GLG News by Robert Sethre

Implications: Lexmark results might stabilize or improve as a direct result of their limitation of exposure in the inkjet business.  Their laser-based offerings and vertical / application-based solutions for corporate clients are excellent and those results have been masked by the inkjet problems.  Still, it remains to be seen whether increased focus is the right strategy when competitors and customers are looking for more comprehensive offerings.

Analysis: Although the printer / MFP business altogether is still quite lucrative, the inkjet product area is not the most attractive area to occupy.  Entry-level products are sold at little or no margin, and manufacturers depend more or less totally on consumables to uphold the business model.  But many consumers do not print enough to fulfill those expectations, or the buy ink from alternative sources so that revenue and profits are diverted from the manufacturer.  Lexmark made the strategic decision to withdraw from the entry-level inkjet products for precisely this reason, but the real question is where to draw the line now?  To move upmarket with inkjet implies multiple risks:  decreasing acceptance due to running costs or (well documented) user prejudice for laser devices, increasing competition with entry level laser products (color lasers can now be found below $100), and limited functionality to support more sophisticated and complex user environments.

The most extreme option would be for Lexmark to withdraw from the inkjet business altogether, which would presumably improve financial results most dramatically.  This option is unlikely in the near future, so we can expect less focus on that product area as the best compromise strategy. 

This development is already underway, as the recent quarterly results showed a sharp decline in inkjet business.  The other major business area, selling laser-based products into corporate environments, will therefore be given more priority and will probably continue to grow and produce better overall results.  Lexmark has developed a great amount of technology and personal expertise in these areas (well beyond the much-publicized departure of one executive) and these can be developed and leveraged further in the future.

While this new focus is positive, an increasing number of clients in corporate settings may start to question the breadth of the Lexmark offering.  The existing product line and technology base are excellent, but nonetheless narrow.  Other companies like HP, Xerox and others (including my own) will be pitching a much wider range of products and services to match the widely varying needs of larger organizations.  The best vendor will offer a range of products from the desktop right up to centralized departmental print stations, and the Lexmark product line is weak or nonexistent, especially at the mid-range and high end of the printing spectrum. 

So the move away from inkjet is wise, but it does not solve the inherent problem for Lexmark, namely how to offer what high-value and high-volume costomers really need throughout those user organizations.  All other things being equal, the stock buyback will help investor value, but that manipulation does not change the nature of the business, and that is what really needs to be addressed in the future.

Implications: In a rare reversal of roles for the market leader and established players, an upstart company's new technology confirms the new HP introduction and exposes the weaknesses of other manufacturers, especially in the inkjet space.  But the full impact of the Memjet product is unclear, until the final product definition and positioning are finalized.  Fast and cheap will not be enough in many cases, and it will be important to keep an eye of the company's eventual product line depth and breadth, as well as the final path to market.

Analysis:

Over the past months, several reporters and industry analysts have enthused about the Memjet technology, though also correctly noting the barriers to a startup's ability to commercialized the concepts.

The emergence of the US company, headed by an industry veteran, provides a somewhat clearer picture of what may happen next and also points to some of the further prospective developments.  Here a few topics areas to consider:

1)  The US company:  this step was absolutely essential to complete, even if the goal is not to produce these products independent of other players.  But even in an OEM / partnership scenario, which is a wise move given Silverbrook's distant location, lack of manufacturing background and the typical market dynamics, that "local" presence, with Bill McGlynn heading the operation, lends considerably more credibility to the project, which otherwise has (correctly) been the subject of market scepticism.  Wise move, even if it is just a first step.

2)  Vendor implications:  the stated goal of Memjet is to partner into one or several OEM relationships, combining their technology strengths and intellectual property with somebody else's manufacturing and marketing power.  Since HP has already developed their Edgeline technology in parallel, they are presumably not all that interested in discussions, unless they would consider purchasing the portfolio for the purpose of keeping it out of competitive hands and essentially monopolizing that entire technology category (a not totally unreasonable scenario).  Any other competitor must be interested in pursuing discussions with Memjet, as they will feel very exposed in the gap between the market leader and the ambitious upstart.  Within the community of established inkjet vendors there may, however, be considerable resistance to a technology "not invented here" (for some reason Lexmark springs to mind), so the management in those companies must exercise thorough due diligence and perform an objective audit of their capabilities to continue to develop and complete without such a partnership.  Beyond that short list, the best candidates may actually be other companies who are interested in entering the lucrative printer market with such a partnership to jump-start their activities and product portfolio.

