, craft their own solution, and run it on what is largely a 'blank canvas' of cloud-provided hardware. - Cloud computing is reshaping software, hardware, and service markets and is impacting competitive dynamics across industries.
14.10 Clouds and Tech Industry Impact
- Cloud computing's impact across industries is proving to be broad and significant. - Clouds can lower barriers to entry in an industry, making it easier for start-ups to launch and smaller firms to leverage the backing of powerful technology. - Clouds may also lower the amount of capital a firm needs to launch a business, shifting power away from venture firms in those industries that had previously needed more VC money. - Clouds can shift resources out of capital spending and into profitability and innovation. Hardware and software sales may drop as cloud use increases, while service revenues will increase. - Cloud computing can accelerate innovation and therefore changes the desired skills mix and job outlook for IS workers. Tech skills in data center operations, support, and maintenance may shrink as a smaller number of vendors consolidate these functions. - Demand continues to spike for business-savvy technologists. Tech managers will need even stronger business skills and will focus an increasing percentage of their time on strategic efforts. These latter jobs are tougher to outsource, since they involve an intimate knowledge of the firm, its industry, and its operations. - The market for expensive, high margin, sever hardware is threatened by companies moving applications to the cloud instead of investing in hardware. - Server farms require plenty of cheap land, low cost power, ultrafast fiber-optic connections, and benefit from mild climates. - Google, Oracle's Sun, Microsoft, IBM, and HP have all developed rapid-deployment server farm modules that are preconfigured and packed inside shipping containers.
14.9 Understanding Cloud Computing Models: PaaS, IaaS, and Motivations and Risks
- It's estimated that 80 percent of corporate tech spending goes toward data center maintenance. - Cloud computing helps tackle these cost by allowing firms to run their own software on the hardware of the provider, paying only for services that are used. - Amazon, Google, IBM, Microsoft, Oracle/Sun, Rackspace, Salesforce.com, and VMware are among firms offering cloud computing services. - Cloud computing varieties include platform as a service (PaaS), where vendors provide a platform (e.g., the operating system and supporting software like database management systems, a software development environment, testing, and application service) but where client firms write their own code; and infrastructure as a service (IaaS), where cloud vendors provide and manage the underlying infrastructure (hardware, storage, and networking), while clients can create their own platform, choosing operating systems, applications, and configurations. - Some firms use cloud computing technology on hardware they own or lease as a sole customer. This is referred to as a private cloud. Other firms allocate resources between their own systems (the private cloud) and the public cloud (where resources may be shared with other clients). This is referred to as a hybrid-cloud strategy. - Amazon provides software and services, helping the CIA build and maintain its own private cloud. -Users of cloud computing run the gamut of industries, including publishing (the New York Times), finance (NASDAQ), and cosmetics and skin care (Elizabeth Arden). Benefits and risks are similar to those discussed in SaaS efforts. - Benefits include the use of the cloud for handling large batch jobs or limited-time tasks, offloading expensive computing tasks, and cloudbursting efforts that handle system overflow when an organization needs more capacity. - Most legacy systems can't be easily migrated to the cloud, meaning most efforts will be new efforts or those launched by younger firms. - Cloud (utility) computing doesn't work in situations where complex legacy systems have to be ported or where there may be regulatory compliance issues. - Some firms may still find TCO and pricing economics favor buying over renting—scale sometimes suggests an organization is better off keeping efforts in-house.
14.2: Open Source
- OSS is not only available for free, but also makes source code available for review and modification (for the Open Source Initiatives list of the criteria that define an open source software product, see http://opensource.org/docs/osd). - While open source alternatives are threatening to conventional software firms, some of the largest technology companies now support OSS initiatives and work to coordinate standards, product improvements, and official releases. - The flagship OSS product is the Linux operating system, now available on all scales of computing devices from cell phones to supercomputers. - The LAMP stack of open source products is used to power many of the Internet's most popular websites. Linux can be found on 30 percent of corporate servers; supports most Web servers, smartphones, tablets, and supercomputers; and is integral to TiVo and Android-based products. - The majority of persons who work on open source projects are paid by commercially motivated employers.
14.12 Apps and App Stores: Further Disrupting the Software Industry on Smartphones, Tablets, and Beyond
- Over one billion smartphones are sold a year, providing a rich platform for app deployment. - Compared with packaged software, apps lower the cost of software distribution and maintenance. - Apps offer a richer user interface and integrate more tightly with a device's operating system, enabling more functionality and services such as app-delivered alerts. - Several billion-dollar firms have leveraged smartphone apps as their only, or primary, interface with consumers. - Mobile apps do provide additional challenges for developers, especially when compared against browser-based alternatives. Among them, more challenging updates, version control, and A/B testing. - Critics of apps say they force consumers into smartphone walled gardens and raise consumer-switching costs. - While development and distribution costs are cheaper for apps than packaged software, discovery poses a problem, and it can be increasingly difficult for high-quality firms to generate consumer awareness among the growing crowd of app offerings.
