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Marc Dimmick - Master of Management Project

Is Open Source commercially viable in today’s business world?

Author: Marc Dimmick

Email: [email protected]

Created: Wednesday 7th December 2005

Version: 4.1Last Updated: 18/06/06

AIM Member No: 055147



Master of Manager – Marc Dimmick Master of Management (Intake 5)

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1 EXECUTIVE SUMMARY

This paper addresses the use of software in today’s business. It looks at the viability of Open

Source software against traditional proprietary commercial software. This comparison covers some

of the history, processes and business models associated with both types of software development.

The research material looks at what is happening in the market place with Open Source and the

concepts and ideas.

The paper looks at the attitude and myths that have arisen in the industry about Open Source

Software. In doing this paper I found that there has been a considerable amount written about Open

Source. The paper shows that with the case study where the use of the software was not overly

complex the business could easily adopt the alternatives. The business could save a considerable

amount of money. There are some costs associated with this operations and that is in the

conversion process and possible customisation by Open Source developers. The other area of cost

is in the change over period while a business might run dual systems to carry out the conversion.

Much was learnt about the whole industry and the prejudice and opinions based on what people

have heard but not based in fact. In conclusion, yes Open Source is commercially viable in today’s

business.

Master of Management (Intake 5) Master of Manager – Marc Dimmick




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Table of Contents

1 EXECUTIVE SUMMARY ..............................................................3

2 INTRODUCTION......................................................................7

3 BACKGROUND.....................................................................103.1 SOFTWARE MODELS.................................................................................................................................... 10

3.1.1 Traditional ...................................................................................................................................... 10

3.2 OPEN SOURCE.......................................................................................................................................... 153.3 BUSINESS MODEL....................................................................................................................................... 16

3.3.1 Traditional Commercial Software ..................................................................................................16

3.3.2 Open Source .................................................................................................................................17

4 OBJECTIVE........................................................................18

5 LITERATURE REVIEW............................................................. 195.1 EARLY EXPLORATION OF THE LITERATURE IN SUPPORT OF THIS PROJECT..................................................................19

5.1.1 IT Conversations (Website) ...........................................................................................................19

5.1.2 On-line Papers ..............................................................................................................................19

5.1.3 Dealing with Darwin – The Role of Open Source in Computing (Podcast) ....................................20

5.1.4 The Next Wave of Open Source (Podcast) ...................................................................................20

5.1.5 Guide to Linux (Podcast) ...............................................................................................................21

5.1.6 Clearing the Air about Open Source (Podcast) .............................................................................21

5.1.7 The Participation Age (Podcast) ....................................................................................................21

5.1.8 Open Source Renaissance (Podcast) ...........................................................................................22

5.1.9 Articles in the Economist ............................................................................................................... 22

5.1.10 Get the Truth on Linux management – (EMA, 2006) ...................................................................23

5.1.11 Myths about Linux (EMA, 2006) ..................................................................................................24

5.1.12 In summary of the literature research ..........................................................................................25

6 RESEARCH STRATEGY ............................................................ 27

7 ACTION RESEARCH A CASE STUDY OF ACE BODY CORPORATE PTY /LTD...... 287.1 CURRENT IT INFRASTRUCTURE...................................................................................................................... 287.2 CURRENT SOFTWARE.................................................................................................................................. 29

7.2.2 Updates .........................................................................................................................................31

7.2.3 Support & Maintenance .................................................................................................................31

7.3 OPEN SOURCE ALTERNATIVES....................................................................................................................... 32

7.3.1 Looking at Open Source Alternative for ACE Body Corporate ......................................................33

7.3.2 Updates .........................................................................................................................................35

7.3.3 Support & Maintenance .................................................................................................................36

8 CONCLUSIONS.................................................................... 37

9 BIBLIOGRAPHIC REFERENCES..................................................... 399.1 ARTICLES / RESEARCH PAPERS..................................................................................................................... 40

APPENDIX A – DISRUPTIVE INNOVATION.......................................... 41

APPENDIX B – IN THE CHASM OF INNOVATION................................... 42




Figures

FIGURE 1 - MARKET STATISTICS OF BACK OFFICE USE - AUG 1995 - MAR 2006 - SOURCE: NETCRAFT WEBSITE – HTTP://WWW.NETCRAFT.COM/ – 2006SURVEY RESULTS......................................................................14

FIGURE 2 - CATEGORIES OF OPEN SOURCE SOFTWARE.............................15

FIGURE 3 - ACE BODY CORPORATE OFFICE NETWORK ............................29

FIGURE 4 - DISRUPTIVE INNOVATION – OPEN SOURCE SOFTWARE.................41

FIGURE 5 - THE CHASM.............................................................42

Tables

TABLE 1 – NUMBERS AND TYPES OF OPERATING SYSTEMS UNTIL JANUARY 2006 -

SOURCE: NETCRAFT WEBSITE – HTTP://WWW.NETCRAFT.COM/ – 2006 SURVEY RESULTS...............................................................................14

TABLE 2 -COST OF SOFTWARE FOR A SERVER AND THREE DESKTOP COMPUTERS....31

TABLE 3 -TOTAL COST OF SOFTWARE FOR TWO COMPUTERS WITH PEER TO PEER ACCESS................................................................................31

TABLE 4 - OPEN SOURCE ALTERNATIVE COSTS FOR ACE BODY CORPORATE....34

TABLE 5 - PRICES FOR SERVICES PROVIDED BY SUPPORT CONSULTANTS AND DEVELOPERS...........................................................................35





2 INTRODUCTION

The general understanding of software among the public today is that it is a product brought and

installed on to computer. This can be an expensive exercise for many businesses. Buying the

software is often only the beginning. Major applications usually need some testing or piloting of the

software. Once it has been proven to succeed, there is the cost of implementation, maintenance

and upgrades which adds further to the overall price.

Most software that is purchased has locked code. This code is usually encrypted so that the end

user can use the application but is not able to access or modify the Source code1. Large software

development companies believe that they need to lock the code so their Intellectual Property stays

protected. The alternative to traditional commercial software is Open Source2 software. This refers

to the state of the code that is publicly available to the end user. Open Source software developers

believe the price of software is based on the value to the end users. They believe that if the end

user finds value in the software they are willing to part with their money in purchasing support and

customisation. This model appears to be working as there are now quite a number of major

companies working in this way. IBM, Novel and HP are a couple of examples of companies that

have embraced the Open Source business model. These companies develop and sell commercial

distributions of their versions of Linux. They sell it as the operating system of their high powered

servers and desktop computers; and finally they provide a freely distributed version where they

input their code and development back into the Open Source community. As of March 31 2004

Novell cancelled their licence of Microsoft technology and has adopted Linux and Open Source

software throughout their business. That is all 6000 members to standardise on Linux and open

office; they have achieved over 90% adoption. Novell has been documenting their progress through

the change to the Linux environment and the migration so others can benefit from their experience.

(Patrick, D. 2004)

The Open Source software movement came from the open systems movement. This was the

introduction of a common protocol for communications between computers, so networks and

computers could share their resources. The cost of those resources initially was expensive and

many companies found it difficult to afford. The open systems provided the means to connect

expensive equipment and share their use; this was done with the purchase of time, over a common

1 Source code is a series of instructions which are human-readable computer programming language. These lines of code or instructionsare referred to as a computer program. This code can be printed or recorded to a storage medium. This term is used in context of aparticular piece of computer software. A programs source code can be printed on paper or published in a book. This code can then beconverted or compiled into a computer executable form.

2 Open Source is used to describe a method and idea around the development of computer code. The end result of this process is whatis referred to as Open Source code. Meaning that the user is able to see and modify the original code and then convert again or recompile back to an executable form with changes. In the past there were many different terms used to refer to this type of code or practice, until the term Open Source was adopted by the internet community in about 1998.

The label "Open Source" came out of a strategy session held on February 3rd 1998 in Palo Alto, California. The people present includedTodd Anderson, Chris Peterson (of the Foresight Institute), John "maddog" Hall and Larry Augustin (both of Linux International), SamOckman (of the Silicon Valley Linux User's Group), and Eric Raymond.




network infrastructure. This network led to the start of the internet which began with the introduction

of ARPANET3 and the Open Source software movement.

This concept of open communications has continued to date and many companies talk about

interoperability4 and how their products and services can work together. This has led to a number of

countries and states to demand open standards as they do not wish to be in a position of not havingaccess to their data.

Originally Open Source developers created games and the tools to develop these sorts of programs

from their introduction to programming. From this position they started to realise that they needed

more tools and applications. As they soon discovered, others found their program had value to their

businesses. Once businesses started to use these applications they wanted support and changes to

suit their particular needs. They had access to the software, and if they had developers they could

make these changes. The new business model came about with access to development and the

end user would pay someone else to carry out the work.

The applications and programs became more complex and needed more powerful tools. These

tools lead to developing compilers,5 operating systems6 and enterprise applications and solutions.

Linux7 was the start of an Open Source Operating Systems. Novel and IBM have now adopted

Linux as one of their main delivery platforms and operating systems which they on sell. Open

Source environments are starting to emerge in a number of countries and states around the world.

