Tuesday, July 3, 2007

Follow up discussion on GE next generation system (about customization and open source)

My two part post last week on General Electric's next generation system based on Oracle (part 1 and part 2) generated some interesting follow up comments and questions (mainly after part 2). I got somewhat sidetracked with the whole iPhone extravaganza over the past few days, but wanted to circle back and follow up on a couple of threads.

The first thread related to customization versus configuration, and the fact that there are potential attractions in being able to provide an "off the shelf" system, which is just configured and not customized, for a specific application area - in this case design and asset management for mid-size electric utilities in North America. If you can achieve this, then potentially you can significantly reduce implementation costs and (in particular) ongoing support and upgrade costs. However, the challenge lies in whether you can meet customer needs well enough in this type of complex application area with just configuration. People have tried to do this multiple times in the utility industry, but so far nobody has been successful, and everyone has fallen back to an approach which requires customization. Both Roberto Falco and Jonathan Hartley were skeptical that a pure configuration approach could be successful, and Jonathan makes a good argument in his response that if you implement a very complex configuration system, then you may end up just recreating a customization environment which is less flexible and less standard than if you had just allowed appropriate customization in the first place. I don't disagree with either of them in general - though I would make the comment to Jon that I don't think we're talking about "GIS" in general, it's a specific application of that to electric utilities in a relatively narrow market segment, so that gives you a little more chance of defining the problem specifically enough that a configurable system could make sense. One other observation I would make is that I think that cost is an element of this equation. If an "off the shelf" system meets 90% of an organization's stated requirements and costs 80% of the amount of a fully customized system which meets 100% of their requirements, that is much less compelling than if the off the shelf system cost (say) 20% of the fully customized system, in which case they might be more willing to make a few workarounds or changes to business processes to accommodate such a system. This may be stating the obvious, but I wonder whether organizations trying to develop this "off the shelf " approach go into it thinking that they will have to offer a substantially lower price (or provide other compelling benefits) to persuade customers to adopt it. Finally on this thread, I think it is also worth observing that the "GIS" (if you call it that) in a utility is not a standalone system - it typically requires some sort of integration or interfaces with many other systems, such as customer information, work management, outage management, workforce management, etc etc. This makes it an even bigger challenge to develop something which does not require customization.

Paul Ramsey raised a different question, that of open source, which I think is interesting in this context. But first I will just answer a couple of other questions that Paul raised. He asked if this was essentially a replacement market, and the answer is yes - especially among the medium and large utilities, and in the more established markets (North America, Western Europe, Japan, Australia / New Zealand, etc), pretty well everyone has a system implemented, and GE/Smallworld, Intergraph and ESRI are the dominant vendors. Because of the customized nature of these systems, and the amount of integration with other business systems, switching to a new vendor is typically a multi-million dollar project, even if the new software is provided for free. So this is obviously a big reason why this is a "sticky" market and customers don't change systems very often. The other clarification is that Paul asks about defining the market of customers "who think that 'classic' Smallworld doesn't cut it anymore", and overall I wouldn't particularly categorize things that way. Overall I think that satisfaction levels are probably as high among the Smallworld customer base as with any of the other vendors, the system is functionally very competitive still, the main concern is probably in obtaining and retaining people with the appropriate specialized skills, especially for smaller organizations. But there has been very little movement of utilities from Smallworld to other companies up to this point. Ironically, GE bringing out a next generation system (which they had to do for new business) is something which may cause existing customers to re-evaluate their strategy. Again though this is just a standard challenge of moving to a new generation architecture for any software company - you're damned if you do and damned if you don't.

