Not much SMB dollars today for open-source vendors, the 451 Group finds
It's not surprising to see The 451 Group's findings that the small-to-medium-sized business market doesn't promise untold riches to open-source vendors. The SMB market is difficult to crack regardless of one's licensing and marketing approach. Several of open source's primary benefits - and particularly the ability to modify code to suit one's requirements - fit large companies well and SMBs almost not at all.
SAP is trying to penetrate the market with low-cost SaaS. Red Hat has knitted together open-source solutions in RHX to pave the way to open source applications for SMBs. But the reigning king of SMB - Microsoft - continues to dominate with low-cost, well-integrated, and easy to use software that a vast array of resellers knows how to implement.
Some key findings from the report, which surveyed 50+ open-source vendors:
- 73.8% of open-source vendors surveyed believe that SMB revenue will account for <50% of total revenue, with wide disparity in how much the surveyed vendors feel will come from the SMB market;
- Open-source vendors are split on whether SMB will account for a significant increase in business in the future, 47.5% saying that it will and 34.4% saying it won't.
- The overwhelming majority of open-source vendors (72.1%) are taking a direct approach to selling into the SMB market, despite citing "Lack of expertise" (36.1%) and "Lack of awareness of open source options" (24.6%) as the key inhibitors to SMB adoption.
...which leads me to believe that open-source vendors are very naive about our near-term prospects in SMB. If the problem is SMB expertise and awareness, a direct model is the wrong way to go, especially since no open-source vendor beyond Red Hat or Novell has the marketing resources to make enough noise for SMBs to hear. Microsoft wins in SMB, in part, because it has a killer channel.
Some commercial open-source projects have started with an SMB focus and then "graduate" into the enterprise. But I believe that most commercial open-source projects would be wise to hit the enterprise first, starting with departmental implementations (the "SMB of enterprise," as it were). Large enterprises have the budget and inclination to seek out open source. SMBs simply do not.
It's not a question of whether the SMB market will embrace open source. It's a question of when. For most open-source vendors, that question should be answered, "Later."
Matt Asay brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. You can follow Matt on Twitter @mjasay. 
One more note, targeting enterprises from the get-go is all well and good, but keep in mind its easier for a company to move upstream later on, than downstream.
Roy, when you talk about SAS, you can't really bring in the open versus closed source argument. You're selling a service, not a product. The end user may not know and likely wouldn't care what underlying products are being used other than they expect best of breed (which may mean different things to different customers). The selling point is the service, not the software behind it.
- by royrusso December 9, 2007 5:28 PM PST
- OpenHelix,
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(4 Comments)Speaking of SaaS purely... I agree that OSS vs Commercial doesn't matter to the customer in what he is actually paying for (the service). However, if you agree that an OSS business model results in lower development and marketing costs, SaaS customers would also benefit from the lower TCO.