The Lure Of Open SourceThe Lure Of Open Source

Business also continues to grow for JBoss and SugarCRM, as well as leading open-source consulting firms such as Optaros and Olliance Consulting. Many popular open-source middleware and application suppliers have launched partner programs and unique partnerships with Redmond, Wash.-based Microsoft to serve their Windows customers.

One Sun Microsystems partner said the shift to open source has impacted IT spending, budget allocations and partner profitability. It has driven costs out of the network and Web-facing tiers and allowed customers to spend more on the data-facing side of the organization, which tend to be higher-margin opportunities for partners, he said.

“It shifts the dynamics of how people are spending money,” said Mark Teter, CTO of Advanced Systems Group, a Denver-based partner of both IBM and Sun. “Linux has driven out the proprietary nature of the application stack and given IT organizations more budget allocations for other infrastructure components like storage and data management.”

Data management, for example, represents 40 percent of total revenue for Advanced Systems Group but nearly 60 percent of its profits. “It allows us to do projects and new businesses that were not economical two years ago, like video archiving. From a partner standpoint, we have to evolve and we have evolved from being focused on the infrastructure to the applications stack and other IT areas such as storage,” Teter said.

Although some partners bemoan the fact that many SMB applications are not yet available on Linux, the emergence of a new class of cost-effective open- source applications is leading to some wholesale migrations.

Open Country is an open-source management software company that recently released OCM Universal Management Suite 3.0, a universal systems management platform for Linux that includes a core manager, provisioning, backup, Web-based administration and support for both physical and virtual servers. The company has both a direct sales model and a reseller model, but its solution is built to be channel-ready: one person, a customer or a partner, can manage up to 50 Linux servers from a single console, said Michael Grove, CEO of Open Country, Belmont, Calif. The company has signed on a number of OEMs and smaller VAR partners and is targeting MSPs including systems integrators and VARs.

Grove said VARs can deploy these managed services to many customers. “This enables channel partners to acquire new high-margin revenue sources,” he said. “They solve the problem once and pass it on to 25 different companies.”

THE PROFITABILITY QUESTION
Yet, it is clear the channel model for Linux and open source is still evolving. Microsoft is quick to caution partners that the Linux and open-source ecosystem is tiny next to the Windows and Office franchises, so they should look twice before they leap.

“There’s a fundamental profitability question. Where are the real margins—it is really unclear,” said Bill Hilf, director of platform technology strategy at Microsoft. “Red Hat has shown that its business is still really, really small next to Microsoft’s. Partners are betting on the hope that this stuff takes off.”

HP’s Linux chief agreed and said vendors are not trying to cut partners out of the services game. “We’ll leverage our channel partners’ expertise,” said Christine Martino, recently appointed vice president of HP’s Open Source and Linux Organization. “Service partners must build open-source capabilities.”

Novell, for example, recognized just $56 million in revenue for all open platform solutions during its first quarter ended Jan. 31. Only $13 million of that flowed from SUSE Linux and other open platform products designed for Linux, it said. For its part, Red Hat generated $79 million for its fourth quarter ended Feb. 28 vs. $57.5 million in the same quarter a year ago.

And there are still some partners that say the open-source vendors have a lot to learn about the channel. “In terms of the channel friendliness of the Linux players? For me, at least, they’ve been persona non grata,” said Daniel Haurey, managing partner at Exigent Technologies, Morristown, N.J., which runs Red Hat Linux on VMware. “I think we had one visit from a Novell rep awhile ago and no contact from Red Hat,” said Haurey. “I’d like to see the Linux players make a resolute effort to reach out to us and really prove their willingness to work the channel for mutual benefit.”

No one expects an overnight tidal wave of service deals. But those beginning to ride the wave say the future looks bright. “It’s still evolving, clearly,” said Akibia’s Tucker. “Novell and Red Hat have different strategies in driving their business, and they’re looking to experiment with channel partners to see what model will work.”