Consolidation, weak markets, and the rise of open source

Consolidation means slowing market growth. Open source offers a way to change that.

Tech Culture

"Consolidation is the natural order of things," so goes the popular reasoning. Perhaps. But consolidation, as Tony Jackson reminds us in today's Financial Times, is hardly a sign of good things to come. Consolidation, rather, is a demonstration of an ailing industry.

It also misses the point, as Jackson notes, pointing to consolidation in the brewing industry:

If you think there is something wrong with this picture, you are not alone. The brewing industry, in the developed world anyway, is in systemic decline. All this feverish [M&A] activity is the conventional response. In the long run, it will do nothing to address the underlying problem.

Jackson traces the decline of the textiles industry and the PC industry, noting that even as companies consolidated the larger market opportunity eluded them. Why? Because would-be customers were allocating less of their budgets to these products:

The management writer Peter Drucker put his finger on the problem in the context of the car industry. "The automobile has lost 50 per cent of its market in the past 30 years," he told me. "That is, share of consumer disposable income. That's the only measurement that matters, and businessmen have never heard of it.

The IT industry isn't in any short-term peril, but consider that Saugatuck, Morgan Stanley, Gartner, and a range of other analysts are finding that internal open-source development is consuming an ever-bigger chunk of IT dollars. This, coupled with "external" open-source IT spending (i.e., money spent on commercial open-source software), means that the future increasingly belongs to open source, not the closed-source and closed-market proprietary vendors.

Why? Because proprietary vendors are largely stuck with extant customers and extant markets. Their 20th-Century revenue and business models are ill-prepared to enable new markets.

Open source enables a world of opportunity that proprietary software simply cannot. So, let the proprietary vendors eat themselves and glut themselves on yesterday's saturated markets. The way forward is, well, forward, and open source points the way.

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