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Polese on Commoditization: It’s a Good Thing

The software industry is obsessed with commoditization, has been since the crash. Commodities pose a fundamental threat to the long-term profitability and revenue growth of traditional software vendors. It’s something to be feared, a fate worse than death—or at least equal to it.

Right?

Wrong, says Kim Polese. In fact, the co-founder of Marimba, christener of Java and new CEO of open-source service provider SpikeSource Software, believes that commoditization is the best thing that ever happened to the software industry.

“The demand side—the users—loves commodities,” Polese says. “They’re useful, abundant, readily available and cheap. The fact is, the old, vendor-dominated model worked for a while, but the future belongs to the users. This is where the power is, where the innovation is coming from, and it’s turning the entire software industry upside down.”

Polese offered what she allowed is a “radical point of view” on commoditization to attendees at last week’s Open Source Business Conference (OSBC) in San Francisco. Her keynote presentation, titled “Coping with Commodities in the IT Marketplace,” took her audience through the evolution of the software business, from the early days of necessarily isolated silos of hardware and software combos, to the new, open-source driven world where “the demand side has started to supply itself.”

“Developing the first computer systems was like settling Mars,” Polese said. “You had to build air-tight habitats from scratch. Everything had to work together, and integrating the hardware and software internally was incredibly complicated; integrating with another vendor’s software and/or hardware was virtually impossible. And it was easier just to compete.”

In that environment, which Polese called an “egosystem,” vendors ruled, evincing the dog-eat-dog traits of the dominant categories of the Industrial Age: oil, steel, textiles. Markets turned into battlefields where the goal was to capture customers and dominate your category. But all that has changed.

“Today, the shots are really being called by individuals and small groups,” she said. “This is much more than a shift in the balance of power. Power now belongs to everybody—big companies, individuals and everybody in between.”

Polese drew parallels between commoditization in the software industry and a much earlier trend in the construction industry. The similarities between the two begin with vocabulary—architect, builder, tool, platform, components, structure, framework, location, address, sites under construction. It’s hard to talk about software without using a construction term. (Polese credited Doc Searls, senior editor of “Linux Journal,” with making this observation first.) The eventual advent of standardized and modularized components, such as 2x4s, threatened traditional builders, who coined the term balloon construction, suggesting that houses built with such components would blow away. In fact, the houses proved to be strong and resilient structures that blew away the old building techniques.

“There’s a lot for us IT folks to like about the construction industry model,” Polese said. “Construction loves commodities, and there’s no dominating vendor—no Microsoft—in the construction business. More importantly, construction isn’t just about selling the building materials. We’re used to equating the software industry with selling software. It’s all we’ve known. But we are entering a very different world. We call a market like this mature.”

Polese believes that the software ecosystem that is erupting around open source is changing the industry in fundamental ways. Increasingly, software will be produced and constantly refined by individuals and small organizations. That’s a trend that will be increased by orders of magnitude when millions of new open-source producers come online in Asia and other parts of the world. The result will be an explosion of opportunities for software makers who can adapt to an increasingly commoditized industry.

“People still ask, Can you really make money with open-source software?” Polese told her audience. “In the long run, far more money will be made because of open source, rather than with open-source software. That’s where the power lies, and where much of the innovation and new markets are coming from.”

Her own company, SpikeSource, is something of a case in point. The Menlo Park, CA-based open-source IT services provider was co-founded in 2003 by Murugan Pal, one-time Entrepreneur-in-Residence with VC firm Kleiner Perkins, and former Oracle executive Ray Lane. Polese joined as CEO last year. Its mission, says Nick Halsey, SpikeSource VP of marketing and sales, is to provide interoperability testing, certification and support of open source.

The company unveiled its flagship offering at the OSBC show. The SpikeSource Core Stack is a collection of 50 interoperable, open-source components designed for use in the enterprise. Using its own automated test bed, SpikeSource is able to run 22,000 stack tests nightly to ensure that interoperability issues are identified and upgrades and patches are integrated, Halsey said. The tests run over a base of 63 different open-source components, running on six different platforms, and supporting six different languages: Java, Perl, PHP, Python, C and C++.

SpikeSource also announced new support services, ranging from basic installation support to unlimited, ongoing support of mission-critical systems. In addition, the company is offering information services, such as a database of searchable technical information, discussion forums and blogs.

The SpikeSource Core Stack is free and can be installed from www.SpikeSource.com.

About the Author

John K. Waters is a freelance writer based in Silicon Valley. He can be reached at john@watersworks.com.

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