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2008 was an eventful, breakthrough year for many open source companies, and 2009 will hold even more promise for the open source market, especially in terms of business purchasing patterns, software business model shifts, and enterprise software stack evolution. The current economic conditions will certainly prompt businesses to look more closely at alternative IT solutions and open source technology will be one of the big winners next year.
Here are a few predictions as to what will re-shape the open source software market in 2009:
Adoption of open source software will increase as the economy worsens. As the 2008 recession extends into 2009, it will change the software landscape as the economic "shock" forces businesses to make structural changes to their IT strategies to drive down costs. Open source software eliminates up-front licensing costs and drives down the total costs of new projects. It also introduces competition that will be used by customers to improve their negotiating position with the oligopoly of proprietary software vendors that dominate the market. Open source companies will see stronger year-over-year revenue growth than the proprietary software sector. Growth rates for propriety vendors will take a hit despite moves by traditional companies like Oracle to actually raise prices during the economic downturn. Oracle's 45 percent increase on its BEA-acquired WebLogic application server, for instance, is causing customer migration to JBoss' open source enterprise application server.
Open source adoption will accelerate across the full infrastructure software stack and into applications. As more companies seek innovative solutions that do more with less, they will follow the early adopters who ten years ago pioneered the use of the Linux operating system and in recent years have been using open source throughout their infrastructure stack. Areas of significant infrastructure adoption include application servers, messaging and databases, especially for Java-based applications, which are standardized and relatively easy to port to open source solutions. At the application level, we'll see accelerating adoption of Business Intelligence (BI), Enterprise Content Management (ECM), and Enterprise Resource Management (ERP) solutions.
SaaS and cloud computing solutions will grow and pull open source with it. SaaS and open source share the same attractive economic model with lower overall costs and, critical for this recessionary environment, they both have zero up-front capital costs and variable operating costs. Companies will continue to move to subscription-based services that allow a better handle on IT costs. Moving to these pay-as-you-go services will also let executive teams resize their technology budgets to adapt to current economic conditions, or to changing revenue streams. Both SaaS and open source will see growth in new adoption. SaaS growth will pull more growth in open source as it delivers the right economics for the SaaS providers. As more companies integrate both forms of software into their internal IT systems, more customers will push back against yesterday's proprietary licensing models. SaaS, cloud computing, and open source offerings permit entrepreneurs to start new businesses with very little capital, even during a recession.
Mergers and acquisitions of open source vendors will continue to change the open source landscape. Proprietary vendors will acquire more open source companies and open source companies will merge. In turn, these events will keep the investment cycles going, as evidenced by the late 2008 funding of companies including JasperSoft and Infobright, both raising $10 million during what is currently a nuclear winter in capital markets. It's likely that the first open source application and/or open source Business Intelligence company will be acquired. Red Hat and Sun may make acquisitions to further build-out their respective open source stacks, and Novell may use its cash from the Microsoft licensing deal to expand its open source footprint. Meanwhile, valuations will outpace industry averages but not reach the dizzying heights experienced during the last M&A wave in the mid-2000s.
Competition from open source will drive proprietary software vendors to take the first steps in changing their business models. The combination of an economic shock to established procurement habits and the availability of mature and proven "commercial grade" open source software stacks will make 2009 the year in which open source competition drives proprietary vendors to begin changing their business models. Customers who are substantially downsizing their businesses will no longer accept the "ratchet model," where software costs only go up because of the negotiating leverage of the large vendors. Expect proprietary vendors to start realigning their business models to customer preferences, initially by emphasizing their own SaaS offerings while fighting a strong rearguard action to protect their much larger proprietary licensing and support revenues. Customers will respond to economic challenges with more centralized procurement and strategic adoption of open source, which will improve their negotiating position by demonstrating their willingness to implement open source alternatives for important applications.
Open source stacks emerge from strong market partnerships. Open source vendors will continue to join forces to create whole open source stacks and to offer certified and pre-configured solutions that substantially reduce staffing costs. These partnerships will create a better way to compete with existing providers by offering easier implementation than combinations of products from proprietary software behemoths like IBM, Oracle and Microsoft. Customers will recognize and experience the cost benefits from hardware through software infrastructure right up to the application layers of their entire technology stack. For example, a Red Hat, JBoss, and Ingres stack will be available for Java application developers, and a competing Sun stack will be offered to existing Sun and MySQL customers. JasperSoft will partner with open source database providers to create a complete data mart solution to make BI initiatives affordable for newly constrained budgets. These and many other partnership-driven open source stacks will provide competition and spur innovation that opens up important new choices in the software marketplace.
Systems integrators will guarantee first-year cost savings for migrations to open source. Look for offerings from the many global systems integrators who have strong balance sheets, experience with open source, and are wrestling with how to maintain growth over the next few years. Businesses that want to move to lower costs and variable cost platforms but don't want to deal with first year capital costs will be offered a way through global systems integrators to do so. These companies will use their balance sheets to pay for their customers' transition to open source as part of multi-year contracts to "migrate, innovate and operate." Systems integrators have the financial strength and pricing methodologies to propose fixed-price multi-year contracts for migration and operations to their customers and in many cases to fund innovation as well. These offerings will cover a spectrum - from migration to a fully managed service, and to migrations followed by on-premise support and maintenance services.
About the author
Roger Burkhardt is president and CEO of Ingres and serves on the Board of Directors. Prior to Ingres, Roger was the CTO and executive vice president of the New York Stock Exchange for six years. He and his team were responsible for transformation of the NYSE to a fully electronic model, and they conducted much of their IT work using open source.
Ingres (www.ingres.com) is the second largest independent open source software company and is a leading provider of open source database software. The company has more than 10,000 commercial customers in 56 countries running a variety of business-critical applications, and partners with leading open source providers to create solutions that run on the core Ingres Database. Ingres supports its customers with a vibrant community and world class support, globally. Based in Redwood City, California, Ingres has major development, sales, and support centers throughout the world.
About Roger Burkhardt Roger Burkhardt is president and CEO of Ingres and serves on the Board of Directors. Prior to Ingres, Roger was the CTO and executive vice president of the New York Stock Exchange for six years. He and his team were responsible for transformation of the NYSE to a fully electronic model, and they conducted much of their IT work using open source.
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