Monday, December 31, 2007

Trends of 2008

Each year I summarize the trends for the coming year. These trends are derived from things I know something about and especially from watching Black Duck’s business; talking to customers, partners and analysts; listening to our sales force and reseller channel; and taking note of market feedback and suggestions from Black Duck and other executives, and many others. (Fashion and celebrity trends are not included; wrt these topics I plead ignorance.)

This year I have identified seven (7) trends, or eleven (11) trends – depending on how you count them. I think this is the year of the market segment, so I identify four markets which will emerge in 2008. If you regard them as sub-trends you get 7; if you see them as major trends, you get 11 trends. In either case, there is significant market maturity in the open source arena so trend spotting is being more complex:

1. An increase in the number and magnitude of lawsuits and legal actions. There is no question that the most significant event in the FOSS-world in 2007 was GPLv3. Second most significant is a series of events-- the lawsuits and legal actions brought by the Software Freedom Law Center (SFLC) on behalf of the BusyBox and other GPL software developers.

Simultaneously, Black Duck has seen a significant expansion in our business in 2007 for three reasons: (1) Companies have established and documented the controls necessary to comply with Sarbanes-Oxley (SOX) and have moved from "documentation" to "process improvements." Now they are figuring out how to automate those controls and reduce the cost of compliance. (Black Duck plays a role here as companies take control of their software assets); (2) the market for software compliance will evolve and expand over the coming years as more enforcement actions are taken, and (3) more corporations are thinking beyond compliance and realizing that Black Duck products are ideal for integration into new software development methodologies or the application development lifecycle.

The year 2008 will be the year of compliance and enforcement. It will also be another very strong year for Black Duck as we introduce a new product line expansion that will help software developers early in the application development lifecycle.

2. GPLv2 will continue to dominate, GPLv3 will grow steadily and the Affero license will be newsworthy. The introduction of GPLv3 was in many ways one of the defining events of 2007. In 2008 v3 adoption will continue to increase as more open source projects are released, but v2 will continue to be popular for projects involved with software distribution. It appears that v3 adoption is taking longer than expected because software developers and especially their attorneys have not warmed-up to v3’s new patent provisions.

We also believe that in 2008 the GPLv3 adoption numbers will not be as closely watched. Except for the first year anniversary of the introduction of v3 and lawsuit announcements, this issue will simply fade into the background. We believe that closer attention will be paid to the GNU AGPLv3 (so-called Affero) license, especially with respect to Google's and other on-line services' adoption.

3. VC funding for Open Source Vendors (OSVs) will decline. The US model for VC funding of FOSS projects was to identify an established project with a vibrant community and build the company from there. MySQL was the first big one; this year it will likely go public or be acquired. Many other OSVs followed in 2007 resulting in a significant industry. In 2008, there will be many fewer OSVs created from open source projects. Many of the ventures which were first funded in 2005-2006 will be sold or merged into other entities this year. Open source, however, will be a big part of the software development culture. It will continue to fuel the business models of innovative startups and new ventures, and will become the backbone of enterprise computing.

Another indication of market maturity is manifested on the marketing side as OSVs are finally learning to call themselves as market makers rather than relying on “open source” messaging as the primary go-to-market positioning vehicle. SugarCRM within the CRM market and EnterpriseDB in the database market are two examples of this trend. This will lead in stronger market differentiation for these players who mainstream their messages and result in more VC being invested in these OSV leaders.

4. FOSS use and OSV formations will soar in specific market segments in 2008:

a. Healthcare. A sector that has suffered from cost concerns from its inception will be receptive to open source adoption this year and significant growth in FOSS use. While there are quite a few open source projects in healthcare – such as IBM’s Interoperable Health Information Infrastructure (IHII) and Eclipse Open Healthcare Framework (EOHF), both built with an open source framework, and the Veterans Health Information Systems and Technology Architecture (VistA) – in 2008 there will be significantly more standalone projects and use of open source in healthcare applications. The issues of reliability and security which have previously stymied its adoption will become a thing of the past. In 2008, the US healthcare sector will become a hotbed of open source software development – albeit on a small scale. 2009 will witness more widespread development efforts.

