Contributed by Ingres - Business Open Source
Author:  Chris Twyman
 

Introduction

• The total cost of adopting new technology is much greater than the trade off between the economics and the function of that technology.

• As the drive towards open source business models continues TCO needs to embrace the demands of that growing community.

• For effective and long term cost reduction a broader perspective of TCO needs to be considered.

• Software choice has both an impact on both the corporation and the individual.

• The Open Source business model enables both the corporation and the individual to grow and prosper.

TCO a broader perspective

* PEST analysis is traditionally used to model the macro-environment.

First to be considered in any Cost Benefit Analysis (CBA) or TCO study is the economic impact of that project. Traditional software deals involve four key economic factors. License and support costs are usually fixed and easier to predict. Skills and Migration costs are not linear and will vary widely dependant on the nature and predictability of the project.

The flip side of TCO is the benefit the project offers to the firm. The project must scale with minimal incremental economic costs. A reliable project will reduce the ongoing skills costs. Finally, a crucial consideration for any software choice must be that the project will be flexible enough to evolve with the changing needs of the firm. Managing these three technological characteristics will help reduce TCO in the long term.

Both economic and technological considerations really impact the firm. The next two factors, political and social, are much more focused on the individual who is making the decision to initiate a new project within the firm.

From a political perspective the individual will feel pressure from three areas. The first is from his colleagues; any new project involves change, there must be a willingness to accept the change or the cost of the that change will invariable rise over time. Change can be imposed by legislation which is a cost the firm needs to bear and will raise TCO. Finally, the individual decision maker will always feel pressure from the incumbent supplier of software to stick with "what they know best".

Social aspects have a significant impact on TCO and choosing new technology. How will this project make the individuals life easier? Manageability, the user group size and potential in terms of career growth will all be taken into consideration.

In conclusion any TCO study must consider not only the firms, or the corporate aspirations, for the project but also the benefit at an individual level.

TCO decision making.

Each of the PEST factors alone tell a separate story in the decision making process for any new project. But the individual/s who make the decision to move forward with a new technology choice will not make that decision in isolation.

If we plot the PEST factors against on another a more realistic decision making process can be explored with some interesting conclusions.

"You get what you pay for." This trade off is the traditional cannon fodder for any standard TCO study. Is it is a crucial starting point, and only a starting point, for any new initiative.

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Functionally rich technology will reduce training costs and increase the individual’s motivation to use and expand its use. The individual will also recommend the technology’s use to others.

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The individual will balance the economic benefit to the firm with how that choice will make their life easier. Large user communities for any technology will provide the safety net for that decision.

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Migration costs can be a significant barrier to entry for new, and a potentially more exciting technology. "No-one got fired for an IBM project that goes wrong" is the safe zone for many individual decision makers who are risk adverse.

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Regulatory initiatives like Sarbanes Oxley and the Patriot Act, although worthy initiatives, will increase TCO for the firm. In isolation of that legislation firms will only change is the economics make sense.

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A previously discussed choosing an incumbent supplier will be the safer option for job security. Unfortunately that overlooks the potential process benefits of exciting new technology that is a riskier proposition.

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The Open Source business model is changing TCO decision making radically. There will always be a balance however. Eliminating some of the economic factors will increase the individual’s risk of adopting new technology.

Using the Traditional category (outlined previously) we can create a spatial chart for TCO decision making in the relational database market. The top right hand quadrant of is what all database consumers would like to call and ideal open source environment - a technology rich product at low / zero cost. The assumption is then that decision makers will ultimately demand vendors to occupy this space in the chart. Computer Associates defines this quadrant as Business Open Source BOS. In this quadrant firms can benefit from significant Economic TCO benefits without compromising on the richness of that technology.

If we then plot the key database vendors on this chart, three groupings appear:

Group A

Here the current open source database market emerges with a few emerging vendors. The characteristics of group A is that economics might be very attractive (good for open source), but the technology invariable does not scale very well (bad in an enterprise environment).

Group C

The opposite extreme to group A is group C. Here the industry gorillas flex their technical superiority but make their customers pay for it, in terms of license costs.

Group B

Lying in between is group B. The market perception of these operators is mid range quality and mid range price. In some circumstances these products will be taken seriously in an enterprise environment, at other times they will not.

Traditional decision factors for the relational database market:

As previously stated the assumption is that the market will demand players to move towards the enterprise open source quadrant on the chart. Which group is best placed to make that move?

Start with group C. Any move towards the enterprise open source quadrant would see a serious loss of revenue. Most of the players in this group have a relational database as their flagship product, with no other substitute revenues. Any significant move towards the BOS quadrant would be corporate suicide.

Group A has an even bigger problem to overcome than group C in order to make it into the BOS quadrant. In order to meet enterprise requirements group A must make significant investment in their product. With little or no product revenues the chance of doing this is very optimistic.

That leaves group B. Companies here have large and diverse product portfolios. Although the database is a cornerstone, it is not critical to the success of these players. These companies have deep pockets and large, global footprints and the ability of move up the technology axis and along the economics axis without seriously affecting their business operations.

Computer Associates is a member of group B and ingres r3 has entered the BCOS quadrant as the first enterprise relational database to adopt and open source license structure.