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Each issue of CMO Close-up features an interview with a CMO, as well as other marketing executives answering that issue's "Big Question."
This week's feature:
Close-up with Keith Pigues, VP-CMO, Ply Gem Industries
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'Open source' vendors push advantage
IT buyers seeking cost- savings on software ripe for marketing messages
Story posted: March 9, 2009 - 6:01 am EDT
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Ready to get jealous? How would you like to work in an industry that benefits from economic downturns and for companies that see revenue, customer acquisition and budgets grow during these toughest of times?
While the majority of b-to-b marketers struggle with budget cuts, layoffs and an overall need to do more with less, one specialized sector is reporting a relative boom time.
Open source software companies create applications that cost less—many are distributed free of charge to start—than mainstream alternatives. Even when customers start paying the software developer a so-called “support license,” costs are amortized on a monthly basis rather than through a large, upfront license. That's an attractive payment model when cash and credit are tight. And IT spending indeed is tight. According to IDC, U.S. tech spending this year is expected to decline 0.9% (see story, page 3).
“Over the last few years, our main message to the market has been about choice and about value,” said Leigh Day, senior director of global corporate communications for Red Hat, which bills itself as the world's leading open source technology solutions provider. “Now, that is resonating even more clearly in the market due to economic pressures.”
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CAPITALIZING ON THE ECONOMY
“[IT departments] may be having their budgets cut, but they still have directives from their bosses to move forward with critical projects. Our experience validates very strongly the idea that the downturn is increasing interest in open source. Do we capitalize on that? Absolutely,” said Nick Halsey, VP-marketing at Jaspersoft Corp., which builds open source business analytics software. “We are focusing more than we have in the past on the economic value of open source.”
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DOT-COM ECHOES
A bad economy's positive impact on the open source industry has happened before. During the dot-com meltdown in the early years of this century, the Linux operating system—still the heart and soul of the open source movement—established its legitimacy, setting the stage for the success of such startups as Red Hat. Even established companies like IBM Corp. and Sun Microsystems decided to make open source a major part of their software strategies.
Coming out of the last crash, Red Hat grew revenue 14% in 2002, 38% in 2003 and 58% in 2004. It's still growing. Red Hat's last reported quarter, ended Nov. 30, saw revenue increase 22% from the previous year.
While Red Hat has been consistent with a cost-savings marketing message for years, it has turned up the volume in recent months. Late last year, it kicked off its “Carve Out Costs” campaign (see it at redhat.com/ carveoutcosts), intensifying the value message. The vendor built a microsite, launched webinars, created sales enablement content and solidified its communications strategy across the company as part of the effort.
Significantly, Red Hat did not invest in print, online banner or even search advertising as part of that campaign. “We don't do a lot of costly advertising,” Day said. “We find a lot more value in customer nurturing through e-mail touches, events and webinars.”
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STRATOSPHERIC NUMBERS
That sort of low-key, community-based marketing is common among open source vendors. It keeps overall marketing costs low, but typically grows the total number of individual activities to stratospheric numbers. For instance, commercial software companies selling enterprise solutions may have 100 customers, said Jaspersoft's Halsey. “I market to 90,000 registered developers,” he said. “It's just astounding.”
Jaspersoft's situation is typical in open source. Marketers must maintain relationships with a massive, distributed community of techies and coders while reaching out for new customers among IT professionals who have historically worked with traditional software vendors.
Halsey's solution has been to focus his efforts around JasperForge.org, a community that hosts the vendor's developers.
“We do everything we can to help enhance the community platform—things like newsletters, webinars, technical meetups,” Halsey said. “A lot of it is virtual communications, so it is relatively low-cost. That's a big chunk of our marketing activities.”
To reach new customers, Jaspersoft markets through such industry organizations as the Data Warehouse Institute and the online-centric BI Network, with combinations of sponsored communications, news-letters, webinars and a presence at physical events. Jaspersoft also co-markets with other, larger open source companies, including Red Hat and Sun, on whose platforms its applications run.
Last but not least, Jaspersoft and other open source vendors invest in search marketing, both organic SEO and paid keywords. Jaspersoft, for instance, averages about 1,000 new customer registrations per month from pay-per-click ads alone, Halsey said.
Open source vendor OpenLogic, which sells software that helps companies manage their open source projects, focuses its marketing on inbound lead generation (through SEO and Google AdWords) and outbound telemarketing. It has seen inbound leads, in particular, double on a monthly basis recently, as prospects look to save money with open source, said Kim Weins, senior VP-marketing at OpenLogic.
“From a marketing point of view, I think it will be a very good year for open source,” Weins said. “We're willing to try new things but not willing to spend a lot of money on them.”
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UP-SELL CHALLENGE
A unique feature of open source software companies is that, for many, only a portion of the people using their products are paying customers. That's because revenue often doesn't start flowing until a follow-on professional services contract is purchased by the user.
Because of this, open source companies must continue to market to customers after the initial sale or no-cost installation is made, Open- Logic's Weins said.
“There are two ways we sell support on open source to new customers: strategically, as an enterprisewide deal to provide broad coverage on support, and tactically, for support in a particular situation,” he said.
Reaching customers in those two scenarios requires a variety of marketing tactics. Sometimes, customers who reach a milestone (say, a project starts or goes live), come to OpenLogic and ask for a quote for extra support. In other cases, OpenLogic and other open source vendors must continue outbound marketing, upselling professional services, for some time.
Other open source companies modify this business model by simply bundling a certain level of support into the initial license price.
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IMPLIED THEME
OpenGear recently conducted a Google AdWords campaign for “terminal servers,” a very competitive area. It tweaked its AdWords headline to “Programmable Linux terminal servers,” knowing that the simple addition of the world “Linux” would drive the value message home to customers.
“The obvious advantage of open source is that it's lower cost,” said Todd Rychecky, VP-North American sales and marketing at Open- Gear. “You don't even have to [explicitly] say your solution is the cheapest to hammer home the value message.” M
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