Selling open source

Making money from free software sounds like a recipe for disaster, but open source offers channel players the chance to carve out a market niche while cutting costs and increasing margins.

The religious fervour of some open source supporters opposed to software giants such as Microsoft may have nurtured the movement through its early years, but it also hindered efforts to be taken seriously in the boardroom.

Now open source has come of age, it has swapped the sandals and hemp jeans for a suit and tie. It is also shaking off the “free” tag as more people come to appreciate open source is free as in “free speech”, not as in “free beer”.

Open source, and in particular the Unix-like Linux operating system, now presents a significant opportunity for channel players prepared to stake a claim in this new frontier.

The open source development model operates mostly under the GNU General Public Licence (GPL). Often referred to as 'copy-left' as opposed to copyright, software covered by the GNU GPL is available free of charge to the general public. Developers have access to the complete source code, making it easier to build customised solutions.

If a programmer modifies software covered by the GNU GPL, then those modifications must also be made freely available.

At first glance it would seem impossible to make money under such a model. The profit lies in providing integration, support and other services to end users. In an industry where hardware and even software are becoming commodity items, services are where the fat margins are to be found. As such, open source offers an opportunity for distributors, system integrators and resellers to increase profits and move up the food chain.

The Linux operating system for servers and desktops is perhaps the best-known open source product, but other popular software includes the Apache web server, the Samba file and printer server, the MySQL database and OpenOffice -- a Microsoft Office-like application suite.

There are many variations or "distros" (short for distributions) of Linux. Two of the most commonly used distros in business circles are Red Hat and SuSE, the latter having been acquired by Novell in 2003.

These are developed by companies that make their profits from support and training rather than licensing fees. All Linux distros share a common code base but have been customised to suit different needs.

Current figures indicate global $1.3 billion server Linux sales revenue per quarter. Sales of PCs running the Linux will reach $10 billion by 2008, predicts market researcher IDC.

Forrester's Goulde: Open source is flexible

Open source is also moving up from the operating system at the bottom of the "software stack" to high-end enterprise software such as the SugarCRM customer relationship management application and the MySourceMatrix content management system.

Sydney value-added distributor Avnet Partner Solutions took the plunge into open source in February, striking a deal with Novell to distribute SuSE Linux. Part of the Avnet group headquartered in Phoenix, Arizona, Avnet Partner Solutions operates in 68 countries and distributes IBM, HP and Oracle.

Avnet Partner Solutions now operates the only Novell authorised testing centre in Australia and New Zealand.

The distributor has embraced open source for pragmatic rather philosophical reasons, says Avnet Partner Solutions marketing director Michael Costigan.

“When we first started with Novell SuSE we had two or three business partners who had a real keen interest in Linux. We’ve now seen that grow to 30 to 40 business partners who are actively engaged in Linux opportunities or seeking out help for driving Linux opportunities into the mid-market space,” Costigan says. “They want to put another string in their bow and offer another solution to their end users.”

Thanks to the fact that Avnet Partner Solutions’ IT staff were already familiar with open source technologies, it was not a case of jumping into the deep end, says technical services director Craig Murphy.

“The guys were very au fait with Linux so it was a natural progression for us. Actually the push from within really came from our technical team because they were seeing the need for it as well,” Murphy says.

The makeup of the audience at a series of breakfast seminars to launch relationships with Novell brought home to Murphy the changing attitudes towards Linux in the wider business community.

“The types of people that are asking questions within a Linux organisation are changing, and we were getting mainstream business executives who were trying to find out about Linux, trying to talk about commercial opportunities, rather than just tech people.”

Open source is moving into a “more pragmatic state of evolution,” says Forrester Research’s open source analyst Michael Goulde.

Immediately prior to joining Forrester, Goulde was a product manager at Microsoft, where he worked on competitive strategy and product planning in the Windows server organisation.

“At Forrester we’re seeing a significant amount of use of open source in large enterprises, companies who don’t ordinarily make technology decisions based on philosophy,” Goulde says.

“They’re choosing open source because of the flexibility it gives them in development; they’re selecting open source in some cases because they feel a particular piece of open source is actually better than the commercial alternative.”

As such, opportunities exist for the channel to offer open source enterprise software and target the top of the software stack.

“I think good advice to a reseller would be to pick something that you’re comfortable with, and that there’s customer demand for, in the industries that you’re working in. Bringing in an open source solution is a good way to differentiate yourself initially and then you can build on that with some other applications that are complimentary,” he says.

“You’re not going to be the next Microsoft but you can do very well. You want to carve out a niche for yourself. I think the days of the Microsoft approach, or even the Oracle approach for that matter, of providing a complete software stack under a commercial licence, are numbered. I think that stack is going to come from many different sources and many different suppliers.”

Open source offers smaller channel players the chance to create very viable businesses around open source solutions at “the top of the software stack” such as CRM and ERP, says Con Zymaris, chief executive of Cybersource, a open source-focused IT services and solution provider based in Melbourne.