Recently Brazil and NSW have made official the use of Open Source, launching deployment of what

may be the largest-ever rollout of Open Source software on the desktop. Given that this use is not

corporate but government indicates how widely used Open Source is becoming. Traditionally

governments were the last to embrace change. Each of these locations and many others are finding

the cost involved with traditional propriety software and the lack of open standards are not

acceptable.

3 ARPANET - A climate of pure research surrounded the entire history of the ARPANET. The Advanced Research Projects Agency wasformed with an emphasis towards research, and thus was not oriented only to a military product. The formation of this agency was part of the U.S. reaction to the then Soviet Union's launch of Sputnik in 1957. (ARPA draft, III-6). ARPA was assigned to research how to utilizetheir investment in computers via Command and Control Research (CCR). Dr. J.C.R. Licklider was chosen to head this effort. Licklider came to ARPA from Bolt, Beranek and Newman, (BBN) in Cambridge, MA in October 1962. (ARPA draft, III-6)

4 Interoperability - describe the capability of different programs to exchange data via a common set of business procedures, and to readand write the same file formats and use the same protocols. The lack of interoperability strongly implies that the described product or products were not designed with standardisation in mind. Indeed, interoperability is not taken for granted in the non-standards-basedportion of the computing and Electronic Data Processing world.

5A compiler is a computer program that translates a series of statements written in one computer language (called the source code) into

a resulting output in another computer language (often called the object or target language). Compilers translate the source code to

object code or machine language, e.g. into an executable .EXE or .COM.6 In computing, an Operating System (OS) is the software which directs control and management of hardware and basic systemoperations. Additionally, it provides the environment which allows for the execution and running of other applications.

7 Linux is a computer operating system and its kernel. It is one of the most prominent examples of free software and open-sourcedevelopment; all of its underlying source code is available to anyone to freely use, modify, improve, and redistribute it.





Open Source developers were never expected to enter the Enterprise Resources Planning8 (ERP)

market. The commercial development market believed that due to the time and effort required to

develop such systems the Open Source community would not undertake such a project. This has

since been proven wrong and there are many Open Source businesses which compete with the

traditional commercial software industry. Some of these are SugarCRM, Compiere (ERP),

Medsphere and Asterisk.

The Open Source community is breaking the traditional model for software development. They are

doing this by giving away their software but charging for the services to install and configure the

systems to suit each business. The Open Source community doesn’t look at their software and the

cost in developing that application for its value. Instead they let the user put a value on the

application; once a user is using the software and finds there is value to that software they will then

buy support and information. They look to see how they can build on what they have and get more

out of the application. To do this they need to either have their developers work with the software to

meet their needs or pay for others to help. This thinking creates additional opportunities for more

people in being able to provide the services to support the product.

In fact they have left the Red Ocean9(Kim & Mauborgne, 2005) space of the traditional commercial

software companies who placed the value in the software based on their cost to develop the

application. They have moved to an area where they have changed the boundaries of the current

model and let the user define the value and created a Blue Ocean 10 (Kim & Mauborgne, 2005).

This new business model has started to change the rules of the game and moved to a space where

the traditional commercial software companies find it difficult to follow. Since 1986 this culture has

grown out of the Internet and the Worldwide Web. The speed of change, as with everything on the

web, gets faster each day. Many of the software companies have not realised the impact this will

have on their business. Open Source is providing a different choice to customers in how they use

and pay for their software.

8 Enterprise Resource Planning systems (ERPs) are management information systems (MISs) that integrate and automate many of thebusiness practices associated with the operations or production and distribution aspects of a company engaged in manufacturingproducts or services.

9 Red Ocean – This was a term coined by W. Chan Kim and Renée Mauborgne authors of “Blue Ocean Strategy”. It referred tocompanies who competed in existing market space. They aim to beat the competition and exploit existing demand, make the value-costtrade-off and align the whole system of a firms activities with its strategic choices of differentiation or low cost. In other words fight in thesame space as everyone else which involved a lot of blood letting which created a Red Ocean.

10 Blue Ocean – This was a term coined by W. Chan Kim and Renée Mauborgne in their “Blue Ocean Strategy” book. It referred tobusinesses that followed a different approach to the Red Ocean businesses where their approach called for value innovation. Valueinnovation focuses on making the competition irrelevant by creating a leap in value for the buyers and their company. Opening new anduncontested market space or as they referred to in their book creating a Blue Oceans with in an existing Red Ocean environment.




3 BACKGROUND

3.1SOFTWARE MODELS

The following sections explain in detail the two pre-dominate software models and discusses the

issues about the associated licences. Each of these models has their advantages and

disadvantages. Cost is an important reason as well as the maintenance and support. Myths and

conspiracies are discussed further in the project. Some discussions on this topic can reach levels of

religious fanaticism. This project will try to give a balanced view based on good business principles

of value for money.

3.1.1 TRADITIONAL

Traditionally businesses buy their software either as part of their hardware or as a separate

purchase. Currently there are two predominate business solutions in the small business PC user

marketplace, they are Microsof t11 Windows®12 and the Apple13 Macintosh14 (Mac). Microsoft

Windows® is an operating system used on the Personal Computer (PC), or previously referred to as

an IBM Clone. This computer originally was solely based on the Intel15 platform of processors. There

are now a few different chip producers for the PC market. The Mac computer has been referred to

as a Personal Computer but is known as a Mac. This computer originally was based on the

Motorola16 chipset17. The new build of Mac computers will in future be based on an Intel chipset.

Most business users use their computers for several standard work roles. They use their computers

for Office Applications; that is Word Processing, Spreadsheets, Presentation, Data Management

and Emailing. With browsing now becoming a common role within businesses, these types of users

are referred to as MOB users, Mail, Office and Browse.

11 Microsoft Corporation is the world’s largest software company, with 2005 global annual sales of almost $40billion USD and nearly60,000 employees in 85 countries and regions. (Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)

12 Microsoft Windows is a series of operating environments and operating systems created by Microsoft for use on personal computersand servers.

13 Apple Computer , Inc. is a computer technology company. Apple has been a major player in the personal computer revolution since the70’s (Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)

14 The Macintosh, or Mac, is a line of personal computers designed, developed, manufactured and marketed by Apple Computers – thatruns the Macintosh Operating system (“Mac OS”) (Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)

15 Intel Corporation, founded in 1968 as Integrated Electronics Corporation, is a US based Multinational Corporation that is best knownfor designing and manufacturing microprocessors and specialised integrated circuits. (Wikipedia, The Free Encyclopaedias–http://en.wikipedia.org/)

16 Motorola is a global communications company based in Schaumburg, Illinois, a Chicago suburb. The company has been strong insemiconductor technology, including integrated circuits used in computers. Motorola has been the main supplier for the microprocessorsused in Commodore Amiga, Apple Macintosh and Power Macintosh personal computers. (Wikipedia, The Free Encyclopaedia–http://en.wikipedia.org/)

17 A chipset is a group of integrated circuits (“chips”) that are designed to work together, and are usually marketed as a single product. Incomputing, the term chipset is commonly used to refer to the specialized motherboard chips on a computer or expansion card.(Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)





3.1.1.1 Office Tools

In business, most of their work can be covered by these types of applications. In the traditional

software area, Microsoft supplies a suite of tools referred to as Office. Within the office suite the

user has Word Processing (Word ), Spreadsheet (Excel ), Presentation (PowerPoint ), Database

( Access) and Outlook (Email ). This package is supplied as ‘Office Small Business Edition’. Thecost of this package is $749 for the full application and $499 for the upgrade. This is based on

Microsoft’s pricing on their Australian Website. Microsoft has several different pricing models based

on either quantity of licence or end user computers. This model usually works on a series of five

licences building up to 50 and 100 then moving into enterprise agreements which, dependant on the

quantity, are negotiated individually.

The other model is for three years or what is referred to as a subscription. Businesses get their

upgrades free as part of that agreement and usually provided with a limited support service as well.This method reduces the overall cost of the product as apposed to buying a copy then paying for

upgrades each year. Microsoft has as many as eight different licence programs. Each program is

based on the hardware configuration the user will be using and quantity of servers, desktops and

laptops. These different models need either working though the many explanation documents or

contacting one of their software partners. This is not an exercise for the average user. The business

partner of Microsoft will negotiate the different licences to identify exactly which will suit the

business.

3.1.1.2 Genuine Business Applications

The next level is business applications; these are finance and bookkeeping, Human Resource

Management, Enterprise Resource Planning (ERP) and Customer Relationship Management

(CRM). These applications are designed for medium to large businesses in mind. They generally

are expensive to purchase, install and implement into a business. They would require the support of

a professional consultant to install and configure for a business to use. Many of these applications

require a substantial infrastructure in the way of dedicated computers which are referred to as

Servers18.

The types of computers require large operations systems referred to as server operating systems.

These operating systems require a more complex operating system which controls the computer

and the way other computers access and use the software installed on the computer and how that

computer and all the systems networked19 to it, talk or communicate to the outside world.

