CeBIT Gov 2.0 Conf: Open Source Wrongness
I was contacted earlier today by “Stephen from CeBIT”. Stephen ultimately was asking whether I would like to pay CeBIT for the privilege of presenting on open source related issues at an upcoming Gov 2.0 conference. Stephen’s line was that there would be many potential customers at the conference so it would be a good investment. In effect, Stephen was asking to be paid for marketing to Government.
Selling to Government, at least in Australia, is universally acknowledged to be difficult for SMEs. Ultimately the reasons for this are that the Executive is particularly averse to failure and are subject to fairness tests in the award of contracts. As a result, the Executive establishes a bureaucracy to ensure that each potential supplier is treated the same, and any engagement is subject to particularly extensive terms and conditions. All of this carries with it a cost of engaging with Government. In other words, marketing to Government is particularly expensive.
This is a particular problem for businesses based on open source because it means that the costs are heavily front loaded. Part of the reason businesses pursue an open source strategy is that they do not have a marketing budget sufficient to kick start their operation – they may barely have enough in order to develop the code. Several years ago John Roberts then CEO of SugarCRM spoke about marketing leverage of closed source vs open source businesses:
“I started looking at the financials of proprietary firms, and I started seeing that, some of the largest CRM providers that spent 80% of their operational expenditure on sales and marketing, and less than 10% on engineering.”
In other words, for an open source project to compete in a marketing sense, they would typically need to increase their headcount by a factor of 10. Note that none of these extra people are improving the value of the software or solution to the Government customer. All of them are engaged in lobbying the Government customer to adopt the product.
It gets worse – the expectation of Government is that these marketing costs are front loaded, and that they be recovered through licensing fees. As mentioned above these costs are extraordinarily high in a relative sense for open source SMEs. The corresponding risk of bidding for work is therefore very high – and higher the smaller the SME. The fees for the provision of services are seen to be largely undifferentiated – an hour of service on product X is seen as being roughly the same value as an hour of service for product. However product X is seen to be not comparable to product Y almost by definition (as their feature sets are different and/or the products may have network effects through lock in). The upshot is that no premium can be charged for the price of services, but a premium can be charged for the grant of a licence. Thus the only way to recover these costs is through the licence fee. You can see why this would be a problem for open source businesses.
It is somewhat pointless pursuing Government engagement with open source on these terms because genuine open source bids will always be underrepresented. The Gov 2.0 conference looks to be an exemplar of this problem in microcosm.
Government instead, needs to be proactive in seeking out and evaluating open source solutions and, in particular, being technology neutral in its acquisition terms. The Gov 2.0 projects seem to be not a bad model – with funding provided against open proposals with a comparatively low engagement cost. Standardising on closed data formats is particularly unhelpful, regardless of whether the format is an ISO standard. If necessary, Government needs to reengineer its procurement practices as necessary to address any procedural fairness issues.