IBM's Kladnig: Technical investment to be made

“These are the types of solutions that are a must for most channel players looking to put a major feather in their cap. They offer ways to generate new revenue and ways to start detaching their business from the whim and fancy of any particular vendor or distributor,” Zymaris says.

“Suddenly you’re not paying massive licence fees so your $20,000 CRM rollout will be half the price of the competitors and you control the whole lot and you make more profit. That takes obviously a bit of chutzpah to do because at that point you’ve moved beyond being a box mover or just a front end for somebody else who does all the work. So it’s obviously not for everyone in the channel, but it will allow you to differentiate, to take full control of your business and not leave it up to any distributor or back-end vendor’s whim. Most players in the channel live and die based on what their back-end suppliers say or do.”

While the freedom and flexibility of open source may open up new opportunities for the channel, it comes at a price, warns Microsoft Australia competitive strategy manager, Martin Gregory.

“If you step back and ask what’s the biggest difference between the open source space and a commercial software organisation, it would be open source has ultimate flexibility. You have access to the source code so if you want to change it and make it do something different you can go and do that,” Gregory says.

“The trade off for that level of flexibility is integration. You pay for integration one way or the other -- you pay for it from a commercial software vendor where there’s rigorous testing so that things have smooth edges and work well together from a mobile device to the desktop to a server or a data centre. The alternative is you either pay someone to do that integration work for you or you take on that burden yourself.”

“The open source community is generally driven by building what they want or need. There’s a lot of people who want to work on some of the more exciting ‘rock star’ projects in the community but perhaps there is less of a motivation to do the hard yards of testing lots of drivers and doing compatibility and integration testing,” Gregory says.

Forrester’s Goulde agrees this is a weakness of the open source model but says big Linux vendors are working to improve the situation.

“One of the problems with open source is any particular project mostly focuses on their project, so there’s not a lot of integration testing of all the components necessary for a complete solution,” Goulde says.

“One of the things that Red Hat and Novell are essentially doing is a first level of systems integration in assembling components and then doing the integration testing and then providing all the necessary support. They’re providing their resellers with a pre-tested package that they will provide the software maintenance for and support for the reseller if they can’t support something.”

The open source model provides Linux developers such as Red Hat with a greater level of quality control than proprietary software vendors, says Red Hat Australia general manager Max McLaren.

“We have about 350 developers at Red Hat and then they each of them have a group of about 10 people in the community that they interact with. Each of those 10 have a group of about 10 people as well. So we’ve got at least tens of thousands of people that develop our technology,” McLaren says.

“The rigour that is imposed on open source technology is generally dramatically more than you would get in a proprietary environment. This assists not only with quality testing but with innovation.”

Red Hat's McLaren: Lots of innovation and solid code

“Not only are they assessing the quality of the code that has been submitted but they’re putting forward their two pennies worth of innovation. As a result we have this dramatic scale of innovation and generally the code that is produced is very solid.”

When it comes to supporting those dealing with Red Hat products, Red Hat provides training -- Red Hat Certified Engineer and Red Hat Certified Architect designations.

“We have a self-assessment process on the web and then it recommends which courses they go on. Generally it’s about a week of conversion for a Unix skilled person and about three weeks for a Windows person.”

Novell also offers extensive certification, training and sales support for SuSE, says Novell Asia Pacific distribution manager, Geoff Craig.

“We have a number of specific Linux and open source training programs such as the Certified Novell Sales person, which aims to enable sales personnel who have not had exposure to Linux,” Craig says.

“Registered Novell partners also have access to Novell’s Partner Campaign Central Portal, which delivers demand generation campaigns to partners. In addition, Novell is conducting extensive channel development with direct partner account assistance, and assigning leads from Novell’s direct demand generation campaigns to partners to start them on the road to selling Novell solutions. We have also recruited distribution-based business development managers who are strongly focused on assisting partners in going to market.”

Industry giants such as IBM and HP have embraced open source software such as Linux, particular Red Hat and Novell SuSE. The move has been partially driven by customers abandoning expensive proprietary Unix solutions running on high-end hardware in favour of Linux running on commodity Intel/AMD boxes.

IBM has established a Sydney testing centre to assist partners and ISVs in porting applications to Linux as well as performance testing and load balancing, says IBM’s Australia and New Zealand Linux business development manager Ivan Kladnig.

Novell's Craig: Offering demand generation tools for partners

“We’re also providing them with sales enablement in terms of selling solutions based on Linux,” Kladnig says.

“Clearly there is an investment to be made in terms of both technical skills and understanding the marketplace; certainly there are lots of companies and vendors that are willing to assist; certainly IBM is more than happy to get involved and assist anybody that is looking to move into that marketplace and we actively encourage it.”

