December 14th, 2007
Follow the money in SMB open source market
Software companies like Alfresco are disappointed with the small-to-medium business (SMB) market.
The 451 Group insists they will continue to be.
Why? Follow the money. (Picture from Channel Systems of Canada.)
In a traditional sale a big hunk of money goes to the software vendor, another big hunk to the hardware vendor, and yet-another big hunk to the re-seller, who justifies his profit with a business card reading “system integrator.”
In fact the re-seller doesn’t have much to do. Microsoft has expertise in every market micro-channel, along with support, and its “integrator” partners have learned all they really need to do is plug in the box and leave an 800-number.
In an open source SMB sale the up-front payment to the software vendor disappears. The hardware choices become more difficult. More of the load goes onto the re-seller. He really has to become a “system integrator.”
Let’s say the re-seller spends the big bucks to actually learn this stuff. It’s hard. You really have to become an expert. On your own.
Chances are he’s going to now want the lion’s share of the profit. He will now control the customer, and while he may pay for software support, he either won’t charge the customer for it or will sign a master support contract and do it himself.
Open source vendors lack the channel expertise and support infrastructure needed to turn re-sellers into integrators, and when someone takes this task on for themselves, they figure they deserve all the profit.
I don’t blame them.
Where Microsoft has developed an enormous business in training re-sellers, and finding them prospects, open source vendors have barely begun this process.
You might call it Ballmer’s Revenge, because it’s Steve Ballmer who deserves the credit for building this organization.
Among open source vendors only IBM has the infrastructure needed to support open source in the channel, to go toe-to-toe with what Ballmer has wrought, and they remain the primary beneficiaries of open source in the SMB market.
Until more vendors are willing to do what it takes to earn this money, they’re going to remain stuck. Open source in SMB will grow, but it’s the integrators doing the work who will continue to profit.
Dana Blankenhorn has been a business journalist for 30 years, a tech freelancer since 1983. See his full profile and disclosure of his industry affiliations.
