CPET 575 Management Of Technology

Transcription

1 CPET 575 Management Of Technology Case II-1: Questions MySQL Open Source Database in 2004, by Christof Witting, Sami Inkineen, and Robert A. Burgelman References: 1. Robert A. Burgelman, Clayton M. Christensen, and Steven C. Wheelwright, Strategic Management of Technology and Innovation, 2009, 5th edition, McGraw-Hill, pp M.S. Technology - IT and Advanced Computer Applications & Industrial Technology/Manufacturing Purdue University Fort Wayne Campus 1 Introduction to MySQL MySQL a database management software company, which was based on OSS (Open Source Software) Gained a strong market foothold by serving the needs of the growing web services markets that was ignored by the incumbents 2 1

2 Case II-1 Questions 1. How successful is MySQL? Why? 2. Identify different segments of DBMS market? What differences exists between these segments, e.g. in customer needs and expectations? 3. Analyze the DBMS industry in which MySQL operates. How attractive is it? Consider the different market segments you have identified in your analysis. 3 Case II-1 Questions 4. What are the competitive advantages of MySQL, and how sustainable are they? Quantify these advantages to the extent possible in the identified market segments. 5. At the time of the case, what is the stated strategy of MySQL? What strategy is implied by the company s actions? How consistent are the strategic actions with the stated strategy? 6. What are MySQL s strategic options beyond 2004? Which option should MySQL choose? 4 2

3 Case II-1 Questions 1. How successful is MySQL? Why? How Successful: Very successful in entering and growing in the DBMS market dominated by a few giants IBM, Oracle, and Microsoft, when measured by: Market share as server installations Visibility in the mainstream press, e.g., Fortune Reactions by DBMS giants, such as Oracle and Microsoft: MySQL has been noticed and is undoubtedly considered as a potential threat Revenue growth from 2001 to 2003 (Exhibit 5) Major strategic partnership with the leading ERP vendor SAP 5 Case II-1 Questions 1. How successful is MySQL? Why? (continue) Why: MySQL has achieved success due to four main reasons: Technological Merits/Performance (products) Innovator s Dilemma (Web-enabled, Web-based database) Business Model Growth in the OSS movement and the Internet 6 3

4 Case II-1 Questions 1. How successful is MySQL? Why? (continue) Why: MySQL has achieved success due to four main reasons: Technological Merits/Performance (products) Very good performance Ease of installation and use a choice for web developers A large group of supporters promote the early momentum that started the MySQL movement 7 Case II-1 Questions 1. How successful is MySQL? Why? (continue) Why: MySQL has achieved success due to four main reasons: Innovator s Dilemma (Web-enabled, Web-based database) Lack of Web-enabled databases & support from major database vendors - have been busy in adding features making databases bigger, more feature-rich, and more expensive, while customers have not necessarily been able to get the value out of such upgrades MySQL was able to grow by serving these niches and needs that the existing DBMS vendors did not take seriously since the emergence of Web related database use in the mid- and late 1990s. 8 4

5 Case II-1 Question 1 1. How successful is MySQL? Why? (continue) Why: MySQL has achieved success due to four main reasons: Business Model OSS model and dual licensing to attract millions of free users for its DBMS product At the same time, it charged commercial users for the use of the product. 9 Case II-1 Question 1 1. How successful is MySQL? Why? (continue) Why: MySQL has achieved success due to four main reasons: Growth in the OSS movement and the Internet As the Internet grew, demand for MySQL increased and brought MySQL into the spotlight by Overall OSS visibility led by the Linux phenomenon has continued generating free publicity (i.e., free marketing) for MySQL. Increased publicity resulted in increasing number of users, which resulted in growing support by the developer community, book publishers and conference organizers. 10 5

6 Case II-1 Question 1 1. How successful is MySQL? Why? (continue) Conclusion: By several metrics, MySQL has already been very successful in entering the relatively mature and highly competitive DBMS market. This success has been mainly fueled by four factors: MySQL s technological competitive product innovator s dilemma that blinded large DBMS vendors OSS approach combined with a dual licensing business model the overall fast growth of the Internet and the publicity of the OSS movement. 11 Case II-1 Question 2 2. Identify different segments of DBMS market? What differences exists between these segments, e.g. in customer needs and expectations? The DBMS market should be looked from at least two different perspectives or dimensions to understand MySQL s position in the market: Size of a customer ($10.5 billion DBMS market, and percent of each type of customer) The type of database used (Enterprise, stand-alone, embedded, Web sites) Use Exhibits 6, 10, and 11 to construct the new table as shown below 12 6

