Cheaper Computer Software..good deal???

[fastwalker]

;DFYI...FWIW...Years agao..some of us "older" CMKXers, failed to buy into Mircosoft...when we had the chance...This article descibes an emerging software company who is starting to may an inroad ito the software market..Ii should be looked at as a long term investment..if looked at at all...This is not a recommendation to purchase...merely an invitation to read the article...
Cheapware
Monday August 23, 10:15 am ET
By Daniel Lyons
Corporate customers are fed up with high software prices and are convinced they're getting less for more. Some are switching to cheapie alternatives. A lot more of them are threatening to do so.


Craig Murphy has had enough. As chief technology officer at Sabre Holdings, which runs the world's largest airfare and ticketing network, Murphy has spent millions of dollars on database and other software from companies like Oracle. But last year, when Sabre was building a new computer system for online shoppers, Murphy took a flyer on a database program from a little-known company in Sweden that charges only $495 per server computer, versus a $160,000 list price for Oracle. Guess what? The Swedish stuff works great. Fired up, Murphy is hunting for other places to use the cheaper software, called MySQL.

"We're just not going to pay license fees for those databases like we used to. We'll download free stuff off the Internet before we do that," Murphy says. "I believe this is the future of computing."

If he's right, the future will be dreadful for software vendors like IBM, Microsoft and Oracle. Customers will balk at ever-escalating prices for mainstream products and will opt whenever they can for bargain-basement software based on freely available code such as MySQL or the Linux operating system. They're using the mere threat of installing this open-source software to browbeat Oracle and Microsoft into coming back with better prices. And, increasingly, customers are refusing to buy software at all, instead renting it over the Internet from service providers like Salesforce.com and Ketera, whose fees are 50% to 80% lower than the cost of installing and maintaining the packaged software equivalent. Venture investors are pumping millions into new low-cost providers, encouraged by the success of cheapware pioneers like Salesforce.com and Linux distributor Red Hat, which boast market values of $1 billion and $2.6 billion, respectively.

"There's just no reason for customers to be paying so much for software," says Marten Mickos, chief executive of MySQL AB, in Uppsala, Sweden. "Software is not rocket science. It's a commodity. The business has been overglorified for 20 years."

Some glory is earned. MySQL offers only a subset of what Oracle's 10g Enterprise Edition database offers. They are not the same in the way two bushels of soybeans are the same. But sometimes the small, cheapie product will do the job.

Software now claims a fifth of the $960 billion the world spends annually on computer systems, up from one-tenth of a $464 billion pie in 1990, according to IDC, a market researcher. Hardware sales dropped from $460 billion five years ago to an estimated $365 billion this year as hardware suffered commoditization and ruthless price-cutting from suppliers like Dell. Now it may be software's turn for some pricing pressure.

Still, the software companies have something in their favor that soybean farmers, and even Michael Dell, do not, and that is that the marginal cost of producing an additional unit of output is close to zero. In this way, making software is like making movies. A low-budget The Blair Witch Project can succeed, but that doesn't stop Warner Bros. from making a ton of money off an expensively produced Harry Potter and the Prisoner of Azkaban.

Software vendors also benefit from users' inertia. On your next laptop you could get Corel's WordPerfect a lot cheaper than Microsoft's Word. Why might you stick to the expensive program? So you don't have to learn new commands.

Executives at Microsoft and Oracle dismiss MySQL as too puny to handle serious corporate projects. The Swedish company will likely gross $20 million in 2004; Oracle generates that much every 17 hours. "You don't want to use products from companies that perceive themselves as commodity suppliers to handle your data," says Robert Shimp, vice president of technology marketing at Oracle in Redwood Shores, Calif.

Mickos says he's glad bigger rivals dismiss his company. While they're not looking he has been winning business in the data centers of FedEx, Ingram Entertainment, Lufthansa, NASA, Omaha Steaks, Sony, Suzuki and UPS.

Some of the most enthusiastic users of MySQL's code are other high-tech companies. Cisco Systems installs MySQL in the routers it sells. Google and Yahoo use MySQL in their systems. Adobe Systems uses MySQL to manage software downloads from its Web site. PriceGrabber.com, an online comparison shopping site that handles 12 million visitors a month, runs entirely on MySQL and pays less than $10,000 a year for support. The same from Oracle would be $100,000 to $200,000, reckons Corey Ostman, PriceGrabber's chief technology officer.

more.....

[fastwalker]

continued......

