What Is An Open Business Model And Why Should You Care?

Filed in Cloud Industry Insights by Jonathan Bumba | January 28, 2013 3:40 pm

A few months ago, Gartner Vice President Lydia Leong created quite a stir when she authored a report that questioned the altruism, or lack thereof, associated with the OpenStack movement. Personally, I can’t see why anyone in the OpenStack community was surprised or offended. It may have hurt some to hear, but Leong made a great point: open source does not necessarily mean open.

According to Leong:

Don’t assume that “open source” equates to open standards, broad interoperability and freedom from commercial interests. In reality, OpenStack is dominated by vendor interests, where they want customers to adopt their own offerings, potentially to include proprietary lock-in.

She is absolutely right in pointing out that while an underlying technology may be open source, the business models of some vendors of that technology may, in fact, attempt to lock-in the customer in some way. There have been countless articles and white papers written extolling the virtues of enterprise IT leveraging open source technologies to avoid vendor lock-in. Unfortunately, leveraging open source technologies is essential to avoid vendor lock-in – but not sufficient.

Vendor lock-in means heavy switching costs!

Vendor lock-in can come in many forms, most noticeably through proprietary technology. AWS, Windows Azure, Force.com and VMware may be the usual proprietary suspects, but open source vendors may also use tactics, both technical and contractual, to increase switching costs. The switching costs associated with large IT transformation projects from one vendor or technology to another can be quite high. These costs come in the form of “hard dollars,” such as early termination fees, migration costs and incremental investments in new infrastructure/solutions. But it is the difficult-to-measure “soft dollar” costs that are the most painful. These are the costs of the organizational change associated with such a move.

Ask any CIO or CTO of a sizable IT organization to name their biggest obstacle in any large transformation initiative and they will likely list organizational change. This is why many CIOs have become so enamored with open source technologies, as they feel they allow them to switch from one vendor to another without needing to migrate from the underlying technology.

Our enterprise IT customers at Rackspace consistently tell us that they want to minimize the risk associated with any technology selection by assessing the switching costs associated with any given supplier of that technology. In other words, they want the cloud provider that is the easiest to leave, just in case the vendor fails to deliver as promised. This is why an open business model is imperative.

Is your OpenStack vendor truly open?

Not all vendors in the OpenStack community are easy to leave.

Let’s follow the money trail! There are, at the latest count, more than 200 companies supporting the OpenStack ecosystem. Let’s examine how the major players monetize their open source investments: some monetize by forcing the customer application to run in their data center; some monetize through selling infrastructure and/or complex outsourcing agreements; some monetize through software licensing fees; and some monetize through forking the code into a proprietary version. It’s clear that the business models of some of the traditional cloud vendors are dependent on particular drivers which may or may not be in the customer’s best interest.

The Rackspace difference: We don’t try to lock you in!

We at Rackspace are differentiated by the way we monetize. The Rackspace business model does not depend on which Linux distribution the customer wants to use, the underlying server hardware, the hypervisor or the networking gear. We are not even dependent on whether the application runs in a Rackspace data center. Rackspace Private Cloud[1] now enables us to serve our customers in any data center running OpenStack, whether it’s the customer’s facility, ours or a third party’s. This is a game changer for both Rackspace and our customers for two primary reasons:

  1. We are now much more relevant to our customer’s entire portfolio of applications
  2. We can monetize through managed services in any data center, without carrying the cost of capex

Most importantly, if our cloud customers feel they are not getting the experience they deserve, they can let us know and our leadership will do its best to address the issue. But if we fail, the customer can leave us without penalty. We do this because we realize the only way to eliminate our customers’ barrier of entry to Rackspace is by eliminating their barrier to exit.

Based on feedback from our customers, we are confident that we do one thing better than anyone else: provide the Fanatical Support to run OpenStack clouds[2]. This is clearly a bold statement, and we have the experience to back it up. Rackspace co-invented OpenStack (along with NASA) and currently runs the largest OpenStack public cloud in the world — which is also the second-largest public cloud of any kind. I will gladly put our customer feedback and our customer satisfaction up against those of anyone else in the cloud market today.

Any takers?

  1. Rackspace Private Cloud: http://www.rackspace.com/cloud/private/
  2. run OpenStack clouds: https://www.rackspace.com/whyrackspace/support/

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