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Indian Outsourcers: Open Source's Best Friend or Worst Enemy

In the past couple of weeks I have had several conversations in which Indian IT outsourcing shops have come up in the context of Open Source.  Several Open Source firms have mentioned that Indian outsourcing shops are becoming very good customers and in some ways are really starting to drive enterprise IT adoption of Open Source.  For example, one Open Source company mentioned to me that several Indian outsourcers were aggressively using their distributions as way to cheaply prototype solutions for clients without having to actually buy a license.  If the clients bought the prototype, the outsourcer could deliver the solution with the "free" open source software embedded in it and stick the client with the maintenance.  The pricing headroom created by the lack of up front license fees in the project allowed the outsourcer to lower prices and/or improve margins on their upfront work, while the Open Source software firms got the back-end revenue stream.  A real win/win.

If this is indeed a real trend (and the logic/economics make a lot of sense) than it would appear that Indian outsourcers are one of Open Source's best friends.  Not only are they driving adoption of the products into enterprises (both overtly and somewhat covertly), but because everyone is hiring them as "experts", their endorsement of open source platforms is likely to start swaying the minds of a lot of internal IT types ("If it's good enough for the experts, it's good enough for us").

Be Careful Who You Partner With
I was pretty much set on this opinion until I talked to an entrepreneur friend of mind who was telling me about his own set-up.  He has outsourced all of his IT to India (it's interesting to note that he has also outsourced his CFO to India, his customer service to the Philippines, and his manufacturing to China).  For his CRM system, his outsourcer recommended a well known Open Source CRM platform and even offered to customize it for his needs.  This would seem to prove the above point in spades expect for the fact that in addition to the customization work the outsourcer offered to do all regular maintenance and support for $10/hour.  This meant that my friend had no need to buy a support contract from the Open Source CRM company which means, being a cash poor entrepreneur, he didn't.

Now the idea of a 3rd party providing open source support is not a new one and is often held out as a convenient Open Source boogie man.  For example, Oracle has made a big deal out of its own efforts to offer 3rd party support for Red Hat's Linux distribution.  However, big firm's such as Oracle are never going to be the low cost providers of support and are not likely to view 3rd party support as a core business.  That's not true for the outsourcer's though.  They are definitely focused on being cost competitive.  What's more, support services have the potential to become a critical component of their business models as it gives them a means to not only generate more stable non-project based revenue streams, but also a persistent connection to their customers.  After all, what better way to amortize their up-front training costs and ensure continuing proficiency than to have their own troops continue to support Open Source products once they are deployed.

A New Chapter In Open Source?
It is interesting to consider how this might all turn out as it may lead to a new chapter in the Open Source movement, which seems to have had 3 major chapter to date. The first chapter was the relatively long process of building a grass roots movement to embrace Open Source.  The second chapter was largely about big companies selectively co-opting elements of Open Source in an attempt to commoditize competitors' products (IBM's masterful embrace of Linux as a way to kill off Windows NT's march into the glass house comes to mind).  The third chapter, our current place in the story, is characterized by the rapid growth and financial viability of Open Source companies combined with a competitive response from some of the same proprietary software firms that now belatedly realize they have created a monster.  At this rate, the forth chapter may well be a battle between outsourcers, who seek to use Open Source as way to commoditize all software, and Open Source firms who seek to build sustainable support businesses without giving away the farm.  Alternatively this chapter could end up witnessing a strong alliance between the two sets of firms which results in a win/win for both sides (and a lose/lose for proprietary software firms).  From my perspective, it's not clear right now which way things are going to go, but it is clear that things will likely be fun to watch.

April 28, 2007 in Open Source, Software | Permalink


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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.