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Facing Realities
Linux solution providers say they believe the larger vendors ultimately will be forced to adapt to the economic realities of open source and will need to adjust both their product and channel strategies.
Dave Gynn, director of enterprise tools and frameworks at Optaros, a Boston-based solution provider specializing in enterprise open-source projects, said every software vendor is going to have to come to the table with an open-source strategy. "The model of pure proprietary software companies that don't interact [with open-source developers] or have any kind of collaborative development process or open-source licensing is going to go away," he said. Gynn compared the open-source revolution to the impact the Internet—and before that client/server—had on business. Optaros, in fact, was started by an executive team that built big services businesses around both of those paradigm shifts.
Open source is another one of those huge shifts that impacts all vendors, Gynn said. Just how big is it? Optaros said there are more than 140,000 open-source projects in existence, and it has catalogued more than 260 of them with ratings on functionality, community support, maturity and enterprise readiness (the ratings do not include channel programs or offerings).
"There is an open-source alternative for every packaged version of software," Gynn said. The 260-plus projects catalogued by Optaros include everything from infrastructure offerings such as databases, to security offerings including identity and access management databases, to enterprise content management and search machines. Optaros is driving its business purely on consulting, services and solution development rather than reseller product fees. Gynn said the open-source application movement is allowing midsize and even smaller businesses to look at enterprise-class custom solutions that were simply out of their price range years ago. What's ironic is many companies are spending the same amount they would have years ago on an out-of-the-box software solution that just did not fit the business process.
What's more, he said, about 25 percent of his time as a solution expert would be spent resolving technical product issues with a vendor. "Now I'm spending a negligible amount of time on that," he says. "I can't imagine going back to the old way."
Even The Enterprise
The open-source channel offensive is even taking hold in the most robust enterprise application segments of the market such as ERP and business intelligence. Nearly all of open-source business intelligence vendor JasperSoft's sales were direct last year. But with the formal launch of its JasperSoft partner program late last year, the company aims to receive as much as 20 percent of its sales from channel partners this year, said Don Wight, vice president of worldwide field operations at JasperSoft, San Francisco. That means doubling its partner base this year.
Wight estimates that in the typical business intelligence solution sale the software license accounts for as much as 50 percent of the solution sale, while in the JasperSoft open-source model, only about 20 percent is related to software licensing. That leaves a whopping 80 percent of the IT budget for high-margin consulting, Wight said.
Ron Bongo, CEO of Corratech, an open-source solution provider in Montclair, N.J., said his company just completed a deal where the cost of the software license from a traditional business intelligence vendor came in at more than $100,000 compared with $20,000 for JasperSoft. "What can you do with $80,000 if you reallocate that to gain a strategic advantage?" he asked. "You can integrate more, customize more and build that into the overall project." Corratech even uses software calculators to drive home the dramatic cost differentials. For example, the company's CRM calculator asks users to input the number of users and estimated integration hours. The calculator compares a Centric CRM solution coming in at hundreds of thousands of dollars less than proprietary offerings.
Bongo said he sees the new formal partner programs helping to drive significant growth this year for Corratech, a former Microsoft .Net partner that moved into the Linux open-source business in 2003 after seeing the significant gains that could be produced for clients using open-source software.
"We just saw great software being produced that we could use to deliver e-commerce solutions much more easily than building them from scratch," he said.
This year, Bongo expects to double sales from 2006, when sales were up 40 percent. "Open-source vendors are adding significant resources, helping the channel produce more results," he said. "A lot of [open-source] vendors have formal partner programs and are even completely dedicated to the partner strategy. The current acceptance of open source and the commitment by vendors to work side by side with us and avoid the channel conflict that can occur with proprietary vendors is going to have a huge impact on our ability to generate revenue."
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