HP supports both Red Hat and Novell SuSE, which are “the two most popular commercial distributions and offer good support to their customers,” says HP’s regional open source and Linux business manager Anupam Nagar.

“Enterprises want predictability in their environment, they don’t want 100 flavours. They want what works best in their environment and what can be supported over the next few years rather than the next few months,” Nagar says.

“HP has been focusing its energy on designing the Linux Reference Architecture, which acts as a blueprint and helps our partners and customers to build a solution from different building blocks.”

“Our experience is that it’s the Unix base that is moving faster to Linux, and the resellers who have knowledge about Unix are taking to it the fastest. If you’re a purely Windows shop it’s a steep learning curve, but if you’re an organisation that has been dabbling with Unix for a while it’s fairly easy.”

Staff training is certainly a key factor in making a successful move into the open source market, says Babel Com Australia chief executive Del Elson.

Babel Com Australia started in 1996 as an offshoot of an ISP doing business internet consulting. After working with both proprietary and open source solutions for several years, Babel Com Australia declared itself a purely open source consultant in 2000.

The transition would have been much harder had Babel Com Australia been a Microsoft-only shop lacking staff with open source skills, Elson says. An audit of staff skills is an essential early step towards embracing open source, he says.

“We generally find the average techie in a small, customer-support type IT company has got a Linux box at home and has got quite a bit of Linux experience anyway, even if their day-today job is managing Windows servers,” Elson says.

“Your Windows-only staff may be looking to work elsewhere in order to add some Linux experience to their resume, so this might allow you to hang on to them. Certainly if you offered to put a few of your staff through something like a Red Hat support course to put a few extra letters after their name, most would jump at that opportunity.”

Businesses without on-board open source skills should consider starting off by partnering with an establish open source company, Elson recommends. “For the small to medium system integrators, it may be very much easier to partner up with a small Linux integrator and say ‘you scratch our back and we’ll scratch yours’”, he says.

“Remember that most of the Linux support companies are quite small and they’re only too happy to partner up with a larger system integrator or someone to shoulder some of the work for their Linux systems to get them into the position they need to be in the marketplace.”

Along with skilled staff, channel players also need an appreciation of the open source concept, says Solutions First chief executive David Kempe.

Solutions First started in 1998 as an IT services company specialising in Linux and open source support and Kempe is a director of Open Source Industry Australia. Solutions First is one of only three small to medium enterprises on the NSW Government panel for supply for Linux and open source services.

“You can’t just wake up one day, read CRN and say, ‘Oh, let’s get on this open source bandwagon’, because you’ll have no idea where to start. You’re going to need to start on a long, exhaustive self-education process as to what the world is like in this neck of the woods,” Kempe says.

“The open source community expects the experts to be largely self-taught, of which everyone that I hire is. You can go out and do your certification but at the end of the day it’s pretty much a piece of paper. You can say this person is of this standard but you can’t necessarily throw them out into the industry and say ‘now bill some hours’ because it’s quite different to solving someone’s problem.”

Community is a fundamental part of the open source concept, Kempe says.

“There’s literally thousands of people, tens of thousands of people, that may be able to help you in one way or another from day to day. Tapping into those resources is an entirely different way of dealing with your supplier. Part of that is unfortunately being around long enough that the community understands who you are and will answer your questions when you ask and you’re part of the reciprocal give-and- take,” he says.

“Being a good corporate citizen takes on a whole new meaning. You need to get involved, to start contributing to the community, in order to get some credibility.”

Kempe’s advice on staff training is echoed by Anthony Rumble, managing director of open source-focused reseller Everything Linux.

“You’ve got your certified programs, and they’re pretty good, but again you’ll only just beat the square box kind of reseller and you’ll only be useful in those out-of-the-box circumstances,” Rumble says.

HP's Nagar: Unix base moving faster to Linux

“There are certified consultants out there that can do a lot of the work, but they’re much like MSCEs in that they work by the textbook. When things all work by the book everything is happy, but when things don’t work by the book you need someone who is trained by time and came up the hard way and fixes things by intuition, knowledge and fault finding, not just remembering what the answer was.”

Fortune favours the brave and open source presents great opportunities for those who can get beyond the mind-set that Windows is the “be all and end all”, Cybersource’s Zymaris says.

“If you’ve been in the industry for long enough you’ll know that any particular vendor is transient, there’s no guarantee of being king of the roost in any particular space in five or 10 years time. At the same time, it seems likely that if Microsoft moves into your area today then your chances for success in the next three to five years in that industry vertical start to diminish.”

“I would look to moving to new fresh ground where I know Microsoft won’t be. Not only would I make my product available on Linux but it’s in my best interests to make sure that as much of the market as possible moves into this Linux space -- because they won’t be there. Once enough of the market moves to Linux, I know that for the first time ever we have a neutral playing field. Microsoft will not have an unfair advantage on Linux over me, because for once they won’t own the field.”