What Does Open-Source Software Mean for Ericsson, Huawei, Nokia, and ZTE?

Apache, an open-source web server platform developed by Apache Software Foundation, powers two-thirds of the Web sites in the world today[1]. The adoption of community-developed software, also known as open-source, began in the enterprise domain, where companies rely on it to reach the required scale for their operations. Amazon, Google, and Netflix are some prominent examples that achieved growth and maturity based on an open-source platform strategy. Bloomberg goes a step further by being the only company that relies solely on open-source software, unbound by proprietary software and support. Now, the telecoms industry is also leveraging innovation from the IT domain, cloud technologies, and associated Intellectual Property (IP). For example, numerous vendors are contributing to open-source initiatives such as Open Network Automation Platform (ONAP) and open-source Management and Orchestration (ETSI OSM). Consequently, open-source tools can potentially accelerate industry’s efforts to migrate to more digital and cloud-oriented operations.

A byproduct of that acceleration is, of course, the emergence of new vendors in the market (e.g., Canonical, Lumina Networks) with simple, modular and competitive economics in different parts of the value chain (e.g., RAN, edge infrastructure, core, etc.). On the other hand, vendors like Ericsson, Nokia, and ZTE can leverage open-source to aid the transition of their products into cloud-native equivalents. Significant progress on that front is, to a degree, contingent on new commercial models anchored to open-source innovation. As a result, at present, infrastructure vendors leverage open-source tools merely as an enablement technology.  But, given the significance that it holds for innovation and scale, a plausible question is what are the commercial dynamics that vendors should consider as open-source makes further inroads in telecoms?

[1] The World is Flat: The Globalized World in the twenty-first Century by Thomas L. Friedman

Any attempt to monetize community-developed software must first consider existing commercial dynamics from the Information Technology (IT) domain. To begin with, there is a feasibility aspect to deliberate. Deploying an unrefined open-source platform into highly specialized telco production environments is certainly not viable in most parts of the network. Neither is the expectation that open-source meets all the requirements that are fulfilled by a proprietary product. A proposition that falls between those two extremes may well be the winning formula, but how to approach that is the missing piece. For an open-source platform to be sustainable—that is, to be constantly maintained and enhanced—there must be an ecosystem around it. Talented software developers only have so much time, inclination, and resources to channel into developing code for free. At some point, the development will not go on at the highest level if there is no investment for continued innovation and engagement. That investment will underpin one of two predominant models: the support model and the open core model.

Red Hat pioneered the support business model and remains a leading vendor in successfully monetizing open-source—i.e., Red Hat Enterprise Linux (RHEL). Red Had does not sell RHEL per se but, for a fee, it offers support. Wind River and Aarna Networks are some vendors that are seeking to mirror the support model. Vendors that opt for this approach should consider how to obtain adequate funding to invest in product development. Another dimension is to develop a community around the core open-source platform and obtain intimate knowledge of the code base. This takes time and investment, but above all, it necessitates an army of software developers that participate in upstream development. Open-source tools may well drive the innovation agenda of the industry in the coming years. At present, however, it is the virtuous cycle of proprietary innovation, profits, reinvestment, and more innovation that will drive big breakthroughs. To that end, the open-core model is an alternative to accelerate open-source adoption.

In the open-core model, the foundation of a product remains open-source but there are proprietary value-added services or proprietary product extensions. Alternatively, vendors can take portions of vanilla open-source and enhance their proprietary offerings with those. A business model predicated on open-source tools must be accompanied by fitting evaluation and procurement processes. How to aid CSPs in evaluating hybrid proprietary-plus-open-source products, how to procure those products, and how to rearchitect next-generation networks with a mix of proprietary and open-source elements are all strands that require a collective industry discussion. For example, the fusion of open-source with proprietary elements calls for a change to existing rigid procurement processes. Furthermore, a notable consideration for Ericsson, Huawei, Nokia, and ZTE is how to institute structural barriers to competition and establish a new value-add that complements their existing offerings.

The license under which most free software is written mandates that offshoot innovation of open-source software is made available upstream to the community. Given that stipulation, when leveraging open-source tools, there is no structural barrier to competition. There is, in other words, nothing to stop competitors from utilizing the same code base to replicate successful commercial models, but there are several ways for vendors to pursue differentiation by operating further up the (software) stack to differentiate themselves.  Though the support model may not be easy to pull off, vendors should consider how to design “rich” digital services that sit on top of a blended “open source-plus-proprietary model.” For example, Apache started as a pure open-source software project but eventually became a kind of a “blended model” thanks to a collaboration with IBM. Specifically, in addition to developers from the community, IBM’s developers contributed to the project, too, so that it could sell its own proprietary services, upgrades, and attachments around vanilla Apache.

Digital transformation spans three dimensions: one, a technology component; two, operational changes; and three, service evolution. The latter has not kicked off yet, and it may well be the quest for new services that fully unlocks the value of open-source in telecoms. However, if vendors are intent on building a business out of open-source software, they must first learn how to interact with it. Furthermore, vendors should entrench themselves in open-source communities, which takes time and investment. ABI Research believes that proprietary solutions will predominate in the short to medium term but, sooner or later, vendors are likely to find that without a product that leverages ingenuity from community-developed software it may be hard to gain and sustain an edge. This is important in a world where open-source innovation continues to be a powerful springboard as a tool to make—and spread—breakthroughs.

With systematic software development spanning a decade—and sometimes several decades—webscale companies have long been building up knowledge about how to commercialize open-source innovation. That, however, does not preclude the industry from starting now by establishing a long-term development plan. This can serve as a first step to design scalable “best-in-class” products, as telecom scale and new growth do not happen overnight. On the one hand, the exact dynamics of how to commercialize open-source in telecoms remain to be ironed out. But, on the other hand, vendors like Ericsson, Nokia, ZTE, and Huawei would be remiss to ignore it altogether, so they should begin to tap into open-source communities and invest accordingly. Just like in the enterprise domain, ABI Research believes that the bottom-up innovation that open-source tools promote will serve as a strong driver for new value-add that complements existing top-down, vertical telco deployments.