7 Case II-1 Question 2 (%) = of the whole $10.5 DBMS market SME or workgroup (18%) Medium Enterprise (28%) Large Enterprise (54%) Enterprise wide data (up to 90% or $9.4B) Web sites (no separate data in the case for sizing) Stand-alone software (5% or $550M) *The same apply as to medium and large enterprise, but cost more important (Microsoft s entry point) *Often cost * Ease of use (MySQL s entry point) *Large market (estimated 90%, 82% of $10.5B = $7 to 8B) * Scalability, reliability, future compatibility; cost often not the first priority * Strategic decision for enterprises of almost all sizes *Typical long lifecycle and high switching costs *The same criteria as with enterprise wide data * Web cache solutions less strategic *Not visible to end users; vendor selects one based on costs, reliability, robustness and longevity Embedded systems (4% or $400M) *Not visible to end users; vendor selects one based on costs, reliability, robustness and longevity *Number of alternatives for different environments 13 Conclusion: Case II-1 Question 2 The most relevant dimensions to look at the $10.5B DBMS market size: size of a company using a DBMS and the type of DBMS use. The billion dollar market opportunity was in the enterprise wide data use of databases. At MySQL s entry point Web site use and SME customers the DBMS purchase decision is to a less extent strategic and focus is on costs. However, in the enterprise wide data use the purchase decision is strategic and less focused on costs. These differences in customer needs and expectations can make it difficult for a DBMS vendor to expand from one segment to another. 14 7

8 Case II-1 Question 3 3. Analyze the DBMS industry in which MySQL operates. How attractive is it? Consider the different market segments you have identified in your analysis. Industry Analysis Substitutes Suppliers Barriers of entry Buyer power Competition 15 Case II-1 Question 3 3. Analyze the DBMS industry in which MySQL operates. How attractive is it? Consider the different market segments you have identified in your analysis. (cont.) Substitutes (++ very good): No real substitutes exists at time case was written The total PIE of the industry was $10.5 Billion. Suppliers (++): Supplier power was practically non-existent for the software vendors. Software development was done in-house. 16 8

9 Case II-1 Question 3 Barriers of entry (++): High customer switching costs, important of reputation, as well as long and costly development lead time all create significant barriers of entry. Having established a leading position as an OSS DBMS vendor, MySQL created additional protection for itself with its good enough and a zero cost database Any new entrant should create a better product (possible?) and sell at a lower cost (lower than zero?). 17 Case II-1 Question 3 Buyer power (++): Buyers were fragmented across different industries for a platform product and Buyer power only existed due to internal competition of DBMS vendors 18 9

10 Case II-1 Question 3 Competition ( - or --) After the entry of Microsoft and MySQL, competition intensified significantly. Oracle an IBM were facing downward pricing pressure while Microsoft and MySQL started eating and capturing market share from the SME segment towards medium and larger enterprises. However, high switching costs and the strategic importance of a DBMS made customer less likely to switch to another product. 19 Case II-1 Question 3 Different market segments: Buyer s decision criteria would affect the attractiveness of the industry. In the SME market and non-strategic database use, such as non-strategic websites, cost was a more important issue. This would create more price competition among DBMS vendors and shift value away from the vendors to customers/buyers

11 Case II-1 Question 3 Conclusion: All the external forces made the DBMS market a very profitable industry (especially in the enterprise wide data use segment), but the fierce competition among existing players made it less and less attractive for high-end incumbents, such as Oracle and IBM. MySQL s was very well protected from new entrants. If it could continue to capture market share from incumbents, it would establish a very lucrative market. 21 Case II-1 Question 4 4. What are the competitive advantages of MySQL, and how sustainable are they? Quantify these advantages to the extent possible in the identified market segments. Use a table with three columns: Competitive Advantages Sources Sustainability 22 11

