Some time in the distant future, we may look back on Nov. 5, 2001 as Giveaway Monday.
Hewlett-Packard got the ball rolling on Sunday, when the company announced it was giving away its base application server. Oracle, meanwhile, said it would be placing the next version of Oracle9i JDeveloper on the Internet without charge. Up next was Sun Microsystems, which offered its Java Virtual Machine as a free download for XP. IBM then made one of the most significant announcements: the formation of an open-source organization called Eclipse that will be armed with US$40 million worth of software tools.
Doesn’t anyone want to make money off software any more? Of course they do, but the industry has now reached a point where software has become much more than a potentially profitable product. It is the doorway to market share, the dorm room for development and the best way to break through proprietary barriers.
For HP, for example, the giveaway model is clearly aimed as an aggressive move against application server leaders BEA Systems and IBM. Right now BEA enjoys the lead in this segment according to Gartner Inc., but the giveaway tactic could seriously erode that position if customers decide to take companies like HP up on the offer. While IBM and Oracle have the sort of diversified portfolio that can absorb any losses, BEA is essentially an application server company. In the long term, application servers may not be something you want to base your entire business around. The real money will be in the modules — we’re talking about better transaction processing and subscription-based services — where HP stands to cash in.
Though Oracle is trying to use JDeveloper to drive users to its own application server, it is really the same strategy — get them on your platform, and then keep them.
In Sun’s case, the free-at-last approach is a proactive way of making sure your technology isn’t left out in the cold. At the Java & Object Technology Showcase and Forum last week, Sun director of J2EE platform services and compatibility Karen Tegan looked awfully uncomfortable when an audience member brought up Windows XP. Microsoft, of course, evicted the JVM from its new OS earlier this summer. The giveaway may be the only thing Sun can do to deal with its exile from the biggest product launch of the year.
The idea of a loss leader — a technique in which you give away part or all of your product in the hopes that customers will eventually pay for it — is nothing new. Here in Toronto, it is most prominent in the newspaper industry. About a year ago, both the Toronto Star and the Toronto Sun started publishing free “commuter papers” that were supposed to lure readers to their more comprehensive content. It didn’t work: the Star has already merged GTA today with the international commuter chain, Metro, while the Sun folded FYI Toronto.
Technology companies have also tried this before. Sun, for example, didn’t charge users a cent for its StarOffice suite, but that didn’t make the software a strong competitor to Microsoft Office. Many users don’t make these kind of purchasing decisions based on price alone, and it will be features and support that will attract and maintain their loyalty.
IBM’s strategy is altogether different. Eclipse represents the latest in a long series of moves by Big Blue to support open source development, but it’s the one that could really carry some weight. The story of Linux has proven that developers are interested in working at a deeper level with the code. The idea of getting their hands on the kind of world-class products IBM is known for will undoubtedly draw many bright minds.
The result could be bigger sales of specialized software for IBM, but it could also lead to tighter integration of IBM software in the enterprise, or a more rapid response to bugs. Linux is already one of the most scalable, reliable OSes on the market. Putting IBM behind it could improve those applications while bringing Linux more credibility.
HP, Oracle and Sun are freeing up their product line to boost their market share position. IBM is trying to do the same thing, but its plans could change the entire industry. As revolutions go, this one’s a bargain.
