Quoting from CIO India
What has caused the effective price of virtualization to head toward zero -- and how?
In contrast to many who seem to feel that open source and proprietary software operate in two parallel but separate universes — that open source is used by people who can’t afford ‘real’ software, while proprietary commercial software is for organizations that need reliability, scalability, and all the other ‘abilities’ — I believe that open source is already challenging the proprietary software world.
How about a case study to test the theory? Let’s look at virtualization, something that has tremendous potential with a clear payoff: reduced costs for IT organizations, both hard (power, machines) and soft (admin and operations personnel). It evinces an undeniable fact: machines are improving so fast that they make possible a change to the traditional hardware infrastructure, breaking the bounds of the one machine, one application practice used by most IT shops.
In 2004, EMC decided to opt for virtualization as a complementary offering to its existing storage business. It paid over Rs 2,700 crore to buy VMWare, which had a very capable, albeit pricy, line of products. VMWare offered them via a hands-on, expensive, direct sales force. These products and their sales strategy melded perfectly with EMC, which sells expensive storage solutions through a hands-on, expensive, sales force.
Today, VMWare has completely restructured its product line and its go-to-market strategy. VMWare offers a significant part of its product line available for immediate download at no cost. That’s right: EMC paid Rs 2,700 crore to buy a company that doesn’t charge for its products.
Why the big change in strategy? In one word: Xen. This is an open source virtualization product emanating from Cambridge University, with a commercial arm called Xensource. The entrance of an open source product into the market has caused the effective price of virtualization to head toward zero. What’s interesting about this market, though, is how fast commoditization has occurred. Unlike databases, where Oracle has a huge installed base that it can milk at traditional prices, virtualization is a nascent market where user choices are being made today. VMWare faced its own choice: maintain its historical pricing and end up a bit player, or chop prices, attempt to establish a dominant market share, and figure out how to make money from the resulting user base. VMWare cut its prices with gusto.
Of course, the flip side of this change is that VMWare expects you to download the product and do the work of figuring out whether it’s right for your purpose. They’ll be glad to engage in a sales conversation once you’ve done the exploratory work and decided the VMWare solution is right for you.
This poses one of the great challenges open source presents to IT. Unlike databases, where the entrance of open source offerings was supported by a large trained technical workforce, nascent markets like virtualization suffer from a lack of skilled expertise, which makes successful implementations much more difficult. I’m not sure what the answer to this dilemma is, but I’m pretty sure the momentum of commoditization through open source is unstoppable.
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