Open Data, Creative Destruction and Money

Nearly three years ago, I wrote an article exploring why at that time there were no billion-dollar companies (since then, Red Hat has finally broken through this barrier). Here's the key point: open source solutions save money for customers by...

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Nearly three years ago, I wrote an article exploring why at that time there were no billion-dollar companies (since then, Red Hat has finally broken through this barrier). Here's the key point:

open source solutions save money for customers by doing away with the fat margins for existing computer companies – and thus shrink the overall market. Opponents of open source like to paint this as "value destruction" that takes money "out of the economy" - as if free software went around burning down offices and warehouses.

What they fail to grasp is that the 90% savings do not just vanish like the smoke from those supposed conflagrations. That money is still in the economy, it's just spent on other items: free software allows people to use their hard-won money for things other than operating systems, office suites and applications. In developing countries, for example, it might mean more funds available for education or health.

Here' someone else that has twigged this:

The real impact of open data will likely not be in the economic wealth it generates, but rather in its destructive power. I think the real impact of open data is going to be in the value it destroys and so in the capital it frees up to do other things. Much like Red Hat is fraction of the size of Microsoft, Open Data is going to enable new players to disrupt established data players.

That's from David Eaves, an astute commentator on the world of open data, and open government. He goes on to talk about a very specific application of this principle regarding the proprietary software Socrata, and the open source CKAN. I naturally prefer the latter, and not just because it comes from the Open Knowledge Foundation, on whose advisory board I sit. Here's what Eaves points out about these systems:

Most people believe these are open data portal solutions. That is a mistake. These are data management companies that happen to have simply made "sharing (or "open") a core design feature. You know who does data management? SAP. What Socrata and CKAN offer is a way to store, access, share and engage with data previously gathered and held by companies like SAP at a fraction of the cost. A SAP implementation is a 7 or 8 (or god forbid, 9) digit problem. And many city IT managers complain that doing anything with data stored in SAP takes time and it takes money. CKAN and Socrata may have only a fraction of the features, but they are dead simple to use, and make it dead simple to extract and share data. More importantly they make these costly 7 and 8 digital problems potentially become cheap 5 or 6 digit problems.

There it is again, that creative destruction. And that means two things. First, that more software dinosaurs are doomed to lose their power and importance quite rapidly, because their business model is based on selling extremely expensive solutions to problems that can now be solved very cheaply with open source. And secondly, that users are about to save huge amounts of money thanks to applications that manage open data, just as they can now do with open source. After all, as I pointed out three years ago, this money that SAP et al. will no longer receive does not vaporise: you get to spend it on something else.

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