Proprietary Vendors

Proprietary vendors maintain monopoly control over the application and can charge monopoly prices for service and maintenance. A proprietary software license prohibits modification, copying, or redistribution without the company's permission. It ensures that only one entity -- the company or individual that created the software -- has the right to make changes or even see the software's internal structure. Proprietary software is created by a relatively small group of developers within a particular company, working under deadline pressure. They develop an application as quickly as possible trying to remove flaws before it goes to market. When a flaw is missed it creates a potential problem for the consumer. No matter how damaging this problem, the consumer is dependent upon the owner of the proprietary license for a solution. The consumer doesn’t know how the software works, or what it does with the information you put into it. Once the application is marketed the consumer is locked into the quality and expense of service, maintenance, and enhancement provided by the owner of the license.

With proprietary software there is a multitude of independent developers with very little standardization between applications and transaction interfaces. In the health care industry alone, as of August 2000, there were about 400 formats for electronic health claims being used in the United States. This lack of standardization in applications, communication formats, and interfaces makes it difficult and expensive to develop and maintain software or to transfer data from one entity to another. Proprietary software, with its lack of standardization minimizes the ability of businesses and corporations to achieve efficiency and savings. 

Under this model the average cost per line of code is about $25.00 and the normal charge for custom programming or modification of an application is $100.00. That's one reason for the migration to overseas development. In order to compete with the open source model, which uses the internet to enable collaboration, draws the top 5% of developers. These developers are an order of magnitude faster than the average developer, and they produce higher quality code. In order to compete with these developers, once their skill and ability is focused in collaborating upon an application, companies which currently use the proprietary model will need to reduce their development costs to about $2.50 per line and their charges to less than $10.00 per line.

The development cost is computed by taking the U.S. average developer productivity of 200 source lines of code (sloc) per month and multiplying it by an average developer cost of $5,000 per month. The normal charge for custom programming was calculated by taking a proprietary vendor's average charge of $125 per hour for custom programming and dividing it by 1.25 lines per hour.

An additional advantage is that open source (e.g. Linux and Apache) tends towards a natural monopoly. There is no exclusive ownership of the code. Everyone has excess for the improvement of the application. And there is no advantage, as long as necessary improvements are being made to starting another application development stream. And finally, with the open source and subscription model each customer only needs to pay for added functionality when that functionality hasn't been approved by the committee. And even then, the cost of the added functionality is competitive among many possible suppliers.

Microsoft

Any consideration of the competition of open source versus proprietary vendor models needs to include Microsoft. In their friends of the court brief Consumer Federation of America had a series of charts. These charts speak far more eloquently than any critique we might offer concerning Microsoft's competitive position.

www.usdoj.gov/atr/cases/ms_tuncom/major/mtc-00028565b.htm

For other arguments presented by friends of the court see

www.usdoj.gov/atr/cases/ms-major.htm

Microsoft has a tremendous mind share in the information technology marketplace. In the minds of many, it owns and always will own the application marketplace. Many software developers are committing themselves to Microsoft products simply because they don’t see any other option for survival. They either go with Microsoft, or they go out of business. Many, if not most, venture capitalists will not invest in a company that appears to be targeting a market that may someday be of interest to Microsoft.

IBM,Oracle, Sun, CSC

IBM was originally the primary proprietary hardware company. In the early 1990’s it suffered serious losses as a result of the advances made by microcomputers. In response it reinvented itself as a service company. It happens to offer mainframe computers as one of its services. At this point IBM has positioned itself to take advantage of technology trends no matter which way they go. It can thrive offering services that work on Microsoft platforms. It can also thrive as a primary source of open source applications and services. It has strongly committed its corporate strength to LINUX, JAVA, and the open source model. In addition, IBM has learned to share and to support other vendors in the information technology marketplace. TriLon should consider IBM as a potential ally.

Oracle is a proprietary application company. It is the largest database company. It also has committed its corporate strength to supporting and developing tools for LINUX and JAVA. The open source model will probably never be embraced by Oracle, but the open source model can embrace the tools made available by Oracle.

Sun Microsystems is the last remaining major proprietary hardware vendor. It was also the last of the hardware vendors to embrace LINUX (January, 2002). This was because of the threat that LINUX poses to its proprietary operating system - SOLARIS. Sun was the developer and is the proprietary owner of JAVA. At this point, JAVA is the only development platform that has the necessary tools, the corporate commitment from major vendors, and the mind share in the corporate marketplace to serve as an alternative to Microsoft’s .net.

CSC (Computer Science Corporation) is the prototypical services company. It, and other companies like it, will definitely be a competitor for the service and training dollar, especially for the high-end customers, where the major dollar contributions will be. The involvement of these companies will be to the advantage for the market and mind share of TriLon applications. They will not necessarily be to the advantage of TriLon as a foundation also offering services and training. TriLon needs to so establish its brand that it gains a significant percentage of the high-end customer dollar.