CeBIT Gov 2.0 Conf: Open Source Wrongness

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.


8 Responses to “CeBIT Gov 2.0 Conf: Open Source Wrongness”

  1. 1 HH 1 July 2011 at 7:09 pm

    Interesting thoughts. I’m part of a SME in a specialised area who has just finished the implementation phase of a federal (aust) government contract and would completely agree with the above.

    Our solution did have a number of proprietary components, but outside of our core internally developed software, the majority was open source (commercial components were windows server, sql server and citrix xenserver, open source was (amongst other things), postgresql, postgis, apache, rabbitmq, python, nagios, mercurial, postfix). During the tender response, we were required to provide justifications and risk assessments for all of our open source software. Nothing asked about the other commercial components.

    Our contract is as you have said, mainly weighted towards licensing and support fees. I was shocked when submitting the last up front invoice at the amount of work we had done and the small size of the invoice.

    Completing the tender process and up front development has been VERY expensive. This will be made up over the terms of the contract, but for a smaller player or someone in a less niche area would be almost impossible.

  2. 2 brendanscott 1 July 2011 at 10:03 pm

    Thanks HH
    Anyone else with an experience to share?

  3. 3 HH 4 July 2011 at 1:00 am

    Is the above comment spam? Kind of feels autogenerated and links to an unrelated website.

  4. 5 Anonymous 5 July 2011 at 2:28 am

    What prevents you from charging license fees for free (as in speech) software? Only very few open source licenses forbid this, and those don’t qualify as free anyway.

    • 6 brendanscott 5 July 2011 at 9:37 am

      Well, actually the grant of the licence comes from the original copyright holder. So technically, (unless you’re the copyright holder) you can’t charge for a licence under an open source licence. However, you can charge for the provision of a copy.
      If that works it would be good, but I suspect Gov would get upset if they were charged more than everyone else for a copy.

  5. 7 Leonard Samuelson 6 July 2011 at 12:16 am

    The U.S. has (or maybe “had”, it’s been a few years) a program called “Small Business Innovative Research”. The purpose of the program was also intended to assist SME in gaining access to government contracts. Our government contracting system is also insanely expensive, and the problem is so serious as to require congressional action (SBIR is a congressionally mandated program).

    The process is usually phased, such that the first phase is a contract with small stakes ($50000-$100000 US) and proportionally reduced legal complexity. Second phase gets closer to a million, and the third phase is considered truly commercial in scope and marketing. Unsurprisingly, projects crossing the phase-2 to phase-3 gap (chasm :-) ) often include “partnering with” or “acquisition by” much larger entrenched suppliers.

    SMEs would compete by writing proposals which have strictly limited size (25 pages for phase 1, etc.) to hold proposal costs in check.

    The originating entity (the SME) handles copyright and intellectual property ownership issues, and the question of how much free/libre/open source is involved is essentially irrelevant to the government’s choices.

    I find that model to be worth considering, as it levels the playing field between SMEs working in the very low capital space (mostly open source) or a more midrange capital space (mostly proprietary, research-ish).

  1. 1 Links 7/7/2011: Linux 3.0 RC 6, CentOS 6.0 Coming | Techrights Trackback on 7 July 2011 at 8:45 pm

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