18 Server is a computer system that provides services to other computing systems—called clients—over a network. The term is mostcommonly applied to a complete computer system today, but it is also used occasionally to refer only to the hardware or software portionsof such a system. (Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)

19 Network – Computer networking is the scientific and engineering discipline concerned with communication between computer systems.Such networks involve at least two computers separated by a few inches (e.g. via Bluetooth) or thousands of miles (e.g. via the Internet).Computer networking is sometimes considered a sub-discipline of telecommunications. (Wikipedia, The Free Encyclopaedia–http://en.wikipedia.org/)




3.1.1.3 Line of Business Specific Software

These systems are again large and the software has been specifically produced for that industry of

vertical market. Distribution and manufacturing businesses will use large and complex systems to

manage their business. SAP20 is an example of a large ERP system which takes from 12 to 24

months to implement in an organisation. Especially used for those which are spread over the globe,this software is used to manage such things as manufacturing and the distribution of their goods to

the market. Their entire financial book keeping and reporting is across many different businesses,

currencies and countries around the world.

3.1.1.4 Back Office and Infrastructure

One of the final types of user is what we refer to as LAMP users. These are the people who use

software that these businesses use to run their back office operations. These are the computers

which control all their systems and tie it all together. The name LAMP comes from the software

these users place on their systems:

• Linux, the operating system

• Apache21, the Web server

• MySQL22, the database management system or database server

• Per l23, PHP24, and/or Python25, scripting languages

These users run the servers within an enterprise and on these servers they deliver their content

either over an intranet or the internet. These computers use a system of TCP/IP 26 to communicate

with computers. All of these applications are from the Open Source community.

The software used is freely obtained and downloaded from the internet. Companies usually don’t

have direct cost with the use and implementation of these solutions. The indirect cost is of the

20 SAP is the fourth-largest software company in the world. It ranks after Microsoft, IBM and Oracle in terms of market capitalisation. SAPis the largest Enterprise Resource Planning (ERP) solution software provider in terms of revenue. (Wikipedia, The Free Encyclopaedia–http://en.wikipedia.org/)

21 Apache HTTP Server is a free software/Open Source HTTP web server for Unix-like systems (BSD, Linux, and UNIX systems),

Microsoft Windows, Novell NetWare and other platforms. Apache is notable for playing a key role in the initial growth of the World WideWeb, and continues to be the most popular web server in use, serving as the reference platform against which other web servers aredesigned and judged. (Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)

22 MySQL is a multithreaded, multi-user , SQL (Structured Query Language) Database Management System (DBMS) with an estimated sixmillion installations. MySQL AB makes MySQL available as free software under the GNU General Public License (GPL), but they also dual-

license it under traditional proprietary licensing arrangements for cases where the intended use is incompatible with the GPL. (Wikipedia,The Free Encyclopaedia– http://en.wikipedia.org/)

23 Perl, also Practical Extraction and Report Language (a backronym) is an interpreted procedural programming language designed byLarry Wall. Perl borrows features from C, shell scripting (sh), awk, sed, Lisp, and (to a lesser extent) many other programming languages.(Wikipedia, The Free Encyclopaedia– http://en.wikipedia.org/)

24 PHP, short for "PHP: Hypertext Pre-processor", is an open-source, reflective programming language used mainly for developing server-side applications and dynamic web content, and more recently, other software. (Wikipedia, The Free Encyclopaedia–http://en.wikipedia.org/)

25 Python is an interpreted programming language created by Guido van Rossum in 1990. Python is fully dynamically typed and usesautomatic memory management; it is thus similar to Perl, Ruby, Scheme, Smalltalk, and Tcl. (Wikipedia, The Free Encyclopaedia–http://en.wikipedia.org/)

26 The Internet Protocol Suite is the set of communications protocols that implement the protocol stack on which the Internet and mostcommercial networks run. It is sometimes called the TCP/IP protocol suite, after the two most important protocols in it: the TransmissionControl Protocol (TCP) and the Internet Protocol (IP), which were also the first two defined.





salaries of the support members of staff. If and when a company required more expert knowledge

for the use or configuration of these applications they have a number of different sources. These

sources range from online forums and discussion groups, or the many consulting firms or a number

of major commercial firms who consult on these types of systems. Dependent on the size and

extent of this support the price is reflective of the effort and type of support required.

3.1.1.5 Market Adoption of Back Office Solutions

The chart below shows market size for the use of server software, from August 1995 until January

2006. Netcraft is based in Bath, England and has collected statistics from the web since October

1995. In a recent survey they received responses from 75,251,256 sites, an increase of 897,000

sites from December 2005.




The chart showed that Apache which is an Open Source web server has just on 66.40% of the

market. The Apache server is usually installed on a Linux based server, even though it can be

installed on a Microsoft Windows® base machine. The results below show Microsoft has about

24.53% of the market. Sun27 and NCSA 28are in a declining position.

Figure 1 - Market Statistics of Back Office Use - Aug 1995 - Mar 2006 - Source: Netcraft Website –

http://www.netcraft.com/ – 2006 Survey results

Developer Dec 2005 Percent Jan 2006 Percent Change

Apache5181067

668.01%

5328729

868.70% 0.69

Microsoft1566670

220.56%

1591242

720.51% -0.05

Sun 1880313 2.47% 1881587 2.43% -0.04

Zeus 579198 0.76% 574607 0.74% -0.02

Table 1 – Numbers and types of operating systems until January 2006 - Source: Netcraft Website –

http://www.netcraft.com/ – 2006 Survey results

27 SUN Solaris is a computer operating system developed by Sun Microsystems. It is certified as a version of Unix. Although Solarisproper is still proprietary software, many core components have made their way into an Open Source CDDL(Common Development anddistribution License) version, Open Solaris.

28 NCSA - National Centre for Supercomputing Applications, NCSA HTTPd is a program to serve information, much in the same way that

NCSA Mosaic is a program to browse information in the World Wide Web. From the Client-Server viewpoint, NCSA HTTPd is the Server to the Browser Client. HTTPd stands for HyperText Transfer Protocol (HTTP) Daemon. HTTP is a protocol with the lightness and speednecessary for a distributed collaborative hypermedia information system. This information was found on the University of Illinois at Urbana – Champaign, IL, USA. This was one of the earliest web server operating systems. The product is no longer under development or supported.


http://www.netcraft.com/









3.2OPEN SOURCE

Open Source promotes an ideal as well as a product and the product’s code is accessible and able

to be changed by the end user. The current philosophy of Open Source development is based on

the beginning of the internet and the community of development build around the internet as a

whole. The idea being someone thinks of a good idea and starts to build an application but may not

have the skill needed to extend and build further. They then create an Open Source project where

they submit their code to the community and others who find some interest or value, start to build on

to that base.

Currently this community works with the use of sites such as (SourceForge.net). SourceForge.net is

the world’s largest Open Source software development website. This site currently hosts over

111,674 Registered Projects and 1,235,588 Registered Users. These are the developers working

on the different projects. These projects cover many different software categories. Businesses

wishing to obtain Open Source software would do well to start here. Some of the categories are:

Categories of Open Source Software• Clustering – Grouping of multiple computers to work as one virtual machine

• Database • Desktop • Development

• Enterprise • Financial • Games

• Hardware • Multimedia • Networking

• Security • Sys Admin • VoIP – Voice over Internet Protocol

Figure 2 - Categories of Open Source Software

SourceForge.net provides the facilities for developers to collaborate in their project, control their

code versioning and details associated with the project. They provide forums for users to discuss

issues and questions about the product. There is a facility for reporting bugs with the applications.

SourceForge.net provides many other features such as:

• seek support

• libraries of patches and update

•

a wish list for feature requests• mailing address for communications

A task list to assign work among the developers, documentation depository and many more

attributes to develop, build and give out their projects and code are featured. Several of the projects

are sponsored and supported by large software companies, such as HP and IBM.




3.3BUSINESS MODEL

“..a representation of a firm’s underlying core logic and strategic choices for creating and capturing

value within a value network” Shafer, Smith, Linder - ‘The power of Business Models’

This is the core logic of the business. The core logic has basically three flavours in the software

industry and they are the traditional commercial solution, Open Source and a hybrid which is a

combination of both the traditional and Open Source. Traditional commercial software is about a

perceived value from the creator. Open Source is about ideals and a shifting of who perceives the

value from the creator to the user. It is where the value is placed in the chain of development and

delivery of the software solution in each of these models. The hybrid model is where businesses

have purchased their base office and specific applications within the traditional commercial software

industry and then augment it will one or two Open Source applications. The types of applications

which have started to appear in the market place are applications such as SkypeTM which is a voice

over Internet protocol application or VoIP. It provides a free method to speak to anyone who is

connected to the internet via their computer using a microphone and speakers.

The traditional commercial software business is principally based on a traditional business model.

Open Source is changing the rules of this business and in disrupting this model creating a Blue

Ocean29. (Kim & Mauborgne, 2005) As outlined by Prof Clayton Christensen, in a presentation he

gave on understanding disruptive innovation; the best way to beat the competition is to disrupt them

not by bringing a better product to market but an inferior product which the market is prepared to

pay less and accept the lower quality. (Christensen, 2004)

A good example is in the chart in the Appendix A; it shows how the Open Source community has

been a disruptive force in the software industry. It is now starting to be seen as a real competitive

force. The commercial industry is not sure how to combat this type of competition. Each model has

its definitive costs and income stream and in the sections below these two models are discussed

further.

