The Market Scope For Commercially Supported Open Source Content Management Systems

Coming Out of the Closet:  The Market 'Scope' for Commercially Supported Open Source Web Content Management Systems

June 2008 saw the release of Gartner's 'MarketScope for Web Content Management' and a wealth of related press coverage.  It drew mixed reactions here at Squiz.  Whilst we're delighted that Gartner is focusing its attention on WCMS's as a product category, initially we were a bit disappointed to see the report neglecting the impact of open source solutions.  

I say initially disappointed, because, having slept on it, it's fairly obvious that Gartner could do nothing more with the category of 'open source CMS' than brush it to one side.  After all, how can you measure the impact of a free product in a marketplace that's 'scoped' primarily in terms of license revenue?  (For the record, Gartner places the value of the worldwide WCMS market at $750 million, and pins it's leadership badges to commercial firms such as Interwoven and Ektron.)

This in itself got us thinking.... Isn't the criteria for most scoping exercises a little misleading?  To be (in Gartner's terms) 'Promising,' 'Positive,' or 'Strong Positive,' then revenue performance, married with product functionality and service capabilities are clearly important: but is this the best possible representation of value?

As you'd expect from an open source vendor, we think not.  Other aspects of the product proposition are equally important.  Values such as ownership, extensibility, control and openness are all critical in choosing a CMS - and for open source solutions, these things often exist on a totally different plain to commercial software.

A Better Measurement of Value:  Total Project Spend

But this doesn't need to make the market impact of open source CMS's unmeasurable.  Instead, rather than using vendor license fee revenues as the primary marker, perhaps a better gauge of market dynamics be the total volume of customer spending and how this is apportioned.  (Granted, for  Gartner et al, this would be tough because no customer is ever obliged to report in this way to them... but go with us for a moment here.)  

If we look at things this way, then we can get a very tangible feel of the scope for open source software and the WCMS market as a whole.  Think of 'total WCMS spend' as a pie chart.  In it we have a slice of the pie for 'software acquisition,' and other slices for items like 'editorial staff and IT team training,' 'core software development,' and 'CMS implementation' and 'support.'  These segments would be made up of revenues from CMS vendors, systems integrators, web agencies and training companies (and, importantly, internal staff resources) - in other words, a bunch of service organisations as well as CMS software firms.

So, if we did a WCMS project spend comparison between a functionally similar commercial CMS and an open source CMS, we'd get a very different picture.  On the one hand, a significant part of the pie would represent 'software acquisition' (or license fees), whilst on the other, this segment would be absent.  This much is obvious - it's the classic paid-for or open source license choice.  But it's what happens to the rest of the pie that's really interesting.  

License Fees, Professional Services and 'CashBack' Scenarios

If we assume the total project spends are equal, then one project gets less training or development time whilst the other one gets more.  Or, we could assume that both get equal training  and development time but one is cheaper than the other.  Or, we could assume that all things are equal except the license fee and so one project is more expensive than the other. 

In reality, things are never that clean cut or clinical.  (And perhaps this is why the analysts prefer to put open source implementations aside.)  The key part of the overall value chain (or pie) is the softer, non-product element - the spend on dedicated, professional development, implementation and support services.  As such, 90% of our 'open versus commercial' comparisons wither on the vine because the majority of open source CMS' simply can't (or don't) offer these things.  And even when it can be delivered - as is the case with Squiz and Matrix, Alfresco and other systems such as Drupal that have built up some hardcore professional services businesses around them -  the pie chart comparisons become a little lop-sided.

In our experience, the promise of open source software in terms of the overall project value proposition is something similar to a 'CashBack' offer to the customer.  When we're in a competitive situation where functionality is proven and most other things are equal, open source hands the license fee cash back to the customer to go and do whatever they please with it.

As a result, our 'market scope' is very different to most other commercial CMS vendors.  Often times we seem to punch above our weight.  We've been delighted to knock Interwoven off its perch on more than one occasion:  ditto Microsoft and Vignette.  We also (very happily) punch below our weight in the sense that our overall value proposition means that customers who were looking to do less suddenly find they can do a whole lot more.   

