| Using open source to make money on generic PCs |
Jun. 08, 2006
Say you're in the business of making PCs. And, you want to make money at this business.
It's not easy. There was a time in the 90s when you could slap some cards into a motherboard, put a generic gray case around the electronics, stick an ad in Computer Shopper, and start cashing the checks.
That was a long time ago.
Today, margins on "white boxes" -- generic PCs from non-brand-name vendors -- are razor-thin.
When everyone in the world bundles Windows XP with their PCs, why not try something different so you can stand out from the crowd? Do these companies want their PCs to be just another pink flamingo in a flock of flamingos?
Besides, with XP Home Edition OEM (original equipment manufacturer) version running around $80 per copy, Windows alone makes up a big part of the price of any PC. When customers take only ten seconds on the Web to find the best-price for a computer, every dime matters.
Now, the well-known Australian open-source business, Cybersource Pty. Ltd., has an idea on how to stand out and increase reseller margins: the Cybersource Systembuilder Margin Doubler Toolkit.
The goal is simple. Presuming that you have a 10 percent margin on your PC sales, Cybersource wants to double it to 20 percent. How? By simply bundling quality open-source software on Windows PCs, and by selling Linux-based PCs.
"For system builders, the biggest medium and long-term threat comes from the brand-name (tier-1 and tier-2) vendors," says Ron Fabre, Cybersource products and services manager.
"These big vendors buy OEM Windows licenses for much less than system builders. This creates an unequal playing field and unfair competition for the smaller players. Cybersource wants to level that playing field and boost the profile of open source software in the process, so we built this toolkit," Fabre continues.
How do they propose you do it? "The toolkit takes a recipe-like approach, offering a sample process by which system builders can bundle open source applications, how to market the new hardware/software product bundles, when to introduce Windows/Linux dual-boot products, and a catalog of top-notch open source software which runs on Windows," adds Fabre.
Cybersource's doesn't sugarcoat the approach. They know the vast majority of customers still want Windows. As the company states in its document describing its business, "Simply slapping Linux onto a PC and trying to sell it" won't work. "It takes a little more effort than that."
Therefore, they suggest adding the top ten or 20 open-source user and business applications, such as Firefox, Thunderbird, PDFCreator, OpenOffice.org, Scribus, Gimp, and Inkscape. This way, a PC seller can offer two systems -- a vanilla one, with just the operating system; and, for a few dollars more, one with all those open-source goodies ready to go. Better still, the distributor can offer all this for substantial discount off of the price of a PC with Microsoft Office, and the like, already installed on it.
Once you're making more profit and your customer-base trusts your open-source applications, then, Cybersource suggests, it's time to put Linux out in the market.
Specifically, the Melbourne, Victoria-based company recommends that you pick a nice, full-featured Linux like Fedora Core 5, Ubuntu, or OpenSUSE 10.1; include all the features Windows users expect, such as the ability to play DVDs, mp3s, and WMF (Windows Media Format) files; and be sure the distribution's video, wireless, and audio drivers work well with your system.
Cybersource suggests offering that package for 15 percent more than your base Windows package, five percent more than the Windows plus open-source applications bundle. Of course, since you, as a reseller, are no longer paying the Windows tax, your profit margin on these boxes will now be 25 percent.
Fabre also sees this not just a way for you to stand out in the herd of smaller players. He points out that, "Because the name-brand vendors are too scared of offending Microsoft, they will not play in this emerging market, leaving it totally open for the smaller players."
Therefore, this will make it easier for "smaller industry players who may be struggling to find the differentiation and margins which they need to remain competitive"
"And it's a win-win situation. The more system builders that bundle this software and pre-install dual-boot Windows/Linux PCs, the more that software gains desktop traction, adding even greater perceived value to the software, thus further boosting customer demand and thus system builder margins," Fabre concludes.
Cybersource would, of course, be happy to work with resellers to deliver these PC packages. However, what the company is really doing, is offering a detailed road-map to making money from Linux and open-source for any white-box vendor both in Australia and anywhere else.
It does sound tempting, doesn't it?
-- Steven J. Vaughan-Nichols
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