12 Competitive Advantage Case II-1 Question 4 Source Sustainability (+ and -) Low cost structure (cost leader in the DBMS market) *OSS movement, enabling lower development cost (testing and bug reporting cost 70% of total SW development costs) *free marketing through PR (public relations) and lead generation through the user community *product distribution through their web site. (Sales and marketing cost are 30%-50% of operating expenses: Exhibits 9 and 12) +No-one could be cheaper than free -Competitors could adopt similar OSS initiatives to benefit from free testing which was what Microsoft did -If MySQL moved upmarket, servicing enterprise customers would require support and direct sales force & would increase costs dramatically 23 Competitive Advantage Case II-1 Question 4 Source Sustainability (+ and -) Fast release cycles for new versions and bug fixes Nature of GPL-license, i.e., open source code that allows people to find bugs and problems to be fixed by MySQL while waiting -Some competitors could easily copy this method if willing to take the risk of releasing their source code (e.g., Microsoft Shared Source) 24 12

13 Competitive Advantage Case II-1 Question 4 Source Sustainability (+ and -) Access to cheap and talented labor around the world *Virtual organization without physical offices *OSS movement attracted thousands of developers to support MySQL who provide a talent database from which to draw employees -Challenges in leading and managing an organization via , especially when strategic change was necessary -Scalability of the model when the company grows was questionable 25 Competitive Advantage Case II-1 Question 4 Source Sustainability (+ and -) Long-term stability and reliability of MySQL software and MySQL AB is the eyes of customers *Large installed base of MySQL servers and transparency of code (if there are any security issues, someone will surely find them and immediately publish) +Very difficult to replicate and create another large community of users. However, existing incumbents reputation served the same purpose 26 13

14 Competitive Advantage Case II-1 Question 4 Source Sustainability (+ and -) Positional advantage through complements Partnership with SAP Widely adopted LAMP architecture by millions of developers & servers LAMP (Linux, Apache, MySQL, Perl/PHP/Python) +LAMP (Linux, Apache HTTP Server, MySQL database, PHP, Perl or Python) was pervasive with the large installed base -SAP could change its tune 27 Case II-1 Question 4 Quality (Exhibit 6 - DBMS Product Evaluation): Based on the exhibits given in the case, MySQL s performance (quality) was between Oracle 9i s and IBM DB2 s However, it lacked certain features (e.g. stored procedures, views) but at the same time was considered more reliable due to short release cycles and fast bug fixing/reporting by the developer community 28 14

15 Case II-1 Question 4 Cost (Exhibit 14 DBMS License Fees): MySQL was clearly the lowest solution compared to the other three DBMSs. In fact, due to its unique business model (practically free distribution and marketing, free testing/bug reporting etc.) exploiting the possibilities of OSS, MySQL had pushed the cost-quality frontier to new limits 29 Conclusion: Case II-1 Question 4 MySQL s real sustainable competitive advantage against the incumbents was its low price. Other factors created barriers against new entrants. However, if MySQL was to go head-to-head with the incumbents in the large enterprise market it risked this cost advantage. (require significant investments such as direct sales force and global support systems) Furthermore, these advantages might have differed between large enterprise and smaller businesses. (still saw OSS as unreliable and not business-class which ran counter to the idea of long-term stability and reliability of MySQL.) 30 15

16 Case II-1 Question 5 5. At the time of the case, what is the stated strategy of MySQL? What strategy is implied by the company s actions? How consistent are the strategic actions with the stated strategy? Internal message External observation 31 Case II-1 Question 5 Inconsistent Strategy - Internally CEO talked about commoditizing the whole $10B DBMS market article in Fortune magazine, 2004, the Marketing VP described the market segments as these are people who wouldn t have a database otherwise We re selling to the commoditized market The stated strategy was along the lines of the Marketing VP: to offer a good-enough DBMS solution using dual licensing to either for free or at a fraction of competitors cost, distributed and marketed via Internet 32 16

17 Case II-1 Question 5 External observation - a more aggressive strategy MySQL was going up-market to service large enterprises in their most critical database uses ERP, which meant challenging IBM and Oracle MySQL s actions: The partnership with SAP A significant VC investment Hiring a sales and marketing VP All these actions indicated that MySQL would not remain as a niches player serving SMEs and their web needs through Internet delivery and marketing 33 Case II-1 Question 5 The inconsistency was in which market segments they would serve what approach and changes they were willing to make in the business model to serve other segments than those already served (e.g. to build a direct sales force?) 34 17

