Resolving the chicken-and-egg dilemma in Purchasing's inefficiency

Enterprise software is expensive, in part, because enterprise Purchasing departments make it so. Can open source help?

I had a great lunch with associates from rSmart, Unicon, and MIT today at the JA-SIG Conference, and we talked about a vexing issue that plagues software, open source and proprietary alike (though it hurts the open source vendor more): the high cost of sales. (I credit John Lewis, Chief Software Architect, Unicon, for any intelligence in my musings, and take full blame for the inane shrapnel that is my personal contribution to the thread.)

The proprietary world's P&L operates much like the VC's: high, upfront return (license) to cover the expense that Purchasing puts vendors through to earn its business. (Repeat visits, RFPs, etc.) In other words, the proprietary vendor spends five figures on five deals to hopefully get a "home run" return on one of them to subsidize and exceed the costs.

Open source vendors operate differently, as Larry Augustin pointed out at OSBC. [PDF] Open source vendors are about volume in leads, with the leads finding their way back to the company to purchase. Four figures (or less, often) to close a deal, with the intention being that more deals within the pipe will close.

I've talked before about the black holes that RFPs create. My question: will open source contribute to a more rational mode of conducting the purchasing process?

In other words, since there's generally less risk upfront (try before you buy, and buy at a much lower price), perhaps Purchasing will lower the bar to closing deals. Why do a paper RFP with five vendors when you can closely evaluate two, by touching and using the actual code/product? Most RFPs, of course, are designed with a chosen vendor in mind, anyway - they're simply facades of in place of real scrutiny.

What do you think of my little corner of Purchasing Utopia? Frankly, this is something that would benefit both proprietary and open source vendors (and the customers, too, because they'd get the same software at a lower price). There's really no reason for software prices to be so high, but vendors and buyers have been complicit in creating a wasteful, painful system.

If open source (and SaaS) doesn't condition Purchasing to require fewer needless hoops to jump through upfront, because the software is pre-evaluated and pre-approved, what can?

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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