In February last year, Tom Watson, the UK Government Minister for Digital Engagement, said: “Open Source has been one of the most significant cultural developments in IT and beyond over the last two decades: it has shown that individuals, working together over the Internet, can create products that rival and sometimes beat those of giant corporations.”
Open Source software (OSS) is standards based software that is free to acquire and free to modify. OSS runs the mission critical servers for global organisations like Google and IBM and is generally acknowledged to be less error-strewn and more secure than conventional proprietary software. Traditionally OSS occupied the uber-geek territories of operating system (Linux) and infrastructure (Apache Web server) but is increasingly available for line-of-business applications such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM).
In the last few months there have been contrasting tales-of-the tape in government-funded IT spending in Scotland. Tales that may have lessons for both the private and public sector.
Last month the bid winners for a Scottish Government-funded department’s Invitation to Tender were announced. It was a typically conventional scenario, one of has been repeated countless times over the last two decades. The contract total was in excess of five million pounds and included in the winners were a number of Scottish IT companies offering to implement software written by American companies.
On the surface, Scottish companies winning Scottish tenders is a “good thing”. But in reality they are the proxies for a sizeable shift of revenue from Scotland to the USA through the mechanism of software licenses. Commission of between five and ten per cent is earned by companies that sell licenses on behalf of American software companies like Microsoft and Oracle, the rest goes back to America.
The common justification made by the ultimate beneficiaries is that for every dollar spent on software licenses, seven dollars is spent on services. This in reality is a fallacy. Frequently, so much of the purchasers’ budget is spent on licenses, that little is left over for the critical customisation, implementation, training and support activities that determine the success of any IT project.
Simon Phipps, Chief Open Source Officer at Sun Microsystems, relates a conversation that he had with a Brazilian Government minister who said that the reason that Brazil spends heavily on Open Source software is that “95 cents of every dollar spent in Brazil on proprietary software goes to North America. 95 cents of every dollar spent on Open Source software – stays in Brazil.”
By contrast, a sizeable Scottish Government-funded organisation recently opted to implement an Open Source Content Management System (CMS) and an Open Source Customer Relation Management (CRM) application, and to do the software customisations to get the two applications exchanging key information.
The commissioning organisation is in receipt of software applications that are world-class and used by organisations as diverse and demanding as NASA and the World Bank. They have been able to procure excellent software, have it specifically modified for purpose and invested in training and support. The cost for doing this was less than the cost of the licenses alone had they gone down the route of procuring conventional software.
Additionally and importantly, they also have assumed control of the destiny of their IT asset. In the world of proprietary licensed software, it is not unusual to have expensive, time-consuming and disruptive upgrades forced on customers. As they say in the trade, “it’s a nice little earner”. There is no such pressure on Open Source software. The decision to upgrade has moved from the vendor to the customer. As long as the customer is happy with the software and can procure services to support it, then there is no reason to upgrade and no pressure that vendors can exert.
The Scottish economy benefits in precisely the way that Simon Phipps’ Brazilian minister describes. The ninety five cents that stayed in Scotland pays the salaries of Scottish Software Engineers and Architects and lays down the foundation of a renewed and re-invigorated software sector that provides high quality jobs for the kind of smart, knowledge workers that form the backbone of any advanced economy.
These jobs are important. Over the last ten years years the indigenous Scottish software industry has changed greatly. Outsourcing, typically to India, was the first wave and it meant the end of many fine companies, employing highly skilled graduates. Following hard on outsourcing’s tail was acquisition. Computing in Scotland has been reduced to the “branch economy” prevalent in so many other sectors of the Scottish economy as one after another of our IT companies have been picked off by overseas competitors. So now we not only export the licenses revenue, we also export the services profits too.
As Open Source gets a toe-hold into government procurement contracts, an indigenous, dynamic, creative and highly skilled software sector is re-emerging. One that is able to invest profits into Scottish software jobs and not into fuel for the Lear jets required to transport the heads of the globally scaled North American software industry to their various dominions.
The challenge for this emerging Scottish IT sector is to professionalise their services and to engineer a new kind of company based on knowledge and service excellence, that makes money from something that is free. There are already models for this: Red Hat is an Open Source company. Founded in 1993, Red Hat has its corporate headquarters in Raleigh, North Carolina with satellite offices worldwide. Red Hat provides Linux operating-system platforms along with applications, and management products, as well as support, training, and consulting services. Red Hat’s turnover is in excess of $600m and is experiencing double digit growth.
The challenge for Scottish government and the private sector is to look beyond the corporate box hospitality of the proprietary software vendors and to engage with this emerging sector. They are the ultimate beneficiaries. Free also means freedom. Freedom to choose how to use their software, freedom to choose when and if to upgrade, freedom to choose suppliers and freedom to innovate by modifying software to meet the needs of their business.
The message is clear and is becoming clearer as budgets are tightened. If you want your IT dollar to go further, convert it into pounds and spend it in Scotland, on Open Source software.