3)  Product issues:  the product itself is fascinating, and everybody who has seen it in person has been amazed.  But there are a number of workaday practical issues which must be addressed and resolved as well.  In addition to the questions already raised in this and other articles regarding product commercialization, I would like to add three points to consider.
•  Array stability - the full-page array of 70,000 inkjet nozzles offers reliability in one sense, since they are all fixed and there is no motor moving the print head back and forth.  But on the other hand, those 70,000 nozzles must be so tightly normed that there is not the least variance between them, neither in there positioning, nor their ink drop size, nor their tendency to clog, spit, or whatever.  Take the simple example that one nozzle is clogged and delivers no ink.  That defect will produce a white stripe all the way down the paper.  Movable inkjet print heads actually have algorithms and systems to compensate for such a defect, but this fixed-head configuration will expose and amplify any such deficiencies in the nozzle design or ink formulation.  Any product based on this technology (this goes for Edgeline as well) must be inspected very closely for signs of telltale stripes or image "banding."
•  Beyond speed - while the print speed itself is breathtaking, the real product must deliver much more.  On the most practical level, if I am printing 60 pages a minute, I go through 600 pages in 10 minutes or 3600 pages in an hour.  Unless I am a low-volume consumer who just prints a few pages (obviously limiting the benefits of a fast printer), then I need to consider which paper-handling features are going to be required so that I do not require a fulltime paper re-filler.  For those more serious users, several product options such as large-capacity paper trays, output bins and finishing equipment will be necessary to develop useful applications.  So as wonderful as the small unit may appear, that size will increase considerably as the complete system grows into a real-life installation.  Also, we will have to consider service issues.  Regardless of the technology, printing is a very mechanical and essentially dirty process.  Moving paper and putting down ink or toner results in mechanical wear and tear, and residual ink/toner and paper dust must be cleaned to ensure proper operation.  So the system, especially a higher-volume version, must also be designed for servicability.
•  Product range considerations - as almost anybody in the industry (vendors and users) knows, one product is no product, unless you are chasing only a very narrow slice of business.  The Memjet technology will be most powerful if / when it is developed into a complete range of models and appropriate options.  What is interesting is that current vendors' product ranges are based mostly on print speed, although that factor is really a proxy for usage patterns (applications and volumes).  Given the speed and price point of even the smallest Memjet device, it would be wise to position a product range based on other user-related features and requirements, with the speed mentioned more as a key unifying factor.  And by the way, as soon as there is a successful letter-sized Memjet model, the next obvious client expectation will be to provide a ledger-sized version, which may present further (maybe even exponential?) challenges in development and production.

Implications: This is an interesting and attention-grabbing invention, but the real implications are more strongly in the area of branding and PR rather than real-world user advantages.  In my opinion, this development has no real significance for the end user and should be neither presented nor understood as such.

Analysis: Full disclosure:  I work for a competing company, so my analysis may be influenced by this fact.  Nonetheless, my experience with color science and color management leads me to believe that the approach described has no potential as a serious breakthrough.

The idea of voice-activated color adjustment sounds attractive enough, and yes, there is a need for interactive, intuitive and user-friendly color adjustment tools.  Especially as more and more users are confronted with photos and graphic images that would benefit from some adjustment, almost any improved system support to ease that step would be greatly appreciated.

Nonetheless, the article mentions some key limitations which I would like to elaborate: 

1)  A digital photo or even a computer-generated graphic image is given its rich and realistic look by the wide spectrum of colors which are displayed.  Manufacturers of both monitors and printers proudly state their products' color gamuts in the millions.  Even what appears to be a pure blue sky is actually a subtle mixture of thousands of shades, so any attempt to adjust that appearance is most likely being applied to all of those shades.  You might as well just have a little interactive slider panel or line graph or comparison spots to adjust that color or a group of colors, and such tools already exist today.

2)  Color management will always be a critical area to coordinate display and output devices.  Computer monitors work with light using the RGB system, while printing devices work with ink or toner using the CMYK system (or variations thereof).  So every system configuration relies on the best possible translation routines to convert the displayed image into the printed image.  Professional graphics workers have dedicated workstations with calibrated display and output devices, normed lighting and sophisticated color management tools to ensure that display and output match closely.  The casual user, however, will always be confronted with output variations that may never be eliminated completely.  The typical consumer experiences differences between display and output that they simply have to live with.  Vendors will always be working to improve this area as well, but the system described will not help.