18 Case II-1 Question 5 Conclusion: The stated and the strategy implied by actions were clearly inconsistent. The strategy implied by actions was about going headto-head with large DBMS vendors in the large enterprise segment and enterprise wide data use. The stated strategy was inconsistent even in different public statements, but generally emphasized serving the SME and even smaller market essentially the same segment that was the basis for MySQL s very first customers. 35 Case II-1 Question 6 6. What are MySQL s strategic options beyond 2004? Which option should MySQL choose? (%) = of the whole $10.5 DBMS market Enterprise wide data (up to 90% or $9.4B) Web sites (no separate data in the case for sizing) Stand-alone software (5% or $550M) Embedded systems (4% or $400M) SME or workgroup (18%) Microsoft MySQL s Medium enterpris e (28%) Oracle, IBM Large enterprise (54%) 36 18

19 Case II-1 Question 6 6. What are MySQL s strategic options beyond 2004? Which option should MySQL choose? Strategic Options, Pros, Cons Option 1: Aggressive up-market Option 2: Serve enterprise needs of the SME segment Option 3: Web related DBMS for all segments Option 4: Serve those who wouldn t otherwise afford a DBMS 37 Case II-1 Question 6 Option 1: Aggressive up-market Target the 7-8 B large enterprise DBMS market currently dominated by Oracle and IBM MySQL for the most critical enterprise wide DBMS use Pros Large market, high potential Current partnership with SAP is the first step toward this strategy Near monopoly pricing by Oracle and IBM in the large enterprise segment 38 19

20 Case II-1 Question 6 Option 1: Aggressive up-market Cons MySQL is missing the required global support, and direct sales force, building those could destroy their competitive advantage: cost Current band is tied to the low-end web use of DBMS Challenges in growing the virtual organization, with no office organization, with no offices and focus on communication Reaction from the supporting OSS community High switching cost of large enterprises 39 Case II-1 Question 6 Option 2: Serve enterprise needs of the SME segment Target the $2B SME segment dominated by Microsoft MySQL not only for Web, but SMEs critical uses Pros Many existing customers using MySQL for Web sites are SMEs Relative large market opportunity No need for direct sales force 40 20

21 Case II-1 Question 6 Option 2: Serve enterprise needs of the SME segment Target the $2B SME segment dominated by Microsoft MySQL not only for Web, but SMEs critical uses Cons Majority of the SMEs are not tech savy and reaching them through web and OSS community may be a challenge (vs. Microsoft s heavy advertising and retail channels) Database often bundled product; would require at least ISV (Independent Software Vendor) channel 41 Case II-1 Question 6 Option 3: Web related DBMS for all segments Target from SMEs to large enterprises Pros Traditionally strong for MySQL; could just expand and move up-market Good fit with the brand By definition, users know Internet and technology Cons Limited growth potential in the segment 42 21

22 Case II-1 Question 6 Option 4: Serve those who wouldn t otherwise afford a DBMS Target SMEs, start-up and project groups web uses Pros Simply an extension of the current success Cons Questionable growth and earnings potential even if market volume would skyrocket 43 Case II-1 Question 6 6. What are MySQL s strategic options beyond 2004? Which option should MySQL choose? Conclusion For rapid significant growth (>$100 million in revenue), MySQL needed to come out of its comfort zone of serving web use and small/medium businesses. However, this was where MySQL had its competitive advantages of not having direct sales, a large organization, or expensive support systems

23 Case II-1 Question 6 Too risky: Option 1 seemed too risky to move in for MySQL Chose either: Option 2 or Option 3 to gradually move toward Option 1 Option 2- Challenge head-to-head with Microsoft Option 3- more suitable than going head-to-head with Microsoft 45 Case II-1 Question 6 Option 3 the Best Choice MySQL should gradually penetrate enterprise wide use (e.g. ERP DBMS), but without building an expensive direct sales force. This was a more time consuming approach, but given MySQL s competitive advantages, an approach that was more likely to succeed. As the existing generation of techies moved up the ranks into CIO and CTO positions, they should be more comfortable with OSS and MySQL, as well as more knowledgeable about the potential benefits

24 Conclusion: Future Directions and New Challenges for Marten Mikos The rise of cloud computing and its impact on open source movement. Will there be a LAMP stack for the cloud? Will Oracle destroy MySQL and how does NoSQL movement impact MySQL? Philosophical aspects of open source. The open-source business models. Most common mistakes he has seen startups make, especially open-source startups. 47 Conclusion: Future Directions and New Challenges for Marten Mikos Video: Marten Mickos, ex-ceo of MySQL on Oracle, Open Source Startups & Lessons of MySQL, by Om Malik, Aug. 23, 2010,