Jeffrey Hammond, principal analyst at Forrester, just Twittered something that is about to hit the traditional software world like a ton of bricks:
Just got off the phone with a client who's been mandated to use [open-source software] because licensing costs are killing them.
Call it the beginning of the end, if you like, but it's coming. The last few decades of software have been an aberration, built upon the historical accident that is digitization. Or, rather, not the accident of digitization, but rather that for a relatively brief period of time, we've made believe that digital goods can be treated like physical property. Companies like IBM, Microsoft, Oracle, and SAP have made billions in the process.
Guess what? Party's over. Ultimately, every software business will transition to a maintenance business, where software is charged on a subscription basis and looks suspiciously like services revenue, because buyers now realize that software products that can be developed and distributed cheaply should also be sold cheaply.
In fact, the transition to maintenance revenue is already well under way. Oracle, a paragon of the traditional software industry, already makes most of its revenue through maintenance. Its peers are much the same.
The next phase in the transition comes as IT buyers start to question the value of the maintenance contracts they sign with software vendors. Oh, wait. That phase has already begun, as reflected in the recent uproar over without actually delivering much value for the base maintenance cost or the price uplift.
Next phase? We're already there, too. It's called open source, and it forces software vendors to provide ongoing value to justify CIOs spending money with them., but it's a movement that is accelerating as open source permeates all areas of the software stack, from applications like Openbravo (ERP) and MindTouch (collaboration) to core infrastructure like Lucid Imagination (search) and MySQL (database).
In the past few weeks I've had a range of Fortune 500 companies choose Alfresco to replace Documentum, Oracle (Stellent), IBM FileNet, Vignette, and more. In those same weeks I've heard from peers at other open-source companies that they've been actively replacing HP, IBM, Tibco, Oracle, etc. in customer deployments, too.
In fact, the only enterprise software vendor that has remained somewhat impervious from open-source encroachment is Microsoft, as it has been lowering prices and improving ease-of-use in its technology for some time. But Microsoft, too, will have to face the open-source music, as Microsoft CEO Steve Ballmer has noted recently.
As enterprises get squeezed by the recession, they're going to squeeze their vendors for cost savings. At some point, those vendors' cost structures and business models won't support the squeeze, and the business will go to open-source vendors.
It's already under way.
Disclosure: I am an adviser to Lucid Imagination, Openbravo, and MindTouch, and an employee of Alfresco.
You can follow me on Twitter at mjasay.