Open-Source Solutions Catch Fire with VARs

Many channel partners discover open-source solutions are easier to sell, more profitable to service and can offer better margins than more traditional proprietary products.

There's a love affair brewing between channel partners and open source. After flying below the radar for several years, open-source solutions are gaining altitude in the channel as VARs discover there's money to be made in the open-source world.

More VARs, software developers and other channel partners are finding that open-source solutions present benefits over proprietary software and hardware, including better margins and broader opportunities to make money from customization and integration services.

Some VARs also contend that open-source software products are easier to sell than competing proprietary products because they typically cost less and  lack the unpopular per-seat license fees endemic to proprietary enterprise software

In addition, Linux, the premier flavor of open source, has a whole lot going for it that Windows doesn’t. It’s a very stable environment, virtually free of viruses, invasions of privacy and other computer attacks. Plus, it comes with all the necessary networking software, such as Apache, which runs about 50 percent of all Internet web servers. All good news for VARs that want to sell open-source solutions.

If that's not enough, it turns out the Linux market is growing rapidly mainly because Linux servers are being deployed in an increasing variety of enterprise functions.

“Selling open-source products from companies such as Astaro and Digium give us a distinct advantage over proprietary products,” said Greg Boehnlein, vice president, N2Net, a Cleveland-based provider of mission-critical voice and data services

“Open-source products not only cost less but they deliver fantastic margins,” said Boehnlein. “For example, I recently sold a Digium PBX solution at $500 per phone, while a comparable solution from Cisco or Avaya would have cost the customer between $1,200 and $1,400 per phone. The sale gave us a 35 percent margin.”

Open-Source Spending Grows

Spending on software related to Linux server operating environments (SOEs) is growing quickly with a 2006-2011 CAGR of 35.7 percent, according to an IDC white paper this year. Overall spending on Linux SOEs, including software, hardware, and services, is increasing at a 2006-2011 CAGR of 24.1 percent, reported the research firm.

Total Linux ecosystem spending, including customer acquisitions of hardware, software, and related services totaled $21 billion in 2007 and is forecast to grow to $49 billion in 2011, according to IDC. The key growth driver is adoption of Linux in the enterprise.

Yet another benefit that the open-source world offers to VARs is a deep ecosystem of professional and community-based technical support, said Jessica Tannenhause, vice president, Mavenspire, a Hanover, Md-based business and technology consultancy with a growing open-source practice.

Mavenspire sells a healthy mix of margin-rich, open-source products from Astaro, a maker of Linux-based, enterprise security products; Digium, the telephony innovator behind Asterisk Business Edition and the SwitchVox IP PBX; Novell , which has created various products, including OpenOffice.org Novell Edition for Windows, and Open Workgroup Suite; and Vyatta, which makes networking software and appliances

“Open-source technology gives us margins of at least 20 percent,” said Tannehause, noting that open-source products have moved from the techie domain to mainstream – a transition she largely attributes to enterprise-hardened versions of open-source software.

Margins on Digium products average 25 to 30 percent, said Bryan Johns, a partner in Shelton Johns, a Roswell, Ga-based VAR specializing inVoIP.

“While margins on Digium products are high, Digium products cost 40 to 60 percent less than proprietary ones, said Johns. “This situation leaves our customers a lot of room to afford our integration, customization and training services.”

Boehnlein said the lower cost of open-source products enables VARs to provide customers with estimates that easily undercut the pricing of proprietary offerings, ultimately giving customers more money to spend on integration and customization.

“There are a lot of opportunities in migrating companies from proprietary to open-source solutions, in building the middleware infrastructure to enable the migration,” said James Chinn, partner, Shadow-Soft an Alpharetta, Ga-based VAR that specializes in open-source solutions and SaaS.

Shadow-Soft has built a high-margin business around such migration by working with such core technologies as Red Hat Enterprise Linux, JBoss Enterprise Middleware, Alfresco Enterprise Content Management, and  Groundwork Open Source IT management and networking monitoring.

“Migrating or integrating open source and proprietary technologies is a key profit center for us,” said Johns.

 “We do a lot of business with companies that have proprietary phone systems and want to integrate their systems with open-source VoIP,” said Boehnlein. “Open-source and proprietary solutions continually overlap. Many people falsely believe that open-source and proprietary solutions don’t mix.”

As popular and profitable as open-source solutions are, it is curious that distributor Ingram Micro is one of the few distributors to promote such solutions. However, this situation may change as Tech Data is rumored to be launching an open-source initiative in 2009.

 “We don't promote open source as a separate entity, but we do support applications based on their value,” said Diane Lees, senior category manager, Ingram Micro. Lees said the distributor has strong relationships with many vendors that leverage open source.

 

TAGS: open source,Linux,software,VARs



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