3.3.1 TRADITIONAL COMMERCIAL SOFTWARE

Traditional Commercial Software are programs people buy to install on their home or business

computer. These programs are designed to carry out a specific task or process. Software

companies write and develop these programs based on their market research or what they believe

29 Blue Ocean – This was a term coined by W. Chan Kim and Renée Mauborgne in their “Blue Ocean Strategy” book. It referred tobusinesses approach called for value innovation. Value innovation focuses on making the competition irrelevant by creating a leap invalue for the buyers and their company. Opening new and uncontested market space or as they referred to in their book a Blue Oceanswithin an existing Red Ocean business environment.





the market needs. If they don’t carry out the correct amount of research this exercise can be

expensive.

These traditional commercial software companies place a value on their product that they believe

the market will pay. Traditional commercial software companies define the value to their product

and it is not until the end users starts to use that product that they find out if that value is equal totheir expectations. The value in this model occurs in a value network which includes the suppliers,

partners and distribution channels. (Hamel, 2000) Microsoft is a good example; their suppliers have

been the hardware manufacturers; who have provided the platforms on which Microsoft delivers

their software. They have partnered with many different pieces of the marketplace from developers

to manufacturers to provide software into just about every aspect of our lives.

It is interesting that even though they use the Internet as one of their distribution channels; it is still

only a conduit for physical goods; as opposed to the Open Source community where they share the

software via the internet. Each of these models use this channel of distribution to control at different

levels. Where Microsoft controls the application and code they need to manage the physical access

and ownership of the products they develop. Microsoft and a number of other traditional software

companies manage their verification of ownership over the internet. In the Open Source market as

the value is not placed in the code this does not present the same issues.

3.3.2 OPEN SOURCE

Open Source Software has many different flavours, but is broken down into two main flavours.

These flavours are Free Software and Open Source. Free Software as explained by the Free

Software Foundation which was set up in 1985, is more about computer users’ rights to use, study,

copy, change and redistribute computer programs. All software developed under this idea goes

under the General Public Licence (GPL). This licence model has been around for since 1991.

Version three of this licence is currently being discussed and worked on by the Free Software

community.

The whole idea of the licence has been to nurture a spirit of cooperation and trust that has enabled

a worldwide community of user/developers to release an extraordinary range of free software. The

fundamental design principle of this movement is the protection of users’ freedom to work

individually or together to make software do what they wish. The difficulties that traditional software

companies are face with, is trying to compete with a product which initially was inferior and freely

given away. As the Open Source community has a totally different value model to that of the

traditional software companies it has made competing very difficult. In Open Source model the

value is placed in the user and not the developer. The income stream then comes from the supply

of consultancy and programming services to that end user and not from the sale of a product.




4 OBJECTIVE

The objective of this project is to discover whether a commercial business could work effectively

and profitably adopting an Open Source environment. This project will identify and compare two

software models and how they impact on business today. This will be done by:

Fix a baseline of ACE Body Corporate IT use of hardware and software by:

• Showing their current IT infrastructure

• Identifying current operating systems and software applications

• Identifying and discussing the direct and indirect costs to the business

• Discussing current licensing issues of the software currently used

Look at both Traditional and Open Source Software used in today’s businesses

• The expected costs

• Licensing

• Support and maintenance costs

• Standards

• Resistance

Discuss the following issues:

• How does the business model impact on the final cost?

• What are the true costs and issues in running software in a business?

• What are some of the myths and conspiracies about Open Source?

At the completion of this project there will be a better understanding of the types of software

available in the marketplace. This project will:

• Identify the change in views and attitude to software

• Demonstrate whether ACE Body Corporate could run viably with an Open Source Solution,

and

• Assess the impact Open Source would have on a business today.





5 LITERATURE REVIEW

5.1EARLY EXPLORATION OF THE LITERATURE IN SUPPORT OF THIS PROJECT

The literature used in this project involves various internet media types. The first of these is the use

of Podcasts. This is a new use of the internet technology which is a method of publishing audio

broadcasts by the Internet, allowing users to subscribe to a feed of new files. It started in late 2004

largely because of automatic downloading of audio on to portable players or personal computers.

The predominate portable player in the market is the ipod, and this is where the name came from.

Podcasting is distinctive from other types of on-line media delivery because of its subscription

model. Podcasting enables independent producers to create self-published, syndicated “radio

shows”.

5.1.1 IT CONVERSATIONS (WEBSITE)

I have been sourcing my materials from a website called IT Conversations. This site keeps an entire

series of podcasts from many conferences, including the Open Source Business Conference for

2004, 2005 and Open Source Conference 2004 and 2005. The site is managed and kept by Doug

Kaye who is one of the largest producers of these podcasts.

The podcasts to which I have been listening have the supporting documentation in the way of

PowerPoint files and associated links. These presenters are from many different businesses and

backgrounds. Their presentations have been based on their experience in the industry and the

positions they hold within their businesses. Some are CEO and founders of products and services in

the IT industry.

5.1.2 ON-LINE PAPERS

Another source is the papers filed by members of academia around the world. All details of the

source and location of these materials are in the Bibliographic References. Netcraft, a hosting

company is another source who have been keeping statistics on the use of the web and the

machines and software being used. Their data covers ten years of the internet and how it has

changed. From the information supplied, which is open to anyone on the internet, it shows the

progress of Open Source use and its market share.




5.1.3 DEALING WITH DARWIN – THE ROLE OF OPEN SOURCE IN COMPUTING

(PODCAST)

In the podcast “Dealing with Darwin – The Role of Open Source in Computing” (Moore, G. 2005) the

presenter discusses the progress and adoption of Open Source software. His main point is trying to

show how the adoption of the software in a few respects have gone from the early adopters and is

sitting in the chasm30. Many open software products have bridged this chasm and are moving into

mainstream adoption. A good example of a piece of software which has jumped that chasm is the

Mozilla Firefox Browser. It has gone from an early adopter application has crossed the chasm to

move into the mainstream of the market Place (ref Appendix B – In the Chasm of Innovation –

Moore, G 2005). We have seen many people and organisations standardising on this new browser

and it has been amazing how well it has been taken in the marketplace. A sign of the adoption is

based on statistics provided by w3schools.com Firefox which originally was Mozilla now hold 17%

of the market. When the product was called Mozilla it had 9% of the market. The Mozilla project's

launch by Netscape in 1998 where it released the Netscape code to the open market was taken up

and developed into the product Firefox. Since then over 80 million downloads have occurred.

5.1.4 THE NEXT WAVE OF OPEN SOURCE (PODCAST)

Open Source has changed from games to the development environment. Its progression to

operating systems such as Linux and FreeBSD which is an advanced operating system for x86compatible, Alpha/AXP, IA-64, PC-98 and UltraSPARC architectures. It arose from BSD, the

version of UNIX developed at the University of California, Berkeley. These Open Source operating

systems have been developed and preserved by a large team of individuals and communities

around the world. Additional platforms are in various stages of development. Traditional developers

believed that Open Source wouldn’t move into the enterprise space; that with many other myths

(Enterprise Management Association Report, 2006) has been blown.

The area of large applications for organisations and businesses such as ERP and Customer

Relationship Management are now the domain of many Open Source projects. In his presentation

Larry Augustin discusses how Open Source software is not only being used to build and develop

these systems but, how they are changing the way software companies are doing business. He

shows the makeup and the current business model and how most of the sale goes to making the

sale. This leaves little for Return on Investment (RPI) and little to be put back into the further

development of the product. (Augustin, L. 2005)

30 Chasm – This reference is based on a discussion presented by Geoffrey Moore in his book “Dealing with Darwin”. An example of theslide he presents in his book and when giving talks about the subject can be found in Appendix B.





5.1.5 GUIDE TO LINUX (PODCAST)

Robert Greenlee discusses how Linux is starting to be released into the area of the desktop. He

discuss the average user as a MOB user. In these cases Linux can and does provide a stable and

reliable environment to cater for their needs. In fact because of the way that Linux was originally

developed it is by far a more stable and secure environment and does not have the inherent

security issues that are plaguing Microsoft. Currently there are about 20 or more flavours of Linux

for the desktop and companies are now selling computers with Linux preconfigured on their

systems. (Greenlee, R. 2005)

5.1.6 CLEARING THE AIR ABOUT OPEN SOURCE (PODCAST)

In the presentation, “Clearing the Air about Open Source” (Lessig, L. 2005) takes a look at the legal

issue about Open Source software and its uses. He addresses the issue of innovation and how it

affects the media companies. Many of those media companies who originally tried to destroy the

video recorder business are now trying again to stop the next breed of technology with the same

arguments they were using in the past. The main argument being that of technology being used for

illegal processes, that companies who developed such technologies should change it, pay a fee or

stop development. This argument could be used against blank cassettes, photocopiers and

personal video cameras. This is still going through the courts where big money and business are

trying their best to stop some of the innovations that are on the internet.

5.1.7 THE PARTICIPATION AGE (PODCAST)

“The Participation Age” (Schwartz, J. 2005) discusses the principles behind the Open Source

movement and how it is designed to simplify business in the future. He draws the analogy starting

with the canals of England and Europe and how they simplified the first expansion of business. It

wasn’t until standardising the system changed the whole process from worrying about how business

was going to transport their goods to working more about the business and the transportation was a

given. This happened again with the railway and in the end, in America the government had to step

in to create standards.

