You are currently browsing the archives for May, 2005
§ May 27th, 2005 § Filed under ROI Comments Off
Over the years, analysts have embraced ROI as a key topic for IT. While this emphasis on quantitative business cases for IT investments is definitely a good thing, it has also led to the spread of misinformation and bad advice.
The mechanics of evaluating the business value of a proposed capital project have been fairly well settled for quite a few years. Any Finance 101 course covers the basics of corporate finance, including capital budgeting and project valuation. Among the standard textbooks on the topic are McKinsey & Co’s Valuation: Measuring and Managing the Value of Companies, or Eugene Brigham’s Fundamentals of Financial Management. These textbooks may differ in the way the material is presented, but they all agree on the appropriate metrics for project valuation.
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§ May 25th, 2005 § Filed under Open Source Comments Off
A press release from the City of Los Angeles (dating back to February 2):
GARCETTI, GREUEL, WEISS: FREE OPEN SOURCE SOFTWARE MEANS MORE POLICE ON THE STREETS
COUNCIL BETS THAT OPEN SOURCE MOVEMENT CAN SAVE CITY MILLIONS
Councilmembers Eric Garcetti, Wendy Greuel and Jack Weiss introduced a motion today to divert millions of dollars spent on potentially unnecessary software expenditures into a fund dedicated to the long-sought-after expansion of Los Angeles’ police force.
The motion asks the Information Technology Agency to report on how the city could forgo paying for proprietary software licenses and instead transition to open source platforms and programs. “Open source” means that any programmer can see the software code and propose changes; a community of users creates, supports, and freely distributes applications. Some users pay a fee for technical support, but free support is available on internet message boards. The city spent $5.8 million on proprietary software licenses in FY2003-4.
“For taxpayers, this is a no-brainer,” said Councilmember Eric Garcetti, member of the Information Technology and General Services committee. “By engaging this online community, we can make our own communities safer. Free open source software can be as capable and more secure than products that cost the city millions.”
“By rethinking the way we do business and taking advantage of new technologies, City Hall can save money * money that should be going to pay for ambulance service and police officers,” said Wendy Greuel, Chair of the Audits and Governmental Efficiency committee.
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§ May 23rd, 2005 § Filed under Open Source, ROI Comments Off
eGov Monitor reports on a study on open source TCO in UK schools:
UK schools should “seriously consider” switching from proprietary software to open source alternatives because of the “obvious” cost savings on offer, says the Government’s lead agency for ICT in schools.
Research published by Becta on 13 May concludes that in nearly all cases, schools moving to open source software reduced the total cost of ownership per PC significantly.
The highly-anticipated report, based on a study of 15 schools, shows that by using OSS, primary schools halved their costs. The relative cost per PC at secondary school level was 20 per cent less than that of schools running commercial software.
Also, support costs in schools using open source were on average 50 to 60 per cent of those of their non-OSS counterparts.
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“This report underlines the massive opportunity that exists for all schools to get the best value for money from their IT budgets. The advent of Open Source Software solutions in education opens up the whole UK Education market for the first time in a decade to competitive choice, removing the inevitability of lock-in.” Mike Banahan, Director of OpenForum Europe
I find this particularly interesting since, at least in the US, schools get software at a significant discount (software vendors, like tobacco companies, want to get future consumers hooked early.) Open source still comes out with a lower TCO. This is not surprising…we’ve seen similar interest in the K-12 market in the US for the same reasons.
(Hat tip to Martin Reilly.)
Originally posted at The Indifference Curve.
§ May 18th, 2005 § Filed under Open Source Comments Off
Computer Economics magazine published the results from a poll taken on their website regarding respondents’ reasons for moving to open source. Since it’s a web poll, the results are unscientic. Still, they’re interesting. The top reason of the five by a wide margin was “reduced dependence on software vendors”.
So why is reducing dependence on vendors more important than a very tangible economic outcome such as lowering cost? Are IT managers being irrational, ready to lash out at their vendors instead of taking care of their own shareholders by improving profitability?
Not at all. The flexibility provided by reducing vendor lock-in has a tangible economic value, even if actually calculating the value is problematic. Optaros describes the economic value of software in terms of financial derivatives. The elimination of vendor lock-in reduces the cost of switching vendors, and this option to switch, even if an IT shop never does, has real economic value. This poll, unscientific as it is, says that these IT managers believe the value of the option to switch vendors is more important to them than the reduction in software license costs from open source.
It would be interesting to see a more scientific poll confirming this conclusion, but if it holds up, this says that open source is about choice, not about cost.
Originally posted at The Indifference Curve.
§ May 13th, 2005 § Filed under Open Source Comments Off
While digging around a bit on Optaros’ website, I noticed its CEO is Bob Gett, formerly of Viant, an ebusiness consulting highflyer that crashed along with the rest of us in the ebusiness bubble. Before that, he was the number 2 guy at Cambridge Technology Partners, a very successful client-server consulting firm, where we briefly overlapped.
Gett has ridden the successive technology waves of client-server and ebusiness, and is now hoping to ride the open source services wave. I see this as validation of the pure-play open source services business model. At Novell, we are also pursuing the open source services market, while also selling our SUSE Linux distribution. Red Hat is doing the same
I’m sure there will be plenty of room in this marketspace for both integrated plays like Novell and Red Hat, and pure-plays like Optaros. Nice to see that Gett agrees.
Originally posted here.
§ May 12th, 2005 § Filed under Open Source Comments Off
Optaros, an open source services company, has an interesting slide deck titled The Paradox of Choice (pdf) with some comparisons bt financial derivatives and open source vs. proprietary software. The text is sparse, so it takes a lot of reading between the lines to get where they’re going, but it’s a very interesting take on the economics of open source.
Some intriguing quotes:
The promise of open source is to eliminate the choice of products and increase the choice of vendors.
…
The search for “one throat to choke” is the manufacture of “vendor lock-in”…the “one throat” you are choking is the “vendor locking you in”.
The slide deck goes on to argue (or so I infer, given that I’m missing the voice-over) that IT managers should diversify their software portfolio, not standardize. This diversification represents the creation of options to switch software at a future date, and according to Black-Scholes, such an option has a concrete value.
I’m not sure I’m sold on the concept, at least not on the basis of this slide deck, but it is certainly food for thought.
Originally posted at The Indifference Curve.