On the Road Towards Open Businesses

“Providers of open source software (OSS) are gaining increasing access to the business market”, stated Thorsten Wichmann, Managing Director of business consultants Berlecon Research, in an opening address to the SYSTEMS 2003 IT trade fair. In reality, there is a lot happening on the market for open source code software. Linux distributor SuSE Linux is being taken over by Novell, IBM and Red Hat want to make increased use of Linux in their desktop computers and the Swedish open source database producer mySQL is publishing the SAP-certified open source database MaxDB, a further development of the former SAP DB from SAP, headquartered in Walldorf. The cooperation between mySQL and SAP shows that open source is no longer just an amateur pursuit, but is it attractive to small and midsize businesses? “Yes”, says Lukas Mensinck from Mensinck Consulting, a company which specializes in the SMB market, “because using open source software guarantees low costs for SMBs.” According to Lukas Mensinck, an additional reason for this is that small and midsize businesses attach particular importance to the security and stability of e-business applications due to their increasing use. With OSS, businesses can also make their own decisions about software products and update cycles. “The key benefits for SMBs are the lack of licensing costs, the independence from proprietary manufacturer standards and the security and stability of open source products”, concurs Gert Schick, Client Partner of SAP Business Partner Cambridge Technology Partners.

Price-conscious SMBs

It became clear at SYSTEMS 2003 that small and midsize businesses now not only accept open source applications but are actually calling for them more and more. This is a trend which was confirmed by the European Linuxworld Conference. In addition to aspects such as “flexibility and stability”, the main issue for SMBs in using open source software is the question of price. A market study by Jupiter Research of several hundred SMBs (with a workforce of less that 1000) shows that small and midsize businesses have become more price-conscious and are considering Linux and other open source software as a low-cost alternative to proprietary products. Smaller companies pay particular attention to cost when choosing an operating system, explains Joe Wilcox, Chief Analyst at Jupiter Research. However, Soreon Research has identified that the cost benefits are currently greater for larger companies. With savings of between 25 percent in the case of office applications and databases and almost 30 percent in the case of servers, Soreon experts estimate that the potential savings from open source applications are significantly lower in small and midsize businesses, with possible savings of six percent (servers) and seven percent (office applications). According to Soreon, the reason for the lower savings by SMBs is their lack of in-house expertise about open source products. Businesses can only run the software with expensive external support and the resultant training costs put an additional strain on the budgets of SMBs.
This view, however, is contradicted by Lukas Mensinck. The question of when OSS can be used cost-effectively is less a question of the size of the business “but rather the extent to which IT is integrated in the business and the expertise available.” Gert Schick from Cambridge Technology Partners would also like this issue to be considered on a case-by-case basis and rejects “flat-rate figures” when calculating the benefits of using open source. “Cost-effectiveness”, argues Mensinck, “is always determined by the specific situation of a company. Depending on the sector, it can be beneficial to use OSS for as few as 10 to 20 workstations.” Schick nevertheless points out that support must be organized separately in the case of open source solutions and is not automatically provided by the manufacturer. “Small IT departments can quickly become overstretched in the process.”

The source is open but not free

One important point about costs which is often – and sometimes deliberately – forgotten in the discussion about open source is the fact that this source may be open but is in no way available free of charge. Recently, the SCO Group gave rise to considerable concern among businesses with its various announcements that it was to demand licensing fees for open source software from commercial users and its billion dollar law suits and threats of legal action. Unlike “freeware” or proprietary software, the source code is freely accessible with open source software and each user can modify the source code to his requirements and use and distribute OSS as desired. The only stipulation is that the software must be distributed together with the source code or the source code must be available from a freely accessible location.
However, Gert Schick of Cambridge Technology Partners states that “Small and midsize businesses have to pay for support and the configuration of standardized distributions and the systems must be integrated with external support.” “The key thing you have to weigh up is the balance between lower licensing costs and the costs for consultancy, service and training”, adds Lukas Mensinck. OSS therefore results in new cost structures due to the fact that SMBs have to rely on external consultancy and advice when developing IT concepts which are coordinated with their corporate workflows”, concludes Mensinck. Smaller businesses must also put greater investment in training their workforce in order to reduce running costs.
However, experts generally have no doubts that open source software is more cost-effective. In its “TCO for Linux in the Enterprise” study, the Robert Frances Group analyzed server installations using Linux, Solaris and Windows over a period of three years. The results showed that Linux was the most cost-effective platform both in terms of installation and operation. The Australian IT service provider Cybersource calculated that a company with 250 computer workstations could save more than USD 251,000 over a three year period by using Linux instead of Windows. However, Mensinck warns that TCO (Total Cost of Ownership) studies may completely distort the picture for small and midsize businesses because it is difficult to accurately quantify hidden costs such as training and time invested by smaller companies. According to a study at Sankt Gallen University, Switzerland, the decision to change to Linux is determined by five parameters – operating costs, licensing costs, infrastructure costs, support and maintenance costs and training costs. But this overlooks the fact that choosing OSS is also psychologically motivated. In Germany, for example, public authorities with a chronic shortage of funds are increasingly choosing OSS on the grounds of cost. But when municipal authorities such as Munich migrate to open software, this cannot help but encourage other public bodies and businesses to follow suit.

Just another business?

There is another development which must be considered. Distributors such as SUSE Linux are entering into partnerships with large software suppliers such as SAP. These partnerships lead to comprehensive solutions or “bundles” consisting of open source servers and an ERP system from SAP including support services. Open source software is thus “increasingly becoming a normal commercial business”, points out Thorsten Wichmann from Berlecon Research. This embraces all the benefits such as professional support and focussing on companies’ specific needs, but it also has drawbacks in the form of costs. “Just as open source is winning through in the case of commercial users”, states analyst Per Andersen from the market research company IDC, “the open source movement will also take on the paradigms of traditional business practices.” Andersen believes that the decision to use open source is not as simple as its advocates would like to maintain. Wichmann also warns about making generalizations. The key in deciding whether it is beneficial or not is to identify the areas of a business where open source software is likely to provide greater flexibility with lower costs. One thing, however, is certain – SMBs have set out along the road towards becoming open source businesses but there is still a long way to go.

Further information:

In general: www.berlecon.de/en/index.html, http://en.sap.info, http://www.dwheeler.com/oss_fs_why.html
Fairs: www.linuxworldexpo.de/en/index.php, www.linuxworldexpo.com/linuxworldny/V40/index.cvn
Studies: www.cyber.com.au , http://www.idc.com/, http://www.jupiterresearch.com/bin/item.pl/home, http://www.rfgonline.com/
SAP AG: http://www.sap.com/

Dr. Andreas Schaffry
Dr. Andreas Schaffry