TECHNOLOGIES®STROMIANS
Pricing and Business Models for Open Source Software
Jim GeismanMarketshare, [email protected]
Don RosenbergStromian Technologiesdonr @stromian.com
Corporate SMBs Single User
Custom SW SIs/VARs
OS Vendors App Devprs
Customers
Developers
Resellers
Open Source LicensingA Multi-Player Game
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TECHNOLOGIES®STROMIANS
Customer Pricing Issues
• Corporate/SMB – Decrease license costs– Increase reliability– More customization, support (if desired)– Server vs. desktop
• Single Users– Very price sensitive– Want “choice”
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Are Pricing Issues “Real”
• SW <25% IT budgets – How much change in license costs?
• HW < 25% IT budgets and falling• People costs > $50-75K average
– 5 - 8X cost of all SW– > 5X TCO
• Cost of downtime a killer– $25-50/hr. x # people on a server– Add cost of recovery, sys admin
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Reseller Pricing IssuesGPL Software Means Make Money by Customizing
• Custom Software Houses– Selling time (like any service business)– Depends on place, expertise, demand
• Systems Integrators and VARs– Selling proprietary software and systems– Support as a service– Software customizations
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Open Source A New Opportunity
• Another new sales platform– Extend product offering
– IBM, EDS, Applix Corel ...
• A new opportunity– A new point of entry
– Red Hat, <<Don - names?>>
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Vendor Pricing Issues
• OS Vendors– Retail packaging, downloads + OEM sales– Add-on services to resellers– Packaged upgrades, enhancements, applications
• Applications vendors– “Off the rack” (less-than-finished retail)– Proprietary (closed) applications
• Horizontal apps can go direct to desktop• Vertical apps more likely to go through channel
– Customization services
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Significant Business Issues
• How does OpenSource Software Compare…– As a business ...
• Vs. traditional software vendor models?
• Vs. traditional service offerings?
– With other product alternatives?
• How do economics differ?– Support?– Lost time/wasted effort?– Get leverage over other parties?
• What elements of risk change?– Business (esp. Marketing/Sales)– Technical
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Our Conclusions …About Open Source SW Opportunities
• Corporate/SMB – Lower cost desktops but higher training?– Server reliability probably more important
• Single Users– SOHO maybe in the future– Developers probably soon
• Installed base of software here to stay– Will slow migration to Open Source/GPL
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Business Models ComparisonHow does Open Source change things?
TraditionalSW or Svcs
Open SourceSoftware
Open SourceServices
Revenue Baseline Lower No change
GrossMargin
SW: 90 - 95+%Svcs: 30 - 65%
A little lower A little lower
Sales & Mktg 25 - 35% Same or more No change
Prod Devpt SW: 10 - 20% A little higher No change
G&A 5 - 10% A little lower Lower
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One Area of Hope: Server Pricing
• Not much change in license costs– E-commerce web server $1M average (Gartner)
– SW 10-15%• HW about same as SW
• People the other 70-80%
– How many % points will go to open source?
• But cost of downtime is a real killer– Lost revenues
• # Hrs. offline x Total revenues / 8760
– Recovery costs
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In Conclusion …
• Extend existing service businesses– A “hook” for new ones
• Proprietary add-ons to GPL SW will be a tough business– No block busters; few large companies
• Many service opportunities in the Bazaar
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Contact Information
Jim Geisman, President
Marketshare, Inc.
35 Main Street, Suite #8
Wayland, MA 01778
Tel: 508-647-0330
Fax: 508-647-4876
E-mail: [email protected]
Don Rosenberg, President
Stromian Technologies
919 Monmouth Avenue
Durham, NC 27701
Tel: 919-687-4172
Fax: 919-688-7210
E-mail: [email protected]
See also: www.stromian.com and www.softwarepricing.com