He then drew this through to the internet and showed that this was happening again. Initially with

TCP/IP as a protocol for communications across the net and then came the World Wide Web. Each

of these standards became accepted business then thrived. Standardising the World Wide Web

gave us e-commerce and the ability to buy any goods, anywhere, any time. This process is starting

to happen with operating systems. Each time we reach a point where an entity wants to control a

space and in doing so they reduce the speed we progress. (Schwartz, J. 2005)




5.1.8 OPEN SOURCE RENAISSANCE (PODCAST)

“Open Source Renaissance” (Patrick, D. 2004), discusses what Novell is doing with Linux. This is

just one of the major players in the computer operating system space. Novell has made a business

commitment to Open Source and has invested over US$260Mil to this end. Novell has been

involved in building Open Source solutions at the desktop level and getting them into the enterprise

space. Recent surveys by Forrester, Gartner and IDC are showing that up to 60% of enterprises are

now developing Linux strategies and Open Source solutions.

Novell has been advertising on freedom of choice and the cost benefits of looking at Linux as an

organisation strategy. As of March 31 2004 Novell cancelled their licence of Microsoft technology

and has adopted Linux and Open Source software throughout their business. That is all 6000

members to standardise on Linux and open office; they have achieved over 90% adoption. Novell

has been documenting their progress through the change to the Linux environment and themigration so others can benefit from their experience.

One of the main issues, which have driven the Open Source market, has been the closed

proprietary systems which have locked out users from change and expansion. The reason that

Novell has taken on this business model is that it changes the revenue models. The main area of

income production is from support, maintenance and training and the licence cost has now gone.

They also cover some of the myths of the change in the business model. One of the main myths

was that Open Source will destroy the traditional software model. This will not happen as people willstill need the specialised piece of software and Open Source and traditional software will still work

together and drive more opportunities for innovation in software and their solutions.

Another big myth is that Open Source is a fad; this is just not true as there are millions of lines of

code and it is not going to disappear any time soon.

5.1.9 ARTICLES IN THE ECONOMIST

• Open, but not as usual 3/18/2006 vol 378 issue 8469

• An open secret 22/0/2005 Vol 377 Issue 8449

• An Open Source shot in the arm 12/6/2004 Vol 371 8379

These articles discuss the Open Source models and ideals and how they are changing the way we

are looking at business. They are showing that the model is starting to move beyond software into

other businesses. It is the ideals of Open Source which like the software industry are creating

threats and opportunities in the same way for businesses. This is starting to be seen in areas from

legal research to biotechnology. Open business practices have emerged asa more common way for collaboration to happen online. The Open Source ideals can be applied to





far more than just software businesses. This ideal is based on the amalgamation of contributions of

private individuals to create something that, in effect, becomes freely available to all.

Open Source is succeeding and is not as quirky as people first thought. Open Source projects have

adopted management practices similar to those of the companies they aim to outdo. The main

difference is the contributors are typically motivated by self interest and less by altruism. Thecommunity can be wide-open but usually is a small close knit group.

The code is not chiefly written by volunteers but employees of companies using the software. They

are doing the work based on their own interests and benefits to the business. Yet businesses are

starting to make some serious money from this type of business. What has happened is the transfer

of value from being based on what the creator believes to value being decided by the user. Firefox

web browser is an example of the success of Open Source. In just three years this browser has

taken around 14% of the American and 20% of the European market share. (Modzilla Website,

2006)

5.1.10 GET THE TRUTH ON LINUX MANAGEMENT – (EMA, 2006)

Microsoft and some analysts have claimed that the Total Cost of Ownership (TCO) of Linux systems

are higher than that of Microsoft Windows®. This has been attributed to the higher system

management costs and concluded that the higher TCO outweighed the much lower licence and

acquisition costs for Linux. The statistics that were highlighted in this research report found that thisperception is not accurate. Enterprise Management Associates (EMA) in a new study of over 200

Linux enterprises has found a different picture.

EMA found that previous research did not adequately address four areas:

1. Acquisition costs

2. Productivity

3. Security Management

4. Virus and Spyware Management

The cost involved in acquiring a similar environment in Linux as that of Microsoft Windows® has

been shown to be almost US$60,000 less per server than Microsoft Windows® in software costs

alone; Microsoft Windows® also incurs higher hardware costs. Linux administrators are able to

manage more servers than Microsoft Windows® administrators. Linux servers are able to handle a

far greater workload.

Management of security issues with Linux servers is far greater and more productive dependant onthe complexity of the management tools. Time spent in managing virus and spyware issues are

considerably reduced and inherently stronger security makes the servers less vulnerable. None of




the administrators reported that they spent more time on the Linux server than the Microsoft

Windows® Servers.

The research showed that in most cases the resource costs and management of Linux Enterprise

Servers does not lead to higher overall TCO; and that Linux is a highly cost effective alternative to

Microsoft Windows®. The costs involved in building a typical Linux based web application stackwhich includes both hardware and software is over ten times less that the equivalent Microsoft

Windows® based environment. The research showed that the TCO of a Linux environment is no

longer more expensive that the equivalent Microsoft Windows® setup. In many cases Linux will be a

significantly less expensive platform to acquire and maintain than Microsoft Windows®.

5.1.11 M YTHS ABOUT LINUX (EMA, 2006)

The Enterprise Management Association commissioned a research paper to look at the effects of Linux against Microsoft Windows® and address a number of myths.

5.1.11.1 Myth 1 - Linux is an Insecure Operating System

This myth is based on the concept that as the code is open, the system will be insecure. The

thinking is that with more people being able to download the code there are more developers likely

to report its bugs. On the other hand, closed systems like Microsoft Windows®, only hackers

actually reverse engineer the code to exploit its security issues. As Linux is becoming a more widely

used operating system there are more people looking at and using the code. Linux was written for

the technical user in mind and security was the first priority. The number of Linux-based ISPs and

web servers is close to 64% of the users on the internet, and very few hack incidents have

happened on these. Research information regard security can be found at Carnegie Mellon

Software Engineering Institute - Coordination Center.

In the research paper written by Enterprise Management Association (EMA) Feb 2006 it was found

that 75% of Linux administrators spend less than 10 minutes per server per week managing

security. With sophisticated management tools, this goes up to over 85%.

5.1.11.2 Myth 2 - Linux is Not as Reliable & Productive as Microsoft Windows®

Microsoft says that "..there are no real world data or metrics and very limited customer evidence to

back up these claims." When Microsoft Windows® Operating System fails it creates what is referred

as a “Blue Screen of Death”. This is a blue screen which has many lines of debug code which the

user has no alternative other than rebooting their computer. Typical Linux machines deployed as

servers run continuously without failure. Linux machines have been up for hundreds of days andonly taken down deliberately to upgrade the operating system kernel, replace dated or failed

hardware, etc. (Microsoft's web page they list links to customer testimonials.)





In a recent research paper carried out by Enterprise Management Association (EMA, 2006), it was

found that most correspondents reported 99.99% or higher availability for their Linux Systems. A

significant number (17%) reported no downtime at all. When problems did occur, Linux

administrators repaired them quickly, in most cases faster than industry averages.

Linux tends to be more productive, as Linux administrators tend to manage more servers thanMicrosoft Windows® administrators, and Linux systems tend to handle greater workloads than

Microsoft Windows® system (EMA, 2006).

5.1.11.3 Myth 3 - Linux Systems Take More Time to Manage.

EMA, 2006 found that 88% of enterprises with Linux and Microsoft Windows® spend less effort

managing Linux; 97% believe it is, at worst, the same for both systems. Respondents with

sophisticated management tools all report Linux management is the same or easier than Microsoft

Windows® management.

5.1.11.4 Myth 4 - Linux Consulting and Training Cost more than Microsoft

Windows®

EMA found that 79% of enterprises spent nothing on Linux consulting, and 63% spent nothing on

training. Only 4% spent over $10K on consulting or training.

5.1.12 IN SUMMARY OF THE LITERATURE RESEARCH

In all of these sources the discussion of how Open Source is really taking a foot-hold in the software

industry. In many respects Open Source is starting to commoditise the software industry. This is

happening as the Open Source industry is providing their software for free, which is hard for the

commercial industry to compete against. The Open Source business model as it places the value

with the user creates a dilemma for the traditional commercial software companies as they rely on

their income stream. The only defence the traditional commercial industry has is to debunking and

ridicule the Open Source industry.

Microsoft has some thousands of developers working on millions of line of code for Microsoft

Windows®. They have structures and standards which they develop and code. In that way they can

verify the quality of their code. On the other hand Linux has millions of lines of code, but they have

millions of developers who build to an open standard which is well documented and structured and

when a bug or issue is found it usually is attended to and fixed in a far quicker timeline than

Microsoft. Companies like HP, Novell and IBM have now come on board and putting their weight

behind the Open Source movement which has added to its credibility.




As David Patrick indicated in the Open Source Renaissance, Novel has invested over $260 million

and their decision is reflected in the surveys by Forrester, Gartner and IDC are showing that up to

60% of enterprises are now developing Linux strategies and Open Source solutions. Recently both

Brazil and the New South Wales government have programs recommending and implementing

Open Source alternatives to traditional commercial software.

