Editor's Note: Delivering ValueNov 11, 2005, 23:30 (11 Talkback[s])
(Other stories by Brian Proffitt)
By Brian Proffitt
Someone once related to me the story of when they approached a major enterprise-size company that was planning on setting up a nationwide series of replicating databases across a wide-area network, using proprietary software products. Hearing about this project, the consultant approached the CIO of the company and presented a plan that would do the same thing with open source software, at only 60% the cost. The CIO listened politely, but in the end, declined the consultant's help. Why?
It turns out that in this company, the CIO's salary was tied to the amount of money he spent on software. And, even though he could have saved money using open source software, his company would be able to say in their annual report that they spent $X million on technology investments and also supported their local software economy. (A curious statement, since this was not a US company, and much of the software they were going to purchase came from Redmond, Washington.)
I will never be a corporate executive, it seems, because such a cavalier attitude about money completely blows my mind. I was raised to appreciate the value of a dollar and to spend less whenever possible. On the surface, the corporate mentality seems greedy and rapacious. Except...
Many of us, even the most thrifty-minded, will pay extra money for things we deem of value--even if we can a certain version of it cheaper. I myself do this. My family will buy generic, store-label items at the store all of the time. But I am insistent that when we buy soda, it is my preferred name-brand favorite. Even though I could get a less-expensive knock-off of the same soda, I will pay the extra money for my favorite. My wife does it for her favored tea, too.
For us, the value of the products is worth paying extra money. So, while I am sure some corporate IT spending is indeed motivated by a bunch of greedheads, the perception that certain software has a better value over open source software is a real obstacle to getting it purchased.
This is something that needs to be worked on, and soon. Proprietary software is selling its value over open source, and the open source vendors are not doing a great job getting out the real message: that not only is open source software less expensive to own and operate, it is also more secure and more stable. There is huge value in open source software, but right now only a small number of early adopters are getting the message. That message is growing, but perhaps not fast enough.
Small business is woefully under served by Linux and free/open source software. This is a real shame, since they could use the cost savings in licensing and stability more than any business group I know. Unlike corporate executives, small business owners typically will try to save as much money as they can. So why aren't they buying open source in droves?
If you read John Terpstra's series on LinuxPlanet last week, you will have a fair idea why. Small businesses aren't tuning into the value proposition of open source because very few of Linux and open source software vendors are targeting their segment of the market. Instead, they're going after the more lucrative enterprise markets. This, though, may be a velvet-lined trap. Sure, there's gold in them thar hills, but after a Linux vendor strikes it rich in a few valuable veins, what else is there? Eventually, the gold will run out.
(It's not completely devoid out there. Novell has their Novell Linux Small Business Suite 9, which presumably they are using their legacy reseller and direct sales channels to push.)
Meanwhile, what else have the big Linux vendors developed for the small- and mid-sized businesses? Better desktop tools (which non-IT oriented businesses desperately need)? Hardly. Documentation and training? Not unless it's for certification. Turnkey solutions for small-business customers? Haven't seen them yet.
This is Linux, people. It's open source! How hard is it to put together a drop-in solution for small businesses?
The answer is, not very hard at all. There are dozens of smaller vendors out there who are putting together solutions and software for SMBs. But now they are facing the same value problem in getting their solutions out to the very market they are trying to target.
Whether you agree or disagree with the market the big Linux vendors are targeting, one thing's for sure: targeting the enterprise is a lot easier than the SMBs. There are only an estimated 50,000 enterprise-level companies worldwide. And, they tend to be easy to find. Much easier to sell to than the 28.3 million estimated smaller businesses around the globe.
To sell to the much more diverse SMB market, there's about three primary ways to do it: direct, value-added resellers (VARs), and franchise arrangements. There are, of course, variations on these themes, but that's about it.
Direct is easiest: you hire your sales staff, you train them, you wind them up and set them out to sell, sell, sell. There are problems with this, though. Direct sales, especially if centralized, may have problems selling to certain markets if they are unfamiliar with the territory. And, for technological products, you will have to get and maintain a separate support staff.
The other two options, VARs and franchises, have distinct advantages, especially for up and coming businesses. They can handle a bulk of the local legwork for you. All you have to do is provide a solid product, train them, and rake in your percentages. But getting resellers of any stripe is proving to be difficult for open source software.
In order to attract resellers, your company needs to show them the value of why selling for you is a good thing. Saying it's low cost and will save their customers a bundle of money over a proprietary solution is a start—unless that reseller can make more money selling that proprietary solution (and maybe get some extra "break/fix" money supporting the product later on).
This is something as a community we need to get a handle on, and soon. A reseller network is key for small open source companies to have. If we can start thinking of ways to demonstrate and deliver the value of open source to all businesses, then the ensuing revenue coming back to the open source community should snowball into more product development funding, more revenue, and so on.