14.13 Make, Buy, or Rent
- The make, buy, or rent decision may apply on a case-by-case basis that might be evaluated by firm, division, project or project component. Firm and industry dynamics may change in a way that causes firms to reassess earlier decisions, or to alter the direction of new initiatives. - Factors that managers should consider when making a make, buy, or rent decision include the following: competitive advantage, security, legal and compliance issues, the organization's skill and available labor, cost, time, and vendor issues. - Factors must be evaluated over the lifetime of a project, not at a single point in time. - Managers have numerous options available when determining how to satisfy the software needs of their companies: purchase packaged software from a vendor, use OSS, use SaaS or utility computing, outsourcing development, or developing all or part of the effort themselves. - If a company relies on unique processes, procedures, or technologies that create vital, differentiating, competitive advantages, the functions probably aren't a good candidate to outsource.
14.3 Why Open Source?
- The most widely cited benefits of using OSS include low cost; increased reliability; improved security and auditing; system scalability; and helping a firm improve its time to market. - Free OSS has resulted in cost savings for many large companies in several industries. - OSS often has fewer bugs than its commercial counterparts due to the large number of persons who have looked at the code. - The huge exposure to scrutiny by developers and other people helps to strengthen the security of OSS. - "Hardened" versions of OSS products often include systems that monitor the integrity of an OSS distribution, checking file size and other indicators to be sure that code has not been modified and redistributed by bad guys who have added a back door, malicious routines, or other vulnerabilities. - OSS can be easily migrated to more powerful computers as circumstances dictate, and also can balance workload by distributing work over a number of machines. - Vendors who use OSS as part of product offerings may be able to skip whole segments of the software development process, allowing new products to reach the market faster.
14.1: Introduction
- The software business is attractive due to near-zero marginal costs and an opportunity to establish a standard—creating the competitive advantages of network effects and switching costs. - New trends in the software industry, including open source software (OSS), cloud computing, software as a service (SaaS), and virtualization are creating challenges and opportunities across tech markets. Understanding the impact of these developments can help a manager make better technology choices and investment decisions.
14.4 Examples of Open Source Software
- There are thousands of open source products available, covering nearly every software category. - Many have a sophistication that rivals commercial software products. - Not all open source products are contenders. Less popular open source products are not likely to attract the community of users and contributors necessary to help these products improve over time (again we see network effects are a key to success—this time in determining the quality of an OSS effort). - Just about every type of commercial product has an open source equivalent.
14.11 Virtualization: Software That Makes One Computer Act Like Many
- Virtualization software allows one computing device to function as many. The most sophisticated products also make it easy for organizations to scale computing requirements across several servers. - Virtualization software can lower a firm's hardware needs, save energy, and boost scalability. - Data center virtualization software is at the heart of many so-called private clouds and scalable corporate data centers, as well as the sorts of public efforts described earlier. - Virtualization also works on the desktop, allowing multiple operating systems (Mac OS X, Linux, Windows) to run simultaneously on the same platform. - Virtualization software can increase data center utilization to 80 percent or more. - While virtualization is used to make public cloud computing happen, it can also be used in-house to create a firm's own private cloud. - While traditional virtualization acts as a software representation of hardware where each virtual machine requires its own operating system, a type of virtualization known as containers performs many of the functions of virtualization without requiring a separate operating system. This saves even more power and computer space, and helps resources execute even faster. - A number of companies, including Microsoft and Dell, have entered the growing virtualization market. Container startup Docker is seeing widespread adoption across industries and leading firms.
SaaS: Not without Risks
The risks associated with SaaS - include the following: dependence on a single vendor. - concern about the long-term viability of partner firms. - users may be forced to migrate to new versions—possibly incurring unforeseen training costs and shifts in operating procedures. - reliance on a network connection—which may be slower, less stable, and less secure. - data asset stored off-site—with the potential for security and legal concerns. - limited configuration, customization, and system integration options compared to packaged software or alternatives developed in-house. - the user interface of Web-based software is often less sophisticated and lacks the richness of most desktop alternatives. - ease of adoption may lead to pockets of unauthorized IT being used throughout an organization.
14.7 Software in the Cloud: Why Buy When You Can Rent?
• SaaS firms may offer their clients several benefits including the following: - lower costs by eliminating or reducing software, hardware, maintenance, and staff expenses - financial risk mitigation since start-up costs are so low - potentially faster deployment times compared with installed packaged software or systems developed in-house - costs that are a variable operating expense rather than a large, fixed capital expense - scalable systems that make it easier for firms to ramp up during periods of unexpectedly high system use - higher quality and service levels through instantly available upgrades, vendor scale economies, and expertise gained across its entire client base - remote access and availability—most SaaS offerings are accessed through any Web browser, and often even by phone or other mobile device • Vendors of SaaS products benefit from the following: - limiting development to a single platform, instead of having to create versions for different operating systems - tighter feedback loop with clients, helping fuel innovation and responsiveness - ability to instantly deploy bug fixes and product enhancements to all users - lower distribution costs - accessibility to anyone with an Internet connection greatly reduced risk of software piracy • SaaS (and the other forms of cloud computing) are also thought to be better for the environment, since cloud firms more efficiently pool resources and often host their technologies in warehouses designed for cooling and energy efficiency.