In China, South Korea, India, Brazil and other countries, governments are promoting the use of

Open Source software, as it provides the freedom for users to inspect, modify and freely redistribute

its underlying programming instructions. The attraction to Open Source is it can reduce costs, allay

security concerns and ensure there is no danger of becoming dependent on a foreign supplier.

Because it can be freely modified, Open Source is easier to translate, or localised for use in a

particular language. This involves the translation of the menus and help files and other text to create

a new version of the software.

India has taken a similar approach where there are 18 official languages and over a 1,000 regional

dialects. The introduction of Indian languages will help to foster a far deeper penetration of

information technology. Localisation makes IT accessible to common people, which could

revolutionise the way their communications work and the way computers are used in India.

Recently Thailand’s government launched a subsidised “People’s PC” which runs on LinuxTLE, a

Thai-language version of Linux. Japan has joined the project established by China and South Korea

to develop localised, Open Source alternatives to Microsoft’s software. Computer users around the

world are discovering that Open Source software is starting to speak their languages.





6 RESEARCH STRATEGY

The project is a case based study. Ace Body Corporate will be used as an example of a business

that currently uses predominately traditional commercial software. The project will discuss the topics

outlined in the objective which will result in an analysis of the findings. Costs and values are

important considerations to this project and the analysis will be based on a true value proposition to

businesses today.

The source of my information is research materials found on the web, podcasts and documents,

articles and books as well as over 20 years experience within the industry. One of the main sources

will be the internet as this is an excellent example of the ideas and deliverables of Open Source

ideas and products. The internet was originally a service developed and used by US defence

department as a communications medium. It then moved quickly into the educational and university

environment where knowledge and information was shared and spread. This was the beginning of

the knowledge economy. The value was found in the intellectual capital instead of physical assets

and capital of its users.

Universities are still using the internet as it was originally intended where the knowledge and

information is fully accessible to all. These sites provide access to many papers on many topics.

The other area sourced for this case study is in the form of Podcast31 and literature written by

members of the industry.

31 Podcasting is a term coined in 2004 referring to the production of audio time shifting. This is when the use of RSS (Rich SiteSummary) syndication technologies became popular for distributing audio content. It provided content for listeners on mobile devices andpersonal computers.

Podcast *noun a digital recording or a radio broadcast or similar programme, made available on the internet for downloading to apersonal audio player.( AskOxford.com – site of the Oxford Dictionary)




7 ACTION RESEARCH A CASE STUDY OF ACE BODY

CORPORATE PTY /LTD

Ace Body Corporate Pty Ltd is a franchisor of Body Corporate32 franchisees. This business is

controlled from a single office in Mentone, Victoria. The business is run from a central office where

there are currently 3 franchisees working from that office. The diagram below shows the structure of

the network within this office. All other the other franchisees work from their own office and have to

manage their own systems and software out of their own budgets.

The franchise specifies the recommended software applications so that there is ease of

communications between the franchisee and franchisor. Currently these applications are:

• StrataMatic or MYOB - For the business Accounting

• Skype - a free Voice Over Internet Protocol (VoIP)

• Microsoft Office – Word, Excel and Access

7.1CURRENT IT INFRASTRUCTURE

The current structure of the computers at the head office is a single server with a number of

workstations networked to the server. This business is about 98% Microsoft driven, the exception

being their use of Skype (VoIP) for their communications with their franchisees. As the business

only purchases for its own use there would be no discount on the price. I believe that as each

computer was purchased the operating systems would have been included for the workstations.

The server software was brought in two formats; one as a stand alone version the other as a small

business server. The stand alone version of 2003 server is worth $1,58633 the small business server

is valued at $1,920. This version of the server software was be the recommended version as it

includes a number of other services and servers built in for businesses.

The workstation with Microsoft Windows® XP is worth $425

32 The process of subdivision of a property for multi-unit development results in the need for a "body" to manage common ownershipaspects of the property. On registration of a Plan of Subdivision a "Body Corporate" becomes incorporated. Bodies Corporate areregulated by legislation that has undergone many revisions both to deal with the changing property ownership trends and to adjust to the

continually evolving body of knowledge and experience gained from regulating the industry. Relevant legislation includes The SubdivisionAct 1988 and the Subdivision (Body Corporate) Regulations 2001. (Ace Body Corporate Website)

33 This price is based on the City Software website. http://www.citysoftware.com.au this is a discount software sales company and thisprice is just an indicator of indicative costs. This price is inclusive of GST.





Figure 3 - ACE Body Corporate Office Network

7.2CURRENT SOFTWARE

The current items of software used by Ace Body Corporate Pty Ltd are:

• StartaMatic or MYOB (most use StartaMatic) – Accounting

• Skype – Voice over Internet Protocol (VoIP)

•

Microsoft Office

o Word – Word Processing

o Excel – Spreadsheet Calculation

o Access - Database

o PowerPoint - Presentation

o Outlook – Email

•

Microsoft Windows® (Operating System)

o Windows® Server 2003

o Windows® XP

o Windows® 95

These are standard office applications for business. The accounting software is commercial and the

StartaMatic is an industry designed accounting system and has the following features:

• Levy Notice generation

• Financial reporting


Server/Workstation

MS Win

2003 Server

Head Office

Workstation

MS Win XP

Head Office

Workstation

MS Win98

Franchisee 1

Workstation

MS Windows

Franchisee 2

Workstation

MS Windows

Franchisee 3

Workstation

MS Windows

Employee

Workstation

MS Windows

Employee

Workstation

MS Windows

Employee

Workstation

MS Windows

Internet




As these computers are communicating and using the internet then security is an issue as well as

virus protection. Assuming a virus protection application is installed this can cost on average about

$125 per computer dependant on the software used.

7.2.1.1 Summary of Software and Costs

Based on three computers in a franchise with a server and two desktops systems

Qty Software Unit Cost Sub-Total

1 Windows® Small Business Server $ 2,295.00 $ 2,295.00

3 Windows® XP Professional $ 475.00 $ 1,425.00

3 MS Office Professional $ 746.00 $ 2,238.00

1 StrataMatic $ 2,500.00 $ 2,500.00

1 Skype $ 0.00 $ 0.00

3 Virus protection $ 125.00 $ 375.00

Sub Total $ 8,833.00

Table 2 -Cost of software for a server and three desktop computers

Based on two computers in a franchise with peer to peer access


2 Windows® XP

Professional

$ 475.00 $ 950.00

2 MS Office Professional $ 746.00 $ 1,492.00

1 StrataMatic $ 2,500.00 $ 2,500.00

1 Skype $ 0.00 $ 0.00

2 Virus protection $ 125.00 $ 250.00

Sub Total - Server $ 5,192.00

Sub Total – Desktop

Total $ 14,025.00

Table 3 -Total cost of software for two computers with peer to peer access

7.2.2 UPDATES

A traditional commercial software company offers updates/upgrades to their software on a 12-18

month cycle. These updates/upgrades are provided to current owners of their products. The price

charged for these updates/upgrades can cost anything from 60% - 80% of the full retail product. The

updates/upgrades are improved functionality and new features which the companies believe that

users want to use. This is one of the main ways traditional commercial software companies keep

their revenue stream. Another way is to provide training and or documentation of their product and

how it works.

7.2.3 SUPPORT & MAINTENANCE

Support and Maintenance or assistance to install and manage the application is usually a service

that the software companies offer for their products. These types of support range in levels from

email support through to a consultant coming to the business and working on site. Dependent on




the type of service it can cost from $15.00 for a single incident phone call right up to a full onsite

annual maintenance contract. The service contracts are usually for large enterprise software

applications and software companies will base the cost of the contract on a percentage of the cost

of the software. This percentage can range from 10% - 18% of the original cost of the application.

Enterprise applications can cost up to half a million dollars, once the maintenance cost is added and

the cost of updates/upgrades this becomes a very expensive exercise.

7.3OPEN SOURCE ALTERNATIVES

The Open Source market has many different applications and operating systems, the most common

the Linux Operating system. Linux is an operating system that was developed by Linus Benedict

Torvalds, who was then a student at the University of Helsinki in Findland. Linus developed Linux in

1991. Linux was initially based on the foundation of Minix. Minix was originally created by Andrew S.

Tanenbaum, a US-born Dutch professor who wanted to teach his students the inner workings of a

real operating system. It was designed to run on the Intel 8086 microprocessors that had flooded

the world market. Both Minix and Linux was base on UNIX and have been referred as the freely

distributable version of UNIX. UNIX is one of the most popular operating systems for networking

worldwide because of its large support base and distribution.

Linux was released for free on the Internet and generated the largest software-development

phenomena of all time. Because of software created by the Free Software Foundation, Linux has

many utilities to offer. From 1991, Linux quickly developed on hackers' web pages as the alternative

to Microsoft Windows® and the more expensive UNIX systems.

When Red Hat released its commercial version of Linux packaged with tech support and

documentation, the floodgates broke and the majority of the public became aware of Linux and its

capabilities. Now more and more new users are willing to try Linux on their personal PCs and

business users are willing to use Linux to run their networks. Linux has become the latest

phenomenon to hit the PC software market.