Lycos Europe last year moved its online dating system from Oracle to MySQL and slashed costs from $120,000 a year to $7,000. Now all of Lycos Europe is moving to MySQL, says Per Larsson, team manager in Lycos' technology division.

If you want to sell cheap, you have to make cheap. Most of MySQL's 160 employees work from home, and the company does almost no advertising. Customers often download the software over the Internet, and because the underlying code can be viewed and modified by any of them, they share the R&D burden by developing new features and spotting bugs. MySQL lacks advanced features like "stored procedures" and "triggers" that loftier rivals offer. But many simple jobs don't require those features. So why pay for them?

The packaged software business model, refined over several decades, boils down to two things: Find ways to addict customers with special features and then extract an unending stream of revenue via upgrades and maintenance fees. If nothing else, they buy to get the bug fixes and security patches. Annual maintenance fees have gone from 17.5% of a program's purchase price in 1999 to 19% today, according to Jeffrey Tarter, executive director of the Association of Support Professionals.

One of software's hallowed traditions is to base license and maintenance fees on the number of computers a customer owns. Every time someone like Sabre's Murphy adds a new computer, his fees go up. "As we were scaling up, some of our vendors were scaling with us in a way that was more attractive for them than it was for us," Murphy says.

For Murphy, who has been managing computer systems for 20 years, the chance to even the score was just too sweet to pass up. Most open-source programs let customers buy one copy and run it on as many machines as they want. Sometimes even the first copy is free, with vendors hoping to make their money selling service and support. (It turns out that "free" software like Linux is not really free.) In the case of MySQL, Murphy pays a small license fee for each server plus an undisclosed amount for technical support. The typical price of MySQL's top-level round-the-clock support is $50,000 a year for up to 50 servers.

Today Sabre runs MySQL on 45 servers, each with four Intel Itanium processors. Sabre hopes to deploy MySQL on 50 more such machines by year's end and could add up to 200 more MySQL systems over the next few years. Without giving specific dollar amounts, Murphy says that by using MySQL and a handful of other open-source packages to run his Web site, he has cut certain ticket purchase processing costs by 80%.

"This doesn't mean we'll have no more Oracle or proprietary software. But the future is slanted away from it. There may be a niche for proprietary programs, but I believe the future lies in open systems and open-source," Murphy says.

E-Trade, the online brokerage firm, has slashed its IT budget by 50% through measures that include replacing Sun Microsystems hardware and software with Intel-based computers running Linux and the open-source Apache Web software. Now E-Trade is considering dumping Web programs made by BEA Systems and replacing them with an open-source alternative. Though E-Trade still uses commercial database programs from IBM, Oracle and Sybase, "We would absolutely look at alternatives," says Joshua Levine, chief technology officer at E-Trade, in New York.

"Every company selling us software is balancing their need for continuing revenue against our need for continuing innovation, and the balance may not be optimal for us," says Levine, who describes some of his suppliers--he won't say which--as "straight marketeers who are killing us on the money and delivering very little change." The mere threat of switching to open-source programs gives him leverage in negotiating prices with traditional suppliers. "For the first time ever, open-source is allowing customers to manage vendors, as opposed to them managing you," he says.





Esker, a French software maker whose U.S. headquarters is in Madison, Wis., last year ripped out customer relationship management programs from Siebel Systems, replacing them with an Internet alternative from Salesforce.com. Esker pays $120,000 per year to rent applications from Salesforce.com versus $250,000 to run Siebel programs in its own data center.

It seems that Siebel overplayed its hand. Two years after installing Siebel, Esker was encouraged to upgrade to a new version, which was going to mean buying new hardware and incurring the cost of the move, plus new license and maintenance fees. "If we wanted to keep using the version we already had," says Jean-Michel Berard, chief executive of Esker, "they were going to raise our maintenance fees from $50,000 to $70,000 a year." He decided he'd rather uproot than upgrade.

Siebel and Oracle are alert to the threat. They have started offering their software to some customers as a pay-as-you-go ASP, or application service provider. But there's a lot of short-term pain in switching from licensing, in which most of the revenue flows through the income statement immediately, to subscriptions, in which a company must spread the revenue over several months or even years.

"The transition will kill most companies. You almost have to build these ASP companies from the ground up," says Stephen Savignano, a 25-year software industry veteran and now chief executive of Ketera Technologies. It sells its procurement software and service online and has gained 50 customers in 18 months. Savignano says Ketera charges 80% less than the cost of installing and maintaining packaged software from its chief rival, Ariba.

In the good old days, says Savignano, software makers had a license to print money. No more: "Those days are gone. They're gone for good."



DO your own DD.......