Jim Whitehurst may yet regret emphasizing a cost advantage

Open source vendors should focus on value delivered, or risk entering the spiral from paying customer to free user.

I've had a few discussions with customers over the past week that lead me to believe that Jim may regret the emphasis he is putting on the cost advantage of Red Hat's products. Here are two quotes from Jim's interview with Computerworld:

I've had a couple of conversations with CIOs who said "we're a Microsoft shop and we don't use any open source whatsoever, but we're already getting pressure to reduce our operating costs and we need you to help put together a plan for us to help us use open source to reduce our costs.

And we've had other customers literally looking at ripping and replacing WebLogic or WebSphere for JBoss, so I do think that we will pick up quite a bit of new business where companies are looking to save money from what they are doing ...

The problem with "use open source to reduce our costs" is that the conversation leads customers and their vendors down the path toward lowest-cost wins. Many open source vendors have attempted to shift the discussion to the business value delivered (i.e. innovation, ease of use, lightweight, etc.), rather than focusing on cost. That's the absolute right decision, and one that's taken open source vendors many years to figure out.

I'm concerned that in today's economic climate, leading open source vendors will revert to the cost discussion in an effort for short-term revenue gains. But these vendors will face customer pain when subscription renewals come up in one, two, or five years and the customer threatens to simply use the "pure" open source edition of the product if they don't receive a significant discount. That's why open source vendors need to compete on value delivered, not price, and that the products sold need to be differentiated versus freely available versions.

As they say, live by the sword, die by the sword.

What do you think?

p.s.: I should state: "The postings on this site are my own and don't necessarily represent IBM's positions, strategies, or opinions."


Copyright © 2008 IDG Communications, Inc.