After finding a thought-provoking post about reaching the Small and Medium sized Business (SMB) on David Anderson's A VC in Vacationland blog, courtesy of a Coté thlinking entry, I immediately picked up a strong parallel between the barriers to cracking the SMB market facing proprietary software companies and the according strengths of open source software in being able to subvert them. David has the following to say:
"The SMB marketplace is, in a word, difficult, for many software companies. Small budgets, few staff people, and minimal technology expertise among other factors make the SMB's a tough sell for software and hardware. SMB's may be better candidates for structured services offerings than traditional technology product sales. Offering a complete managed services solution with outcomes, such as sales leads, that a small business can immediately act upon may be preferable to trying to sell them a software package requiring training and execution time from overworked internal staff."
He continues to list four important factors in developing SMB-targeted strategies for software products and related services. And while these factors hold for any software provider considering the SMB sector, the open source software industry is in a relatively prime position to meet the needs which regulate them. Subsequently, they should take steps to attain a better understanding of the competitive advantage of an open source model within this context and use it in the design/execution of product delivery strategies.
Below are the four factors, provided by David, as well as their relationship to open source business and delivery models:
- Partners -- Already an integral part of the overall makeup of the global open source ecosystem, even if qualifying factors may center less on industry [SMB specific] and more around geography [locality] but the concept is the same. Local VAR's and other resellers are critical to the process of delivering open source software driven solutions which meet the needs of the SMB. Mostly, they reach businesses which might be invisible to the originating open source software community and associated vendor. Since the open source distribution model powers the development of custom solutions on its own, the challenge lies in documenting the breadth of such a network. Interestingly enough, I've already proposed a resolution of types for this and of course there are other options. Plus, as David mentioned, SMB consultants are a key part of the equation. The main difference for open source vendors is that their strategies for driving a partner channel don't tend to be as resource intensive. Open distribution practices and strong use community branches enable the existence of what I term 'silent partners,' or those who are leveraging a product without the direct knowledge of the open source community/vendor.
- Software Design-- Often, having the source code available for a product grants users the freedom to customize as it to fit individual needs. However, a chunk of SMB's don't have the time or resources to do this internally. In those cases, the resellers and consultants mentioned in the previous section will generally step in and provide tailored software and service packages. This isn't to say that open source vendors shouldn't remain aware of how their product is most being used by the SMB, but that an open source model means the burden of enabling a product for specific use cases isn't solely on their shoulders.
- Pricing-- An area where open source maintains a considerable competitive advantage. Even when consulting, support and indemnification is involved, it continues to be a calling card for vendors in the space and attractant for smaller to medium sized customers.
- Software as a Service-- An emerging area in general, but one which has yet to discernibly sweep the open source industry. Ironically the emergence of SaaS is being driven in large part by the availability of open source development tools and infrastructure, i.e. LAMP, for building SaaS-type structures. SugarCRM provides a thriving example of the potential to be realized here, with a thriving ecosystem of third-party hosting options for its CRM solution. FiveRuns is another example, with a hosted option available for its Web 2.0 approach to systems management. The more overall momentum the SaaS evolution gathers, the more appropriate open source applications are set become available as a hosted asset, fit with the initial savings of open source being passed through to its customers.
In conclusion, open source vendors should look to enable, through a laissez-faire type approach, their business and distribution models to spur organic growth from the ground up amongst the SMB market. More so than proprietary offerings, open source products naturally mold themselves to the needs and requirements of users and customers alike. Whether by empowering partner channels or user communities directly, open source offers a unique value proposition to the SMB. However, there is still a need to fine-tune the methods for effectively reaching and growing this market.
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