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Tuesday, May 10, 2005

Open Source & Enterprise Software!!

(Via SiliconValley Watcher) Charles Oppenheimer, CEO, Recursive Technology writes, more open source applications come out with wider distribution and lower cost, they will put pressure on the more expensive software providers from below. Oppenheimer views :
- Enterprise software vendors are like vacuum-tube radio providers, in an era where the transistor radios represented by open source are still of a lower quality. Eventually, transistor radio technology moved upstream in quality, redefining the market.
- The cost of sales at a typical enterprise software company (he used Siebel as an example) equals about 75% of total license revenues.Therefore, companies that buy enterprise software are essentially paying for the sales cycle
- A successful(How to define this?) open source project that has a high volume of downloads(??),has greatly reduced cost of sales, approaching zero in some models
- Enterprise software companies have very high general & administrative costs, due to their wasteful operations and big profit margins
- Research and development costs are typically lower(Is it a good sign - how to estimate how much efforts should go in support and enhancement?) in open source companies
Some critical comments:
- One of the key questions is whether the sales cost could be kept down as larger deals are pursued.Companies such as RedHat that sell to enterprises (although not in the application space) have high sales costs, similar to standard enterprise companies
- In enterprise software sales, price is rarely the primary decision factor. It almost always comes down the features, or the ability of the vendor to sell the features. Only when an open source application can compete head to head with a commercial application and win on merit will there be significant traction.
- Only great software from open source world can hope to challenge commercial enteprise software - the software business model or support model would not help in providing competition to enteprise software.

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"All views expressed are my personal views are not related in any way to my employer"