Linux is a unique operating system in that it is an active participant in the Open Source Software

movement. Linux is legally covered by the GNU General Public Licence, also known as GPL. Open

Source software is free but is not in the public domain. It is not shareware either. GPL allows people

to take free software and distribute their own versions of the software. However, the vendors who

sell free software cannot restrict the rights of users who purchase the software. In other words,

users who buy GPL software can make copies of it and distribute it free of charge or for a fee. Also,

distributors of GPL software must make it clear that the software is covered by the GPL and must

provide the complete source code for the software at no cost. Linux embodies the Open Source

model.





The difference between Open Source and traditional commercial software is in where the value has

been placed. Open Source lets the user determine the value of the software and based on that

value the user will then purchase the support and assistance to change, manipulate and customise

the application to suit the user’s need. As the user has defined the value they pay for the service

and support of the software and not the software itself.

The Linux operating system has been the main operating system used by people working on the

internet. The data below has been present from Netcraft monthly survey. This survey shows that

68.9% of the web is using Apache. This is an application used for running and managing websites.

This software was designed to work on Linux; recently Apache has been developed by the Open

Source community to run under Microsoft Windows®. Companies usually running Apache are

Internet Service Providers (ISP) who for security reasons will only run Linux.

The Open Source community has been developing desktop versions of Linux over the last few

years. There are some ten different distributions of Linux Desktop; these range from totally free

through to commercial distributions. Novel, IBM, HP and LinSpire are commercial software

companies who have been involved in the development of the commercial versions of Linux.

7.3.1 LOOKING AT OPEN SOURCE ALTERNATIVE FOR ACE BODY CORPORATE

In many ways all of the applications used by ACE Body Corporate can be found in the Open Source

Market. The only application which to date not able to be located was an account system specific tothe Body Corporate Industry. The application StrataMatic is a specific application but I would be

surprised if there was not an application in the market place.

A lot of the functionality that the StrataMatic application provides is standard account or Enterprise

Resource Planning (ERP). In the current ERP & CRM market the number one Open Source ERP

currently is Compiere. It has many, if not all the functionality required to replace StrataMatic. The

important difference is that due to Compier 34 being an Open Source application it can be modified to

provide the necessary functionality required. Many of the Open Source alternatives are free to

download and use. The only costs that arise is when the user or business wishes customise the

software they may need to pay someone to customise and alter the software to suit their needs.

Open Office is a full office suite produced by Sun Corporation and on the Open Source market. It

provides the full capabilities of Microsoft Office as well as being compatible to Microsoft Office. It

provides the ability to open and save documents in a format which can be read by Microsoft.

34 Compiere is a fully integrated ERP, CRM, supply chain management and accounting software. As an open source ERP, Compierecode is available for the customization as the business grows and changes. Other ERP solutions may leave a buisness locked into thesame business processes and software long after the company has outgrown them, but Compiere ERP software was made to adaptalong with the buisness. It’s not only flexible, but easy to upgrade, so that the business always has the most up-to-date ERP softwarefeatures. The business has access to an active open source community and 65+ certified partners world-wide.




Linux is able to provide both server and desktop requirements. Both of these options can be

obtained for free as well as a commercially supported version. The commercial versions can be

obtained from companies like IBM, HP and Novel.


1 Linux Server $ 0.00 $ 0.00

2 Linux Desktop $ 0.00 $ 0.002 Open Office $ 0.00 $ 0.00

1 Sugar CRM/ERP $ 0.00 $ 0.00

1 Skype $ 0.00 $ 0.00

2 Spybot $ 0.00 $ 0.00

Total $ 0.00

Table 4 - Open Source Alternative Costs for ACE Body Corporate

As can be seen from (Table 4) a business can obtain most, if not all, the software needed to run

their business for free. There is no direct cost for obtaining and using the software, the only cost and

that is at the businesses discretion is for customisation or new functionality. For example if theapplication carried out a process which did not work for the business they could alter or adjust it to

suit their needs.

Buying the software is just part of a business’s cost in running their computers. There would be a

support and maintenance cost associated with the adoption of Open Source. The use of the

software is free, but managing and maintaining the application and the data may need the support

of an internal resource to the business or the use of an external consultant or developer. The other

aspect is when the developers of the application produce an update there may be features andfunctions of which the business would like to take advantage. To do this they will need the

assistance of a resource with experience and knowledge of the current installation and how to apply

the update to the current working system. This may need some testing to make sure that the update

does not interfere with any alterations the business had created to the application.

These costs can be managed by purchasing a maintenance contract with consultants and

developers of the application. This cost can range from an annual fee or per instance cost. In (Table

5) is displayed a list of charges by one of the Certified Partners of Compiere. As can be seen within

the table these charges range from $150US up to $8700US. These charges are for services such

as assistance to install the application through to full support over a year with training and

documentation. The important fact to remember about Open Source and finding support and

assistance is that payment for this service is not always required. Many of the Open Source

applications have their own support groups and developers who openly and freely provide help and

assistance with these types of applications. One of the main providers of this service is

sourceforge.org. It offers many of the features provided by organisations who charge for the service.

The main difference is that a response may take time to answer, but if the issue is not urgent thatcan be acceptable.





In comparison StrataMatic cost is $2500 for the software. The cost of maintenance is usually

anything from 18% to 35% of the cost of the software ($450pa - $875pa). In trying to research the

cost of support via the website of the company, if was found the domain had expired and access

was not available. As this is a traditional software company finding other sources of support is not

readily available as the source of information is not accessible. The important fact is that if the

business does not have a maintenance agreement with the organisation that produced the software

the business may find itself in an awkward position.

7.3.1.1 Price List for Compiere Services

These are some examples of the types of services and charges for support and information for

Compiere.

Type of Service Description Price US$

Help with initial evaluation and

implementation strategy of Compiere.

One session, max. 1hour of consulting $150

Compiere Self Service Support Annual Self Service Support Unit (10

user) - Includes PDF License, Migration and

Documentation

$1500

Installation Workshop Hands-on workshop to install the Compiere

Application Server (Oracle) for Intensive Training

participants only

$300

Intensive Training 5 day Intensive functional Training for SuperUsers $4200 per

User

Technical Training Technical Training (customisations and

extensions)- Must attend the Intensive Training as

a prerequisite

$2900 Per

User

Compiere Self Service Support Oracle

Solution

Annual Self Service Oracle Support Unit (10 user) -

Includes Oracle Embedded License, PDF,

Migration and Documentation

$1500

User Documentation - Subscription Annual Subscription of User Documentation

(currently: Release 2.5.3b) for the use of a single

person

$120 Per

Annum

Partner Contract and Training Package Compiere Partner Contract (includes one internal

and one customer 10 seat Support Contract) and 1

Intensive Training seat

$8700

Table 5 - Prices for services provided by support consultants and developers

7.3.2 UPDATES

Updates are constantly being developed and released by the Open Source community. Many of the

Open Source projects are managed through the sourceforge.org website. The biggest advantage is

that if an issue is raised in the Open Source Community and it requires a fix, there is usually

someone who can develop it quickly and effectively and then release it to the open community.




7.3.3 SUPPORT & MAINTENANCE

Open Source software is supported in a couple of different ways; one within the software

community, the other is by companies who setup as experts with the application and provide

consultancy and customisation programming. This is has now become big business and the likes of

IBM, HP and Novel have invested millions of dollars in developing the infrastructure to support and

maintain their distributions of Linux. All of these companies also support the community with free

distributions and invest in the community by putting their IP back into the community.

No longer can the myth be propagated that Open Source is not supported. In fact Open Source is

far better supported than many commercial applications; both commercially and by the community.





8 CONCLUSIONS

In conclusion the objectives of this paper were to determine whether a commercial business could

run their operations effectively and profitably by adopting Open Source software. It involved a case

study looking at how ACE Body Corporate and their use of software. I looked at upfront costs and

updates and maintenance cost that were involved with using traditional commercial software.

In the research I carried out while writing this paper a number of interesting facts and myths were

discovered. One of the attention-grabbing facts which I came across while carrying out some work

on a contract at Telstra, was the unfounded prejudice against Open Source software. I proposed a

piece of Open Source software for the project, a basic XML editor. The piece of software was a

useful editor that I had had some experience with in a previous job. I presented the idea of using the

Open Source application to the manager of the project. He liked the idea but he first needed to

check the application out and see that it was what they could use.

As I had not heard anything for over a couple of weeks I approached the manager and enquired as

to when he felt I could start using the software. He then responded that he had still to check the

software out, I further enquired as to what his concerns were. He responded that there must be

some hidden agenda as no one gives away software for free. I then realised the problem was not

the Open Source application, but with the idea of something for free. Their belief was that there

would be a catch or hidden agenda in respect to viruses or trojans being included in the software. In

further discussions I realised that even though the manager had not even looked at the application

or the site which was providing the software, he had made a determination that because it was free

there would be issues with using the software.

In not understanding the business model of the software developers he had made a judgement as

to the software. He was not aware that the version of the editor was just to get users to use the

software and see the value in the program. The developers provided a more extensive version

which was sold on their website. The Open Source version was a basic level and an introduction towhat they had on offering in the extended version.

