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November 17, 2003 – Innovation and the IBM-SCO Subpoenas, TechNews World
Innovation Loses If Open Source Wins
What this exercise creates is the assumption that
open-source software kills software innovation because it effectively,
over time, kills the funding for it. Much of the innovation we have
today comes from proprietary companies.
As I write this, I'm getting ready to leave for Comdex,
where I'll moderate a panel on the importance of Microsoft's .NET
framework. On the panel will be a bunch of folks representing Oracle
(Nasdaq: ORCL), Apache and Microsoft. To help me keep the peace among participants who rarely agree with each
other, Laura DiDio from the Yankee
Group will be providing the analyst perspective so I can just
mediate -- I mean moderate. It starts at 11:30 a.m. on Wednesday,
November 19th. If you're there, stop by. I'm expecting it to be rather
lively. Speaking of lively, one of the things I have to do on a
regular basis is what-if analysis. In this kind of analysis, you make
the assumption that something that is possible actually happens, you
describe the future world that results, and then you develop a strategy
to deal with that outcome. It's actually quite a bit of fun. Recently, I had the chance to do this with the assumption that Microsoft had
failed and the world had embraced open-source software. What If Open Source Won?
In that world, which I profiled around the 2010 timeframe, revenues and jobs
had long ago left North America and much of Western Europe. Software
jobs and positions largely had moved to the Third World because of lower
labor rates in emerging nations. R&D dollars for software projects had mostly
evaporated, and innovation was occurring -- much as it does in the
white-goods markets -- over very long periods of time and primarily in
hardware. In this future services-based world, there appeared to be
little incentive to fund software improvements outside of security
projects. In 2010, in the world in which open source had won, software engineers and
programmers also were in oversupply and had become unionized,
effectively preventing any attempt by the current developed world to
take back the revenue without direct government intervention. From a world perspective, 2010 was generally a better
place with more balanced trade policies among countries, but the
existing software industry and the United States clearly had paid a
significant price to get there. If we extend the what-if speculation forward in time, we eventually return
to a period in which hardware vendors, once again, are proprietary.
Granted, this takes us to about 2020, but the core assumption here is
that once a central power like Microsoft is removed, hardware vendors go
back to favoring differentiation over sharing, and they eventually
return to the pre-Microsoft world that appears closer to the natural
state. Open Source Kills Innovation
What this exercise creates is the assumption that open-source software kills
software innovation because it effectively, over time, kills the funding
for it. Much of the innovation we have today comes from proprietary
companies. Microsoft -- despite beliefs to the contrary -- is
generating a disproportionate share of these efforts today, largely
because of the budget cuts other firms have made. In addition, Microsoft continues to fund large institutional research
programs -- both domestically and abroad. Were they to vanish suddenly,
the revenues would not flow to entities that would pick up where
Microsoft left off. I've often found that people don't consider the full
repercussions of major changes; instead, they get so excited about the
change itself that they forget to plan for the outcome. To make sure
this doesn't happen, those who are driving for change also must address
the negative aspects of that change to mitigate those negatives -- which
brings to mind the SCO-IBM issue. Festival of Subpoenas
One thing that is perfectly clear is that -- in a future
open-source software world -- attorneys will flourish, especially if the
recent spate of subpoenas is any indication. SCO has served Linus
Torvalds, Richard Stallman, Stuart Cohen of the Open Source Development
Labs, Transmeta legal counsel John Horsley and Novell. I'm guessing the Transmeta subpoena is for documentation during the time
Linus worked there. Win or lose, Transmeta definitely doesn't need that
distraction right now. With the exception of Transmeta, the subpoenas
seem to be a result of the normal course of building a foundation of
testimony and evidence -- with the likely hostile witnesses -- before
the trial actually begins and helping to prepare for the pretrial phase
of the action. IBM, on the other hand, has served
BayStar Capital (which invested US$50 million in SCO), Deutsche Bank
Group (which issued a favorable financial report on SCO), the Yankee
Group (which suggested IBM might lose the fight) and Renaissance
Ventures (which invested in SCO). This series of subpoenas looks
punitive to me because I can't figure out how any of these parties are
directly pertinent to the case.
None of them appears to be an expert on the code in question. They weren't
involved with the contract in any way that I can see, and appear to have
simply done things that might have helped SCO get funding or positive
press. IBM could be trying to better understand the why behind these
companies' positions, but one would think that would be better done in a
more casual way rather than with attorneys present. Depositions can be incredibly time-consuming and painful,
and if this is an effort to silence those that believe SCO has a case,
it could be effective. I find it interesting that if Microsoft had used
a similar tactic, we'd have cried foul very loudly. I think this is another example of that pesky "free speech" thing
that often only seems important when someone is trying to silence a
voice you agree with. I do think, however, that the risk to IBM is very
high and says something about what the company, internally, thinks of
its chances of winning. The Impact on IBM
Why this is interesting is that SCO appears to be attempting to prepare for
trial, while IBM appears to be trying to destroy SCO's ability to
sustain the fight. With SCO's legal team still on contingency, it still
looks to me like SCO is more confident of winning in court than IBM is. What is also interesting is that IBM appears to be taking
an excessive amount of risk with these actions. There is a rule that
says you shouldn't attack anyone who buys ink by the barrel. The Yankee
Group, which is owned by Reuters, has several analysts who are broadly
used by the press. Deutsche Bank was the pivotal firm during the HP
(NYSE: HPQ) merger approval process, and the company is considered one
of the powers in the financial industry. For some time, there has been a
debate among financial analysts about whether IBM's valuation should be
adjusted to better reflect its increasing reliance on its services
business. Linux is clearly a services business. Analysts as a group -- whether industry or financial --
don't like to feel that any company can threaten their objectivity. Of
late, they are particularly sensitive to this issue -- and for good
reason. There is a good chance, depending on how IBM handles the SCO
issue, that one of the firms could take extreme exception to this
approach and change its position relative to IBM's valuation or product
set. Personally, I'm not convinced that the potential benefit of this approach is
in line with the risk, but having been critical about IBM's
unwillingness to take risks in the past, I have to admit this one took
some guts. One thing is for sure: Regardless of how it turns out, this
fight undoubtedly will make history and give us something to argue about
for years to come.
Rob Enderle, a TechNewsWorld columnist, is
the Principal Analyst for the Enderle
Group, a company founded on the concept of providing a unique
perspective on personal technology products and trends.
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