In the developing world, open source will play a major role in healthcare information systems and will make a big difference.

b. The Worldwide Mobile and Telecommunications Industry. Open source has been used aggressively by ODMs since the mid-1990’s as a way of driving down the cost of development. Embedded Linux and databases were first, and then some open source applications and utilities (such as Log4j) formed the M/T open source stack. Asterisk, the leading open source telephony platform, has emerged as a momentum driver, in addition to legal actions involving alleged open source license violations against telecommunications market leaders BT and Verizon.

c. The Government Sector, including Government Contractors. I was amazed to find that at the AFEI ( Open Source Conference on December 11th and 12th, all the attendees referred to open standards as open source. (Bernard Golden of Navica had the same observation.) There are increasingly more federal government software development managers and IT managers who plan to use or adopt open source in 2008. This will drive additional adoption downstream: Among the big contractors, sub-contractors, SMBs (see below), minority businesses, etc.

d. Small-and-Medium Businesses (SMBs) will increase their use of FOSS in large part because it will be integrated into their practice areas by value-added resellers/integrators. Open source projects will also mature to address vertical requirements of SMBs. For example, a point-of-sale solution for dry cleaners is based on the open source OpenBravo ERP.

e. Inter-corporate (multiple large scale enterprises) projects in the US. Corporations working together on open source projects will think about their industry problems and solutions in a much more expansive way. Last year some projects gained significant traction. For example, the pharmaceutical industry has launched solutions. Going forward, look for more industry collaboration around open source. One vertical ripe for this type of initiative is the auto industry.

5. Open Source adoption, OSV formation and Proprietary/Closed Source Software Maintain Market Share Balance. Many open source projects originated in Europe, such as SuSE in German; Linux and MySQL in Sweden; Mandriva, Zope and Plone in France; Drupal in Belgium; Alfresco in the UK, and others. Several countries like Spain, Belgium, the Netherlands, Italy and others did not witness growth in open source adoption. This was due in part to the strong local base that Microsoft has established in these countries. In 2008, open source projects and adoption, and new OSVs, will grow substantially in Europe, especially in the smaller countries of Europe (i.e., countries other than Germany, France, and the UK).

Asian open source projects and adoption will continue to expand. However, the difference maker will be OSVs. European OSV growth is slow in the last 2-3 years than the US, but will catch up as VC funding turns down.

In 2008 proprietary/closed source software will not be impacted by this growth. In most cases proprietary/closed source software will maintain market share. In cases or segments where market share is lost (DB, CRM, etc.), overall market will be maintained by other segments where established product in very large numbers or new products (Windows, Office, point solutions, etc.) lead to a net-zero change.

6. Outsourcers will Use More OSS and Publish Code Contents. While many outsourcers have used open source aggressively since the year 2000, mainstream outsourcers, mainly in India, have been in a state of denial about their use of open source. As outsourcers in Eastern Europe, Vietnam and China pose significant competition to Indian outsourcers, the fierce, new competitors are using open source to gain competitive advantage.

In 2008, outsourcers worldwide will increasingly publish the contents of their code to their clients. They have enjoyed a honeymoon in recent years because enterprises have focused on project delivery as opposed to the contents of the deliverable. Enforcement actions and lawsuits by the SFLC will lead technology companies and enterprises to pressure outsourcers to provide complete reports of code contents with great specificity.

7. The final decline of LinuxWorld. In the early years (2002-3) LinuxWorld was an important incubator of LAMP stack projects and OSV formation. In those times, foundations were a major vehicle for involvement in the FOSS community, and the attendees were mostly hobbyists and small developers. The 2007 LinuxWorld was dominated by hardware vendors and maturing and established OSVs.

In the US in 2008, OSBC and vertical software shows will emerge as the new center of gravity for visionary business people and developers and LinuxWorld will further decline in significance. LinuxWorlds outside the US will continue to prosper as these markets gear-up in OSS adoption.

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One of the fun parts of writing a blog is that you can actively and accurately refer back to your predictions, in a self-criticism mode, and monitor how you are doing. I will be interested to see how these trends play out. Another fun part of writing a blog is soliciting feedback.

Gentle Reader: What do you think of the trends outlined above?

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