Many people in business today still think in the current model of a defined value for a product which

they purchase and then use. This is where Open Source has been difficult for people to accept as

they give away their property and the code. People are able to use and alter without paying anyone

for the software. It is only when the user wants to customise and adapt a product for their business,

the business with then need to pay someone for their services. A relevant article which was pointed

out to my by Professor Murray Ainsworth was in the Economist; 3/18/2006, Vol. 378 Issue 8469,

p73-75. The title of the article was “Open, but not as usual”. The pertinent part was:




“…the approach has moved far beyond its origins. From legal research to biotechnology, open-

business practices have emerged as a mainstream way for collaboration to happen online. New

business models are being built around commercialising open-source wares, by bundling them in

other products or services. Though these might not contain any software "source code", the "open-

source" label can now apply more broadly to all sorts of endeavour that amalgamate the

contributions of private individuals to create something that, in effect, becomes freely available to

all.”

The article went on to discuss how far the approach to the development environment has gone. It

was starting to have an effect on the practices of businesses today. “New business models are

being built around the commercialising open-source wares” it’s the concept of collaboration and

openness in the way people work to achieve their business goals.

More and more users everyday are being exposed to Open Source software, businesses, ideas and

ideals without being aware of it. We have operating systems and applications which are obvious;

they purchase their books from Amazon and access their emails using Gmail or using the Google

website. All of these sites use Open Source and don’t charge the user to use them. But companies

like Amazon charge for the products and services they provide and not for the use of their software.

Many of these services are given away, the goal being to get the user comfortable with their product

and service and then provide additional services for a fee.

From the material that I have read while researching this paper it has become quite obvious that the

Open Source Movement is determined to make its mark in the IT world. They have built a

completely disruptive model which initially was for the geeks of the world and the commercial

development companies never considered them a threat. The Open Source software has now

reached a point where they are not only starting to compete but also beat their commercial

competitors. I believe in the case model of ACE Body Corporate that they could run their entire

business using Open Source alternatives. In doing so the company could save a considerable

amount of money in the computer operations within the business.

There would be an initial cost to convert and configure and customise. The other cost would be the

running of two systems during the change over; but once the conversion was completed the savings

would at least be the cost of the traditional commercial software and update costs. The other benefit

would be that their systems would have a higher level of performance and security. The challenge is

not to use the Open Source alternative but to accept that it is a real alternative to the commercial

offerings in the market place.





9 BIBLIOGRAPHIC REFERENCES

Augustin, Larry M. 2005, CEO, Medsphere Systems Corporation. Director Open Source

Development Lab, SugarCRM, JBoss, VA Software – Keynote Presentation at the Open Source

Conference 2005 and the PODCAST of this keynote presentation – The Next Wave of Open

Source: Applications http://www.itconversations.com/shows/detail493.html

Behlendorf, Brian 1999, Open Source as a Business Strategy – Chapter published in Open

Source: Voices from the Open Source Revolution – 1st Edition January 1999 – On-line article at

http://www.oreilly.com/catalog/opensources/book/brian.html

Christensen, Clayton M. 2002, The Innovator’s Dilemma – The Revolutionary Book that Will

Change the Way You Do Business

Christensen, Clayton M. & Raynor, Michael E 2003, The Innovator’s Solutions – Creating and

Sustaining Successful Growth

Christensen, Clayton M. & Anthony, Scott D 2004 , Seeing What’s Next – Using the Theories of

Innovation to Predict Industry Change

Chan, Kim W. & Mauborgne, Renee 2005, Blue Ocean Strategy – How to Create Uncontested

Market Space and Make the Competition irrelevant

Frost, Jonathon J. 2000, Some Economic & Legal Aspects of Open Source Software – Bachelors

Thesis – University of Washington US. http://opensource.mit.edu/papers/frost.pdf

Hamel, G. 2000, Leading the revolution, New York: Plume.

Hamerly, Jim and Paquin, Tom with Wlton, Susan 1999, Freeing the Source – The Story of

Mozilla – Chapter published in Open Source: Voices from the Open Source Revolution – 1st Edition

January 1999 – On-line article at

http://www.oreilly.com/catalog/opensources/book/netrev.html

Lessig, Lawrence 2005, Professor, Standford Law School - Keynote Presentation at the Open

Source Conference 2005 and the PODCAST of this keynote presentation – Clearing the Air About

Open Source - http://www.itconversations.com/shows/detail497.html

Moore, Geoffrey 2005, Chairman, The Chasm Group, Venture Partner, Mohr Davidow Ventures,

tcgAdvisors - Business Model Migration

http://www.itconversations.com/shows/detail173.html




http://opensource.mit.edu/papers/frost.pdf







http://opensource.mit.edu/papers/frost.pdf






Moore, Geoffrey 2005, Managing Director, tcgAdvisors - Keynote Presentation at the Open Source

Conference 2005 and the PODCAST of this keynote presentation - Dealing with Darwin – The Role

of Open Source in Computing


Patrick, David 2004, VP President & General Manager – Linux, Open Source Platforms and

Services Group, Novell - Keynote Presentation at the Open Source Conference 2004 and the

PODCAST of this keynote presentation – Open Source Renaissance


Perens, Bruce 1999, The Open Source Definition – Chapter published in Open Source: Voices

from the Open Source Revolution – 1st Edition January 1999 – On-line article at

http://www.oreilly.com/catalog/opensources/book/perens.html

Schwartz, Jonathan 2005, President, Sun Microsystems - Keynote Presentation at the Open

Source Conference 2005 and the PODCAST of this keynote presentation – The Participation Age -


Van der Linden, Peter 2005, Author of Guide to Linux, Published 2005 - PODCAST of Interview

between Robert Greenlee with Peter Van Der Linden


Young, Robert 1999, Giving It Away: How Red Hat Software Stumbled Across a New Economic

Model and Helped Improve and Industry – Chapter published in Open Source: Voices from the

Open Source Revolution – 1st Edition January 1999 – Online article at

http://www.oreilly.com/catalog/opensources/book/young.html

9.1ARTICLES / RESEARCH PAPERS

Economist Magazine - Open, but not as usual - 3/18/2006 vol 378 issue 8469, An open secret -

22/0/2005 Vol 377 Issue 8449, An Open Source shot in the arm? - 12/6/2004 Vol 371 8379

Get the Truth on Linux Management - A Research Paper Prepared by Enterprise Management

Association, Feb 2006-04-26

















APPENDIX A – DISRUPTIVE INNOVATION

Figure 4 - Disruptive Innovation – Open Source software

This chart is based on the theory proposed by Clayton Christensen of the Harvard Business School.

In his book “The Innovators Dilemma” (May 2002) he proposed that disruptive innovation was where

the competition entered the market with a substandard product servicing the less demanding

customer. Market-dominant companies don’t take these types of companies as serious competition,

as they are working the lower end of a market with little profit margins. The dilemma market-

dominant companies face is whether they invest in higher margins customers or do they invest in

the lower end of the market where there is little if any profit.

This theory is applicable to the software industry where Open Source software is the disruptive

innovator who originally started as a geek application. Traditional commercial software companies

did not consider them a threat, but as time moved on they have become a real threat. The Open

Source movement has moved into many different areas and has now reached a point of becoming a

major alternative to the commercial offering in the market place. The part which is really worrying

the traditional commercial software industry is not the free software but the total change in business

models which they will have to face and address within their own businesses.




APPENDIX B – IN THE CHASM OF INNOVATION

Figure 5 - The Chasm

The area of each segment corresponds roughly to the number of people who fit its profile.

The technology enthusiasts are the sort of people who jigger the microwave so they can cook their

hands to "see what it feels like". Visionaries are less oriented to exploration, more to exploitation.

They are people who see breakthrough potential in some technology and are willing to brave hell

and high water to realize that potential. From the vendor's point of view, the nice thing about both

groups is that they're not too bothered by the fact that the product doesn't work. They're willing to

make it work.

Pragmatists want a product that works. They are not interested in debugging it. They want to be

able to hire people who've used it. They want to find books about it in the bookstore. If there's

customization that's needed, they want to find third parties who can do it. Better yet, they want to

buy third-party packages written for people just like them. In short, they don't just want a product.

They want a 100% solution to their business problem. If they get the 80% that delighted the

visionary, they feel cheated, and they tell their pragmatist friends.

Conservatives buy products because they really have no choice. They want products that are cheap

and do their job as unobtrusively as possible. They are not reassured by the existence of books

about the product, because it implies the product isn't simple enough to use.

Skeptics are not going to buy, though they may talk other people out of buying.

Technology adoption is supposed to go from left to right. The technology enthusiasts fiddle with a

technology to discover if it's real. If it is, they tell the visionaries. The visionaries then will pass the

good word on to the pragmatists. When the company is the market leader among the pragmatists,





and they are finally making the money that was promised in the business plan. They have enough

volume and experience that their products are cheap enough and undemanding enough for the

conservatives. The skeptics can remain in their cabins in the woods.

The problem dealt with in Crossing the Chasm is that the visionaries aren't in fact good references

for the pragmatists. They provide tales of heroics - not stories of smooth, predictable adoption.Pragmatists want references from other pragmatists. Pragmatists want a safe buy from the market

leader - but there isn't one yet. Crossing the Chasm is about getting the first toehold in the

pragmatist market.

Inside the Tornado talks about expanding out of that first niche, about the tornado that results when

the pragmatists decide it's time to anoint a market leader, and about the transition from hypergrowth

to a normal market where basically everyone who wants one has got one. (Merick, B – Testing

Foundation)

MoM Project - Ver4.1

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