Anyway, back to open source - Paul raises the question of whether GE doing something with open source may be an option. I have heard a few people raise this before in regard to Smallworld, and it is an interesting question. There are three major elements to the Smallworld core software. The first is the Magik programming language, which was developed by Smallworld back in the late eighties, and it is very similar to Python and Ruby. Smallworld was way ahead of its time in recognizing the productivity benefits of this type of language, and this was a key reason for its success. The core Magik virtual machine has been stable for a long time, the original developers of it left Smallworld a number of years ago and I suspect that nothing much has changed at this level of the system recently. The second key element is VMDS, the Version Managed Datastore. There is some very complex and low level code in both of these components which I suspect would make it hard to open source them effectively, given the amount of time it would take people to get into the details of these components (currently known to only a very few people either inside GE, or who have left GE), and the relatively small size of the market for the products would probably be a disincentive for people to make the effort to learn this. However, both these components are very stable and probably don't really need much maintenance or change. The vast majority of the system is written in Magik, and the bulk of the Magik source code for Smallworld GIS has always been shipped with the product, which has allowed for a hugely flexible customization environment (much more flexible than Smallworld's main competitors). There is a pretty large base of technical resources in customers and Smallworld partners who know how to enhance the system using this environment. If GE could manage enhancements at this level of the system in an open source fashion, to leverage the strength of the existing Smallworld technical community, who are on the whole very loyal to Smallworld and have a strong interest in seeing it continue to be successful, this could be a very powerful thing. As I noted in my previous post, one of the challenges for GE is that to develop new applications on two platforms concurrently (Smallworld and the new Oracle/Java based platform) will significantly decrease the amount of new functionality they can develop with a finite set of resources.

Of course there are a lot of challenges for an existing commercial software company in making such a switch. A critical one for GE would be that they could maintain their existing maintenance revenue from the Smallworld user base (at least to a large degree), otherwise it would be a non-starter from a business perspective I think. But it is quite conceivable that this approach could harness the talents of a much larger group of developers than Smallworld currently has working on the product, and produce more enhancements and fixes to the products than customers currently see, so you can see scenarios in which customers would be happy to continue to pay maintenance for support. As Paul points out, Autodesk has made this work and most of their customers still pay maintenance. There are differences in the Autodesk scenario as they open sourced a new product rather than an old one, and I think that a big driver for them was that they saw that it was going to be increasingly hard to make money for basic web mapping products, as that area becomes increasingly commoditized, due to the efforts of both the Googles and Microsofts of the world as well as the open source community. I think that this factor probably helped them decide to make the big leap to an open source approach, and it seems to have been a successful one for them.

Could GE also consider open sourcing portions of the new product, which I think was really Paul's question? That could also be an interesting possibility, to help gain traction in the market. If they open sourced some of the more generic base level components of the product, they could still build their specific business applications on top of these components and charge money for those, but leverage the open source community to provide additional functionality.

So the motivations are somewhat different for GE than for Autodesk, and there are multiple scenarios where open source could play a role, but I could envision an open source version of Smallworld significantly extending the product's life, by harnessing the very good technical resources which exist in the broader Smallworld community. Internal GE resources could then be freed up to work on the new product line (with just a small number focused on managing the open source developments of the established Smallworld product line). There are certainly a number of challenges and a lot of complexity in making something like this fly from a business perspective, and I'm not sure if GE would have the imagination or the boldness to take a risk on it, but it's an interesting thing to speculate about!

4 comments:

Jonathan Hartley said...

Very interesting follow-up Peter - thanks once again for an interesting and educational read. Obviously you're right that a clearly defined scope of configuration (eg. electric util vs. nebulous GIS) will vastly improve the chances that writing custom code won't be necessary after all.

Very interesting to hear you speculate about open-sourcing part of the solution. I think this fits right in with the common observation that proprietary code makes sense for code which forms your pivotal competitive advantage - and everything else (ie. everything commodity, everything unrelated to your business vertical, everything that's now easy and obvious even though it *was* your competative advantage three years ago) - that could all potentially benefit from being sourced.

Nixta said...

There I go posting a load of nonsense in the comments for the previous item, and it seems you've already addressed the comments.

I think I need to re-evaluate Google Reader. There are a *lot* of things on your blog that just haven't shown up there... User error, I'm sure.

Still, Grrrr.

Nixta said...

No. It's user error.

Typical.

Poundstone said...

Peter, the customisation vs configuration dichotomy is interesting on; I have carried on the thread here.