Systems Integration and the Open Source Opportunity

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When I was a systems integrator, one of the moments I came to dread in the initial stages of a new project was pricing. Not our pricing – clients usually expected to pay decent sums of money for people, and the boutiques I worked at the last few years tend to be priced fairly aggressively – but rather the conversation about software cost. Customers would start hearing about twenty thousand dollars for this, another hundred thousand for this, and sticker shock was the inevitable but regrettable result. Ultimately, of course, larger customers were able to whittle down down sales people by buying toward the end of a quarter, but the conversation was never fun for either us – the systems integrator – or the customer themselves. If I never do another NPV/ROI analysis for enterprise software, it’ll be too soon.

This is why I find it somewhat perplexing that larger systems integration shops stil show very little awareness of open source products. Of course their are partnerships and resource issues that come into play, but on the other hand the economics would seem to be quite compelling. Simplified, we can look at it as an equation:

Software Cost + Hardware Cost + Services Cost = Total Project Cost

I’m not sure if services pricing has changed dramatically over the past few years, but the rule of thumb when I was in that business was that the services typically priced out at somewhere in the neighborhood of one and a half times the cost of the software involved. Assuming that or a similar figure is still true, i would seem to explain the reluctance of systems integration firms to consider open source solutions: the total size of their deals would be going down, as they’re unofficially (and occasionally officially) incented to pitch more expensive software.

But at the same time, it seems clear to me that decreasing the total cost of the software component of the Total Project Cost via lower cost open source alternatives frees up not inconsiderable sums of money. When you consider that along with the fact that many of the open source solutions are more cost competitive than feature competitive with their commercial counterparts, and it would seem that open source represents a compelling value proposition for SIs as well as customers. If you were an SI, wouldn’t you be interested in customers that had a.) more budget and b.) an increased need for customization? I know I would.

But they do not appear to be. Many of the open source vendors report difficulties in attracting sufficient attention from large systems integrators, and a couple of consultants I’ve spoken with recently have described product evaluations that didn’t even consider open source alternatives.

Until the bigger SIs figure that out however, and see the value in software like Greenplum or SugarCRM, the opportunity in front of firms like CIGNEX, Optaros and Virtuas would seem to be sizable. This is one of the areas I look forward to exploring in this afternoon’s panel.

Disclaimer: Greenplum is a RedMonk client, while CIGNEX, Optaros, SugarCRM and Virtuas are not.