In other words, the scope and direction for commercial flavours of open source web content management like us - and we're just going to call it 'Supported Open Source Software (SOSS)' from now on in - jumps all around the map that's given to us by market research based predominantly on license fees.

Out of the Closet and Onto the Map:  Squiz Becomes a Revenue Player

At this point, I should say that this reaction to Gartner's MarketScope WCMS report isn't a complaint.... it's more a recognition that it's hard to compare apples and apples when it comes to evaluating commercial CMS's versus Supported Open Source products like MySource Matrix.  

But, that said, let's take a look at the numbers in this new context and see what sense we can make of things....  

Side note:  please note that this is an 'Out of the Closet' moment for Squiz because we've never talked about this stuff publicly before!  So - drum roll please.....

Last year, Squiz's global revenues were US$15 million.  This total represents a small amount for our 'SSV' license (the 'professionally warranted' version of our CMS), plus more significant amounts for site design, development, implementation, support, and hosting. (Please don't ask us to break these out because we won't!)

Now, Gartner rates the worldwide value of the commercial WCMS market at $750 million.  In addition, as of now, the entry point for vendor inclusion in its MarketScope report is $10 million in revenue per year.  Let's for a moment assume that all of this money is attached purely to licenses - which is unlikely, as services and support revenues will probably be bundled in amongst much of it.  And let's assume that on average, revenue for the services-led elements of each WCMS project represents a similar additional spend.  So, at the lower end, a $10 million year in license revenues would create a further $10 million in service fees; and, staying with these numbers, the overall market for WCMS project value is around $1.5 billion (ie, twice the value of licenses alone). Using this crude maths, we can say that if a player like Squiz - with offices only in Australasia and the UK right now -  were to license its product in a comparable (commercial) way, then we'd currently be looking at revenue stream of an additional $15 million on top of our core services revenues (and total revenues of $30 million).... Which would place us fairly and squarely as a significant force in Gartner's map of the WCMS world.

But the point of this guestimation exercise is not to beat our chest. (Far from it - we're very, very aware that to double your revenues in this marketplace takes a little more effort than applying a new price tag!!). No, it's to illustrate the point that - whilst Squiz is growing extremely fast - the overall market value for Supported Open Source CMS's, both in terms of revenue and perceived customer value, is significantly distorting the 'scope' of the WCMS marketplace as a whole. In fact I'm sure our friends at Alfresco and Spike Source - both being significant players with significant revenue streams in this marketplace - would love to add to these thoughts....

Positive Distortion: Supported Open Source Content Management Systems, The New Mid-Market and the 'Value Vortex'

Most importantly, we know that this 'distortion' of the market is 100% a positive thing from our customers perspective. Supported Open Source CMS's are helping customers to reassess the value of their spending.  By shifting the focus away from license fees and on to the essential service-based spending that they have to make in order to ensure their projects are a success, Supported Open Source helps them to think through what it really takes to implement a good web content management system.

In this way, Supported Open Source is creating a completely new mid-market for enterprise WCMS's - one that Gartner isn't tracking right now.  Rather than being based purely on the normal continuum of functionality and license fees (low at one end, high at the other), the market for enterprise Supported Open Source CMS's creates something extraordinary in the middle.  We like to think of it as a positive Vortex - a different plain of 'value' that gets revealed once people realise that product costs and functionality have to be strongly tied to other big ticket items like support, training, custom development and implementation. 

As mentioned, for some customers this moment of clarity often creates a 'CashBack' effect.  (And these guys - by buying more for less - tend to get treated like super heroes by their procurement department and earn promotion quickly).  For others though, the Vortex messes with the map in other very positive ways.  It allows people who were previously looking to spend no more than $75,000 to get a site that vaguely resembles an out of the box Amazon.com.   And at the other end of the scale, it enables the $250,000 guys to get something that's amazingly customised to their business requirements and is tuned to perfection.

Which I guess is my ultimate message here.  If you're looking to spend between $75,000 and $250,000 on your next major web site revolution, then you simply have to look at scope of the new market being developed by Supported Open Source CMS vendors like Squiz.  We really are doing something very special to the enterprise WCMS value chain.

Author: Stephen Morgan
Published: 29 Jul 2008 11:04am