IT industry analyst Erin Kinikin of Forrester Research recently issued a similarly breezy dismissal of a critical IT trend. When queried about the role of open source CRM applications, she asserted that enterprises aren't concerned about software licensing costs because the majority of project costs are associated with process re-engineering and product integration.
I don't know what enterprises this analyst works with, but the ones that my firm consults to are extremely interested in costs and focus on every way possible to reduce their IT spending. One of my enterprise clients just replaced a commercial product with its open source counterpart and saved over $500,000. Any enterprise I know of pays attention to saving half a million dollars.
Revenge of the budgets
The heady times of IT budgets sloshing with funds ended four years ago when the post-Y2K and post-dotcom crash led to the steepest drop in U.S. capital spending ever. Since then, every part of the technical food chain has felt the pinch of reduced spending. Software vendors slash pricing to close deals. Hardware manufacturers are locked in a brutal price war. The days of armies of expensive consultants are long gone.
Just because capital is tighter doesn't mean that the demands are lower. SOA. WLAN. RFID. There's a whole alphabet of acronyms that the CEO is demanding IT get implemented, now.
The catchphrase today is "do more with less." So, organizations are turning to open source for its cost-effectiveness. Sure, open source gives users more control because of source code access, but the deal is getting closed by its lower cost.
In the past, too many software selections have ended up financial sinkholes, with huge software costs, maintenance agreements, and mandatory expensive upgrades decimating IT budgets. There have been expensive successes, and there have been expensive failures, but the common thread is … expensive. IT shops are weary of this budget carnage.
Enterprises aren't so different from you and me. Everyone wants to spend as little as possible – while still solving the problem at hand.
Assessing the true total cost
For open source products, it's important to recognize that open source is not truly cost-free. While the software itself doesn't cost anything, support, documentation, training, product integrations and professional services may be needed and may have a price. Any costs must be added into the overall project TCO calculation. My firm uses the Open Source Maturity Model as the basis for this work, as it provides a formal methodology to assess the true cost of an open source product.
The company I mentioned earlier saved $500,000 by doing a very thorough assessment of the product, including ensuring that they understood the overall cost of the project. They found that the open source product was a better alternative than its commercial counterpart. The product performed as well or better on a battery of tests. The company that distributes the product provided far superior responsiveness and depth of answers than the commercial product's vendor (at a lower price, to boot).
Now, the aforementioned analyst would have been better advised to note that many open source CRM products are new and do not have an established track record. Therefore, customers should be extremely vigilant about determining products' robustness, as well as the availability and cost of necessary product elements and services. That's a lot different than dismissing licensing costs altogether.
Open source is moving up the software stack. Open source enterprise applications are a relatively recent phenomenon. Using them can be a challenge – the processes we've used for commercial products need to be supplemented for this new type of software.
It's a different world as well. Budgets are tight and will remain so for the foreseeable future. Don't imagine that because overall project are more expensive than just the software licenses, IT shops aren't focused on squeezing software costs to the bare minimum.
Treating licensing costs as unimportant brings to mind another French monarch. When told of the dire food problems of the peasantry, Marie-Antoinette blithely replied, "Let them eat cake." She paid for her flippancy with her head. Don't make the same kind of mistake by ignoring the importance of all project costs. It's not good for your future.