Open Source TCO

InfoWorld’s Russell Pavlicek writes:

For the first time in recent memory, I find myself in total agreement with Microsoft CEO Steve Ballmer. According to published accounts of the Microsoft Fusion 2002 conference, Mr. Ballmer said, “We haven’t figured out how to be lower-priced than Linux.”

He adds, “Cost of acquisition has been only a small part of the equation for calculating the TCO (total cost of ownership) of a PC solution.”, and then elaborates on the various factors that go into making up the TCO.

Separately, Brendan Scott has written a paper on Why Free Software’s Long Run TCO must be lower . The abstract:

This paper argues that the long run total cost of operations (TCO) for a suite of proprietary software must necessarily be greater than that for an equivalent suite of free software, with the TCO benefits maximised in the case of the GPL and GPL-like free software. The total cost of operation of a suite of free software is the price determined by a competitive market for a bundle of goods and services associated with that suite. Because the source code is open and not subject to limitations on development or distribution, the market for services relating to that code will be perfectly competitive. A rational vendor will use a proprietary route for a program only where releasing that program in that way will allow them to increase their profit above that which would be returned to them by the operation of a competitive market. This result should be hardly surprising, given that the express objective of copyright law is to mandate a market failure and permit software creators to extract above market rents as an incentive for the creation of that software.

Customers attempting to evaluate a free software v proprietary solution can confine their investigation to an evaluation of the ability of the packages to meet the customer’s needs, and may presume that the long run TCO will favor the free software package. Further, because the licensing costs are additional dead weight costs, a customer ought to also prefer a free software solution with functionality shortfalls where those shortfalls can be overcome for less than the licensing cost for the proprietary solution.

TCO is our selling point for the Thin Client-Thick Server solution. We need to examine all the factors that make up the TCO over a 3- to 5-year timeframe. It will also dictate how we do our pricing, and the complementors we need to work with for providing a total solution to the customers.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.