Once More unto the Breach

FTC Settlement on Patent Abuse and Standards (and Open Source Implications)

Andy updegrove posted great news this morning on his standards blog. The US Federal Trade Commission (FTC) announced its resolution that a patent licensing promise made by a patent holder in a standards setting process is binding on a future holder of the patent.

National Semiconductor participated in an IEEE standards effort to develop the 100 Mbps "Fast Ethernet" specification in 1994. Two key (pending) patents were under their control, and they licensed them clearly, cleanly, and cheaply for US$1000 flat one-time fee to all takers. The patents changed hands, first to a group (2002) that wanted to change the licensing deal, then to N-Data (2003), a patent troll that was aggressively pursuing a changed expensive license.

Andy sums it up best:

"[T]he reliance upon promises made with respect to patents is of concern not only in the standard setting context, but with respect to open source software as well. The details of the settlement will provide significant guidance as to how the regulators would view similar conduct in an open source setting. Moreover, in the case of N-Data, the FTC has acted aggressively while acknowledging that the actions at issue might not rise to the level of violating relevant antitrust laws. In doing so, the Commissioners provide strong assurance to participants in standard setting that the FTC recognizes the importance of standards in the modern world. Finally, the details of the actual settlement demonstrate a willingness on the part of the FTC to craft a detailed and savvy set of requirements that addresses the realities of actual licensor-licensee conduct in the marketplace."

This is great news in the context of patent promises made to open source developers from the likes of IBM and Sun Microsystems, and through mechanisms like the Open Invention Network and the Linux Foundation's Patent Commons Project. It removes FUD slung around with respect to patents and intellectual property in both the standards arena and open source project communities. Each is a collaborative effort with significant economic importance and impact. Each will hopefully see the intellectual property landscape a little more clearly now.

Full details on Andy's blog.

Open Source Business Practices and Conversion Rate Myths

[Update: 3 March 2009, 12:13] Added some more ideas here.

With the Sun Microsystem recent move to acquire MySQL AB, open source business models will be a topic of much discussion again. MySQL AB, like Red Hat, has always been one of the examples everyone points to for how an open source business should be run. One of the oft quoted statistics of the MySQL business is "one customer for every thousand users". This number is then quickly put into context as "probably too big" because MySQL is available in so many places that trying to count downloads and users becomes impossible. When JBoss was acquired by Red Hat, the publicly acknowledged conversion rates were 3% (JBoss) and 10% (Red Hat). People start making assumptions about business models based on driving downloads and user community size. And that's where the problem starts.

That's an order of magnitude difference. In a bricks-and-mortar world, business differences measured in a few percentage points are spectacular when comparing company ratios. In a digital world, where the cost of goods sold and marginal cost differences change, it doesn't seem right that we would be seeing orders of magnitude differences between companies for this type of ratio.

I participated in a recent informal (qualitative) survey around purchased support for Linux systems. [It was definitely NOT quantitatively or statistically significant. But anecdotal evidence can be interesting.] In operations of 100 servers or fewer, no one even considered buying support from their vendor for ANY of the servers. In operations of greater than 1000 servers, no one questioned buying support for ALL of their servers. Even "small" operations of 100 servers were still mission critical.

Somewhere in the order of magnitude difference in the server farm size, buying priorities change IT budget allocations. Maybe it has something to do with relative percentages of the budget spent on hardware/software/support versus headcount/expertise. Or with the cost of downtime to the business for a particular application environment. (A friend with a "small" server farm of ~100 servers told me recently they didn't hesitate to pay for JBoss support while migrating a critical application from a BEA Weblogic environment, but didn't consider paying support on the Linux servers themselves.) Or maybe it has something to do with the relative margins of the business. But I'm pretty sure the change in buying habit has more to do with the customers' business needs than the vendors' distribution practices.

Regular readers of this blog have heard me rail against the idea that open source is some sort of different business model. (Again, I'm not talking about collaborative software development in community here, but rather businesses that use such software.) It's definitely an area we need to go think about some more, figuring which software business ratios are significant and which practices to encourage.

GOSCON Discussion on Open Document Formats

Deb Bryant is blogging, which is great news. Deb is of course the creator and executive director of the Government Open Source Conference (GOSCON) that is held each year in Portland, OR.