3)  As mentioned, several tools are already available to make simple (but effective) adjustments.  It is not difficult to find free or very low-priced programs which use a simple slider to adjust image darkness, contrast and each of the core colors interactively.  For photo enthusiasts, there are excellent tools to crop, rotate, hide/add images and remove red eyes. Now if the user really wants to make more fine adjustments, such as changing the hue of one portion smoothly without changing the overall picture, he/she has no choice but to get involved in a more advanced image manipulation program.  There is no shortcut, although this seems to be the implication of this announcement.

To summarize, this development appears to have very limited practical use.  It would be most effective for simpler business graphics as opposed to full-color images.  Yet the tools to achieve these adjustments are already commonly available.  Also, the advantage of using voice recognition to achieve this purpose is unclear, except that it seems to be a clever idea to some journalists.  In fact, it is hard to envision how many casual users would be comfortable using a voice-activated system for this purpose.

If people want to develop more than the most basic color adjustment capabilities, then it will be more important to increase their user skill levels rather than to utilize a new way to input instructions which are by definition vague and simplistic.  This development does not appear to further this purpose.

Implications:

The quarterly results recently announced by Xerox were generally positive and probably well-deserved.

After a difficult period, they are unquestionably in a better financial situation. Looking at industry segments, they are doing a lot of things right and are (again) a formidable player/ competitor. Their business is well positioned towards key growth areas in the imaging industry: color, production and services/solutions.

Still, they will need to demonstrate some agility. Especially those key growth areas are attracting a lot of attention and competition, and Xerox will have to push hard and work quickly to keep near the front of the pack.

Analysis:

Xerox recently reported their financial results for the third quarter, and the general consensus was that they are doing well. Especially considering the problems they had until recently with their debt load and overall business model (acknowledged internally to be “unsustainable”), signs are that they have now stabilized and are on a positive trajectory.

Some of the positive points to emphasize:

• Color digital printing is booming, and Xerox is one of the major manufacturers of color output systems. The results tend to really shine in this area – color hardware sales are growing, high-profit color installations and output volumes as a portion of the overall revenue structure continue to grow, and new color models have been successfully introduced.
• Production printing is a segment that has been traditionally strong for Xerox. Their depth of experience and customer relationships as well as their broad range of high-volume offerings are without question world-class. They are market leaders in key segments of digital production systems.
• They are also working hard to diversify into services and solutions. For example, the recent acquisition of XMPie is a valuable addition to the Xerox portfolio. Other workflow and vertical solutions are also being added and expanded to provide a more complete offering for their customer base.

So Xerox is well positioned on many fronts. They are doing a lot of the right things, and the positive results support the contention that they are on the right track. But can they show the necessary agility to maintain the momentum? Each point mentioned above has, if not a down side, at least another side to consider:

• Color is overall the most attractive growth segment presently, but this is also the area where even high-value products are being aggressively priced by all competitive parties. Also, as the installed base is widened, it will be hard to maintain the ratio of color output (as a portion of total output) that was achieved in the past. New customers are intrigued by the increasingly attractive system costs and modest color output costs, but they still may not produce the same highly profitable color volumes as the enthusiastic early adopters. So future color growth may come at the expense of lower margins. Xerox (and every other manufacturer) of course hopes that slightly lower margins will be compensated by higher and more profitable consumables revenue over the life of each color installation. While early indications are positive, this will be an area to watch closely in the future.
• Production printing is, despite Xerox’s dominant position, potentially even more precarious. The production arena was and is a cash cow category which is now being attacked on several fronts. Traditionally, Xerox has successfully developed and marketed production systems which are positioned and priced well above the office segment. But that inviting gap has encouraged other manufacturers to offer more modestly-featured (and -priced) equipment which is nonetheless attractive for traditional production-class users. These systems are starting to populate the emerging “light” or “entry-level” production segment and are attracting a great deal of attention and business, mostly at the expense of the higher-end products – the classic Xerox domain. They have in response also developed products to address this new segment, but since the average prices and output volumes are more modest, those sales translate into exposure on the revenue and earnings front, now and in the future.
• Solutions offerings are good to develop and this area is indeed promising. The only immediate concern here is that Xerox, like every other vendor trying to grow beyond the hardware sector, has to learn how to ensure that these business areas are complementary, understandable (to their own sales channels as well as to their customers) and ultimately profitable.

So the Xerox results are positive, but not perfect. Watch the items above to gauge their ongoing progress and future prospects.

