Don't cry for Siebel: Why industry consolidation means open source savings for CIOs

Consolidation in the proprietary business applications market can work to the advantage of chief information officers seeking a deal on the open source alternatives.

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Oracle Corp.'s recent $5.85 billion purchase of CRM giant Siebel Systems Inc. and the greater trend toward consolidation in the proprietary business applications market could translate to attractive deals on software support packages for chief information officers willing to consider the open source alternatives.

Michael Goulde, an analyst with Cambridge, Mass.-based Forrester Research Inc., said those possible savings stem from the fact that open source applications vendors like SugarCRM and Compiere ERP tend to view mergers among proprietary competitors as an opportunity to woo potential new clients -- clients who might be unhappy or uncertain about the direction their current supplier has taken.

To get those customers, open source companies may be willing to offer special rates or packages, Goulde advises.

"[The Siebel takeover is] a ripe opportunity for folks at SugarCRM to be considered as one of the alternatives that customers of Siebel have," Goulde said. "Sugar could offer them a platform that might provide 80% of the capabilities of a Siebel and at a much lower price so it might be attractive."

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Less becoming more

In the late 1990s, the trend in IT was to seek the most feature rich systems available, and it was considered a barrier to the adoption of "no frills" open source software, said Stephen O'Grady, principal analyst with Denver-based RedMonk.

Today, he added, that former barrier may actually be one of open source software's selling points.

"I really think that what we're seeing in many respects is that the rise of 'good enough computing' has changed a lot of those enterprise perceptions," said O'Grady, who cited Linux as a prime example. "Events have proven that in fact managing costs and keeping your expenditures low is paramount."

While there will always be a segment of customers that want the most cutting-edge features, O'Grady said open source vendors don't need to offer all the functionality of a Siebel or a SalesForce.com.

"Essentially, the [modus operandi] of open source is that it enters a category and keeps its focus tight and keeps its focus narrow," O'Grady said. "It tries to focus on a narrow subset of core functions and do those very well."

Attacking small supplier bases is open source's forte

Forrester's Gould pointed out that the main categories of enterprise applications, such as enterprise resource planning and customer relationship management, have few dominant suppliers, including Oracle Corp. and Germany's SAP AG.

"That's just the kind of thing that open source has thrived in, attacking that base," he said.

Goulde said this has been a successful tactic for open source firms in the past, because when a specific software market dwindles down to just a few dominant suppliers, customers can expect the level of functionality across those vendors to become almost standardized.

It's then possible for open source developers to build competing capabilities because the functionality that are most in demand has already been defined by the few remaining suppliers, he said.

"[Consolidation] narrows down the scope of things that they need to address," Goulde said. "It [also] opens up an opportunity, because they can then address the gaps that those few remaining suppliers have left in their offering."

Consolidation also leads to higher prices for the dominant players' software.

"That's another area where open source tends to attack the economics of high cost software," Goulde said.

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