My colleague Jeff Potts analyzed a recent white paper coming from Alfresco, comparing the cost of Open Source versus Proprietary solution. According to Jeff, this is a good read. Here’s his assessment:

If you are evaluating ECM solutions, particularly if you are interested in cost, you need to take a look at Alfresco’s TCO Whitepaper. In it, Alfresco uses licensing numbers they snagged from the United States government to compare the first year costs of their solution with EMC/Documentum, OpenText, and Sharepoint.

When the whitepaper came to my attention, I expected it to be Marketing hype, full of soft numbers and exaggerated claims. While readers must take the paper with a grain of salt considering the obvious bias of the source, Alfresco does a good job of avoiding Marketing speak for the most part and simply laying out the facts. The whitepaper shows line item detail for licensing and support for the first year. If you want to include supporting infrastructure (OS, application server, database) in your analysis those are provided for you as well.

The paper shows that for document management plus collaboration and integration with SharePoint, you’d have to pay EMC/Documentum $863,937.98 for a 1000 user configuration as opposed to $318,738 for SharePoint and $33,500 for Alfresco for similarly-sized systems with equivalent functionality. Those numbers exclude the supporting infrastructure software.

So what’s the fine print? Here are some considerations…

The numbers Alfresco used are from a government price list. It isn’t clear to me whether those numbers are “list” or are a negotiated, reduced rate, but from my past experience with Documentum, I’d say they are closer to list. I don’t think it is likely that anyone would actually pay $800k for a 1000-user Documentum system. Even if you were to negotiate 50% off of those numbers, though, the difference is still significant.

A portion of the “first year’s cost” is maintenance and that recurs every year. For Alfresco you are only paying for maintenance, so the entire $33.5k will be due every year. Using the numbers from the whitepaper your Documentum maintenance bill would be about $115k every year. I think in all cases, the maintenance is probably understated for what typical clients will pay because most will want “top shelf” SLA’s. The numbers used here are for lower levels of service.

The legacy vendors have 1000’s of product configuration options. The line items Alfresco chose to include for the Documentum configuration look roughly right, but with so many options you can’t say with certainty that what’s listed is what everyone who needs a 1000-user document management system built with Documentum will use. So tweak the table using the quote your vendor gave you and come to your own conclusions.

Alfresco showed a 2-CPU configuration for their 1000-user config priced at $33,500 which included a test server. Then they showed a “high availability” config with a $9,250 up-charge. But they didn’t double the procs. If you’re going to be HA, you’ll need at least two of everything. While they did double the test server procs, they didn’t double the production server procs so the HA version of the 1000-user config should be more like $76,250, in my opinion. Incidentally, it isn’t clear to me what you get for that extra $9,250. I have an open question with the Alfresco folks to clarify both issues.

What about services? Honestly, it’s usually a wash. There are things you can get done faster because you can see the source code but there are other things you may end up spending more time on. When it comes to services, the primary value of open source is in the ability to spend less on the software and still end up getting something closer to what you actually need through customizations (See “Why Open Source?”).

Obviously, big decisions like this should never be made on cost alone. Documentum, FileNet, SharePoint, and Alfresco aren’t perfectly interchangeable. You still have to figure out which one is a better fit for you along all sorts of dimensions. But the stark analysis Alfresco is providing is likely to get a lot of attention from buyers who are particularly price-sensitive in today’s market.

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A recent blog entry by John Bennett posted the question, whether many open source vendors will continue to struggle, and some well-known vendors will shut down. This triggered some thinking on my side, as I hadn’t thought about this recently.

The question on whether companies can make money with open source has been discussed broadly and lengthy. And yes, there are many good examples of companies being able to make money and attract investors. We all know RedHat, JBoss, MySQL, SugarCRM, Alfresco, MuleSource to name just a few. Well, we do not know exactly how much money they are making, with the exception of RedHat of course. Many so called successful open source company actually just made money by selling the company. Obviously it takes more than a couple of developers, ideally working for free, and a good idea to come up with a convincing business model. And the current recession will even more clearly point out who the winners and who the loosers are. What is clear is that pure services revenue don’t drive very high margins and don’t create the interesting multiples VCs are hot on. What is also clear is that combining the open source and the proprietary software product model is a challenge. And, what we have learned the hard way is that sales and marketing is expensive and difficult to get right, even if we leverage all the cleverness of modern marketing 2.0 techniques. So, stay tuned. In 2009 and 2010 we will most probably see a major shakeout in this space. Only the strong ones will survive, not that different to other markets.

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