Myths of IPRs and Open-Standards

Some years back, the case for strong IP protection made the rounds of newspapers, B-schools etc. However, in the software world, nothing has become more commoditized than an IP. Many times, we fall for tech companies that claim that their path to prosperity lies in the IP route. This has resulted in questionable valuations for companies with scarce order books but with strong IPs. The recent Blackberry fiasco and the latest news on their settlement only underscores this problem - far too much emphasis is laid on the mere possession of an IP. After all, as a customer, would you place a greater emphasis on a vendor with strong IPRs while making a purchase decision? I wouldn't. Given that there are several cases of failures of firms with strong IPs, conventional wisdom has suggested that a strong IP is necessary for survival.

I disagree with conventional wisdom. I also disagree that the other option - Open Standards are waiting around the corner, to deliver us from the clutches of proprietary code.

The obvious counter-question is - why has Open Source failed so far? Some prominent reasons include
- failure of web services to be a "dominant design"
- absence of a Service Oriented Architecture
- CTO's plagued by high Opex budgets
- rogue applications that have spawned all over an organization due to in-sourcing IT functions and
- despite the hype created by http - based applications nearly a decade ago, over 80% of applications remain non-browser, thick-client based.
The CTO has had to justify investments through longevity of existing infrastructure, not through flexibility of a service-oriented approach. Take for example leading financial institutions with multi-billion dollar budgets for IT - try and see the breakup between maintenance / upgrade costs and introduction of new standards. Add to this mix the average server utilizations and we will see familiar problems - an organization will tie its hands down by sinking money to keep the existing infrastructure going.

Despite growing adoption of Java as a programming tool, availability of varieties of Linux etc. the world remains unconvinced on security and support availability from providers of open-source standards. Fear of hidden costs for maintenance are further creating dents to the open-source world. Finally, the fact remains that a vast majority of large organizations present in the application, middleware, operating standards, database space etc. will continue to fight for market share of home-grown products and not fight for alliances.

Does this mean that the Open-Source era is a myth? This was a debate I had with senior members of a significant Technology company. The debate yielded some interestig insights. Some of them I will shamelessly replicate here.

The Open-Source era will require some fundamental changes in the way the role of technology is perceived in an organization.

Certain questions that we will need to ask ourselves are:
Is Technology my business?
Does Technology make me ahead of the game?
Is Technology a passive enabler of my processes?
As one moves from the first category to the third, one will need to shift from in-sourcing to selective out-sourcing. The capital commitments by an infrastructure and services provider will help your cash-flows and keep your balance-sheet exposed to only your business. IT will stop being a useless asset and become an operating lease that exists as a company expense.

For instance, specialist providers of Disaster Recovery management services offer solutions to several companies that require sharing the same infrastructure with multiple customers. Take the case of e-mail solutions. Most organizations don't need anything more than a basic messaging solution, most of which are already freely available to individuals in the form of Gmail, Rediff, Indiatimes etc. Yet, most organizations are willing to sink large sums into licences for heavy solutions - thus showing the tendency to shoot fleas with rifles. Will that help matters? This is simply the start, as the CTO can now focus on more pressing matters than say, Data Center services.

When this move happens, the responsibility of service providers to deliver and maintain a service oriented technology infrastructure will increase, and the capital outlays across companies will drop. The service providers first responsibility will be de-risking technology obsolescence and refresh; this will force a level-playing field between the proprietary standards player and the Open-source players. The former will be focussed on opening standards, and the latter will be focussed on skills and support availability. Eventually, the industry will move to clearly defined standards, and all players will reveal object code-bases and focus on implementation and not on IPRs.

While all this is merely conjecture, timing becomes a key issue - when will all this happen? After all, we have heard this story for about eight years now. This can happen only when entrepreneurs, start-ups, new ventures, existing strugggling ventures etc. start growing at a fast pace, with IT infrastructure being set up in a matter of weeks or at worse three months. Existing companies will be fighting internal political battles around technology.

Once difficult problems related to IT security are sorted out, grid computing solutions at a massive scale will become the preferred solution being offered by infrastructure providers. Imagine start-ups that offer technology enabled solutions to customers at a cost that compares with existing leaders. In such a scenario, the infrastructure provider is going to become as ubiquitous as a car-finance company.

While this is a potential lucrative area, today, IT leasing remains a struggling concept. Yet, I believe that this could have a very positive impact on the Open-source world, by reducing the strains on skill sets and bringing security solution providers closer together.

Until that happens, I am neither inclined to invest in a company whose claim to fame is "we have our IPRs in place!" nor am I inclined to invest in a company whose claim is "I follow Open Standards, and the market will triple to USD 500 billion in two years!" Wake me up, when that happens - until then, I'll continue to be a stock-picker.