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Why do customers embrace open source software? While mythology says it's all about getting access to source code, reality is a little different. Most enterprise IT organizations have little time to mess with somebody else's code, not to mention their own.

So when you pop the question, the answer you'll usually get is "price."

But is open source actually cheaper?

The first answer is that open source vendors have a different pricing model: unlike proprietary software, you don't buy a perpetual license up front because you can download the software for free. But if you want support or upgrades, you pay with annual subscriptions.

That's a nice proposition for customers who can eliminate the need to ante up comparatively huge sums up front for so-called "perpetual" licenses. In many case, they can expense rather than capitalize the software.

But for any vendor with more than 5 years in the business, the notion of shifting from licensing to annual subscriptions makes cash flow dicey.

That's because, when customers pay as they go for annual subscriptions, they can theoretically pull the plug at any time. Conversely, for vendors, eliminating upfront license sales places in question how to finance product development. Although software development never stops (look at the rate by which most vendors issue patches), the bulk of development cost should occur up front.

Nonetheless, because customers are increasingly demanding subscriptions, subscriptions they will get.

Yet, are subscriptions necessarily cheaper? Over the long haul, they shouldn't be. Otherwise the software industry couldn't afford to stay in business. Vendors need to earn a profit, while customers require affordable software. In other words, the laws of supply and demand should produce a price that the market will bear.

Are subscriptions anything new? Not necessarily. When you peer under the hood, subscriptions start looking a lot more familiar.

  • 1. By imposing annual fees with no obligation for renewal, subscriptions look a lot like paying for software by utilization. If you don't use it, yank the subscription.
  • 2. The annual fees clearly resemble the 15 - 20% annual "maintenance" charges that always accompanied perpetually licensed software.
  • 3. Most open source licenses under which code is downloaded do not convey ownership. So when open source support is offered by subscription, it starts looking a lot like the software leases of yesteryear - a model that SAS still uses to this day.
  • 4. Subscriptions are becoming common for non-open source products, like Salesforce.com.


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