The closing session of last Fall's conference was an executive panel on open document formats that included representatives from Sun, Microsoft, IBM, and Adobe. Deb's latest post points to the video of the panel, as well as the ongoing GOSCON forum discussion between the panellists. If you're interested in either the open document standards debate or government involvement in free and open source software, I would encourage you to have a read.

MySQL and Sun

Sun Microsystems wants to acquire MySQL AB for US$1Billion. Stephen O'Grady (Redmonk) posted his always excellent deal analysis on his blog. I would urge you to have a read. (It also is a great collection of the relevant URLs.) I'll fit a few extra observations around it. Jonathan's blog post sets the tone for Sun, while Zack's post sets the MySQL perspective straight. But first, congratulations to Monty Widenius and David Axmark for their original vision, and to Mårten Mickos, Zack Urlocker, and Brian Aker and the rest of the team that has built so much value into MySQL AB. Congratulations also to Sun for having the vision to acquire MySQL.

Christensen is the first to point out in his presentations that what he originally called “disruptive technology” in The Innovator’s Dilemma was later observed to be a “disruptive business model” by Andy Grove during a presentation at Intel. (The book had already gone to print, and so we now have loads of technology companies running around thinking their technology is more important than their business models.)

Christensen models demonstrate that a disruptive business model generally begins with an inexpensive “inferior” technology offered at a lower price in a different margin business model that enables customers either to do something they’ve never been able to do or to avoid the expensive control point. The “inferior” technology matures as the business grows and eventually the business grows into mature markets (i.e. the business model is disruptive). Think Linux from undergraduate project in 1991 to the IBM and Red Hat/MSDW Wall Street keynotes at LinuxWorld in 2002. So too with MySQL.

Oracle hammered away at the message that MySQL was missing key features high-end relational databases needed to support mission critical applications. But MySQL is the Web’s database. It was created with a different vision and goal in mind, and enabled an entirely new group of customers to make it the “M” in LAMP. It is gaining the features needed to eventually allow it to be an Oracle replacement, but that isn’t the goal today, nor has it been the business model. This means that any way Oracle executives try to measure the database (transactions, scale out, etc.) or the company (units, revenue, etc.) will leave them scratching their heads. To Oracle’s credit, they quickly understood that it isn’t that MySQL is free or open source software that’s their [future] problem but the business models around it that are disquieting, and so adjust their rhetoric accordingly.

I raised questions about cultural mixing when Red Hat acquired JBoss, but I think it is less critical this time or rather my questions about the processes and values with respect to customers will be less of an issue. MySQL should be a separate enough line of business for the foreseeable future.

I think Stephen’s analysis from the Sun angle is perfect. Sun continues to evolve its solution to customers to enable it to be the heart of the Web. Owning a word in the customer’s mind is the pinnacle of marketing excellence. But complex network computing solutions aren’t quite as simple as “Kleenex”, “Xerox” or “Escalator”.

IBM evolved to be a company that offered their customers all the technology choice AND the expertise to knit it together into a coherent unique customized solution. It doesn’t matter how imperfectly true that statement may or may not be -- but rather what customers perceive it to be. That doesn’t mean IBM isn’t happy to push an IBM-centric technology agenda, but it’s the customer relationship that’s important (since they’re the people with the money and the choice) and IBM focuses on ensuring they have the breadth of product offering to best map their customers’ self-selected heterogeneous needs. They are no longer the “Selectric” company and have even evolved with the networked IT world to be more than the “mainframe” company. IBM continues to build their message around open systems, standards, and open source, which suits their customer’s heterogeneous decisions. IBM is the “data center” company.

Sun is also evolving its message and its offerings to suit their customers heterogeneous web-based applications needs. They’re building relationships with IBM, Microsoft, the Linux community, and now they’re acquiring MySQL. Sun is in a position to deliver a heterogeneous technology base to their customers’ heterogeneous needs and to shape a marketing message that began as technology slogans around “the network is the computer” and “the dot in Dot Com” into a customer centric idea like the “Web” company. That doesn’t mean they won’t meet severe competition from IBM for which idea word is more important in customers’ minds, but they’re still in the game after being counted out too many times in the past.