Risk: What’s more important, Perception or Reality?

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    Businessweek, James Cooper, "The Beginning of the Road to Recovery?" September 24, 2008

Businessweek, James Cooper, "The Beginning of the Road to Recovery?" September 24, 2008

The current financial crisis begs for a comment in my first blog (otherwise I wasted four years, each, on a Quantitative Economics degree and Wall Street). Financial firms have collapsed fundamentally due to soured investments made over a period of time measured in years. In their final gasps of breath, Lehman, Bear Stearns and AIG collapsed suddenly, in a matter of days, because people perceived the risk of lending to these firms was too great. Nobody would lend them money – the death knell for firms that access the capital markets every day.

Businessweek in this past weekend’s print version made the point that perceived risk or “risk premiums” or “risk spreads” have spiked in the credit markets, and compared our recent crisis to the Depression (see charts). The government bailout intends to restore confidence to the financial markets, and ultimately this leads to more stable markets and drives down risk premiums and perceived risk.

Businessweek, Laurel Daunis-Allen, "So Far, It's No Great Depression" September 24, 2008

How do risk premiums relate to enterprise or open source software? They don’t directly, yet perceived risk is a key consideration for companies to adopt new technologies or even new versions of established technology, such as open source.

Matt Asay covered this topic recently (see, “De-risking an IT Project“) and I agree with his arguments that open source products may present less risk than proprietary products, even products from well established firms such as Microsoft.

I would build on Matt’s points and highlight that open source products provide a third path for companies presented with the proverbial “build versus buy” discussion of IT projects. The choice of buying from a proprietary software vendor presents the risk of vendor lock-in and failure to deliver on promises, as Matt points out. The choice of building a project within the IT group presents risks associated with delivery and budget, and maintaining the project over time.

There is another alternative to these two choices – open source. I believe strong open source products reduce risk to technology projects on a number of fronts as compared to the build and buy scenarios. Open source software provides transparency; companies can see and know what they are getting. Skilled resources in the open source technology are available, and access to source code usually allows for greater speed of innovation.

I work for an open source company, so I have already voted that open source products often provide less real risk to IT organizations. Many of us on the business facing side of technology need to continue to make this case and drive down the perceived risk, or risk premium, of adopting open source technologies.

About Fred Gallagher

Fred Gallagher is responsible for managing the business activities related to strategic accounts and partners for the Actian Analytics Platform and for Actian Corporate Development. He previously served as General Manager of Actian Vector. Prior to joining Actian, Fred worked for Qlusters, where he was responsible for worldwide sales, marketing, and business development. At Qlusters, he successfully launched the industry's first open source systems management project. Prior to that, he worked at VMWare, where he was responsible for worldwide software alliances, and where he established 15 successful strategic alliances during a high-growth period. Previously, he was at Seagate Technology, where he was Vice President of Worldwide Channels and Business Development for Seagate's XIOtech subsidiary. Fred holds a B.A. and an M.B.A. from Stanford University.

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