Implications: This article shows one more example of politics imitating life.  The debate about paperless workflows vs. hardcopy output to ensure system accountability is a hot issue for everybody in a variety of business and other fields.

This discussion is certainly not new and the article shows a example of the discussion/dilemma in the context of the current election.  Despite pronouncements to the contrary, hardcopy output systems are still the preferred solution to ensure effective and consistent communications within and between organizations.

Despite the undeniable (and welcome) developments in electronic document management systems, there will still be ongoing business opportunities for the hardcopy industry.

Analysis: Today's hot news is the mid-term elections, but there are also samples of document management issues embedded into these events as well.  For example:

Electronic voting raises suspicions about possible manipulation or at least mismanagement of the results.  The proposed solution?  Make sure there is a paper trail to confirm the result.

Similarly, traditional business organizations are confronted with the same issues.  We might not need to be so concerned about data loss or manipulation, as there are systems available to address these issues in the business environment.  But the typical organization, years after the famed pronouncements about the imminent rise of the paperless office, still rely on hardcopy output for their daily communications.

Documents must be read, archived and in many cases retrieved and re-read.  These items range from key financial and compliance documents to mundane daily correspondence.

Obviously a great portion of these documents and transactions occur in electronic form.  But even if such a large amount of communications today is electronic, our statistics show that an amazingly high proportion of these documents are still produced in hardcopy form at some stage. 

It is possible to argue that the preference for paper documents will wane as the next generation of wired users join the organizations, that the present trend is due mostly to established habits of the incumbents and their associated comfort levels.  But in the meantime there is a great opportunity for those companies who can help their clients manage, distribute and yes, print their documents most effectively.

This commentary will sound like a plug coming from a member of the hardcopy industry (and to some extent it is), but the fact remains that paper output is not going away.  We can discuss in great detail about how data and document flows are changing and shifting.  Even the great HP relies on humbling statistics depicting how much of the (commercially produced) paper can still be moved to digital output systems closer to the recipient / reader.  That shift implies attractive revenue/profits for anybody positioned at the right output location.

And of course it is gratifying to see that last quote, which keeps us in business: "Adding paper is a way to solve the problem."

Implications: Although this is a story about election issues and partisan rivalries, it is a good example of politics imitating life.  Document security is a hot issue for everybody in a variety of business and other fields.

Amazingly, the technology to prevent or at least control such occurrences is already available.  The key (for both users and vendors) is to recognize the opportunity and to implement a solution.

Which is where the printer/MFP companies want to be anyhow, namely in the world of customer solutions.  Those that quickly exploit the opportunities, even those as simple as this case, will be able to reshape their sales approach and business model and profit as a result.

Analysis: This week's hot news is the mid-term elections, but there are also samples of document management issues embedded into these events as well.  For example:

A sensitive document is left in the output tray of a copier/printer.  It is unimportant whether the original function was copying or printing, the unfortunate result was that somebody did not watch what he/she was doing, and now that person is paying the price.

This case reflects innumerable occurrences in daily office life.  The documents in question will be different, but nonetheless sensitive or even embarrassing.  The spectrum will range from confidential numbers and corporate decisions/strategies to personal items such as vacation photos, resumes and even resignation letters.

Aside from the fact that some of these items do not belong on the company printer at all (there are also management systems available which can control and monitor such activities), the most straightforward approach is that when somebody sends such sensitive items to the printer that it is held in memory and only printed when the recipient is actually present at the machine and enters his/her personal code.

Amazingly, this technology has been available for years.  There is always a lag between commercial availability and active usage of key functions, but the adoption rate in the imaging field is probably slower than average.  One reason is certainly the fact that these systems already provide hundreds or even thousands of "essential" imaging functions, and new functions are developed and implemented faster than users can assimilate them.

But the other problem lies within the industry itself.  Traditional "copyhead" vendors and their representatives, despite all proclamations to the contrary, are slow to understand and explain the advantages of such crucial capabilities.  The fact is, far too many vendors (and channel partners, and users) still concentrate on speeds and feeds instead of overall system value when building their decision matrix.  Yet real issues for effective imaging systems are more complex, more substantial and more process-oriented.  But these are precisely the issues to watch for.

The upside of this situation is that there is still a huge opportunity for those who recognize the value of promoting such solutions through appropriate analysis and consulting services.  This approach will eventually change the nature and the business model of the printer/MFP industry, so be sure to keep an eye on the early adopters of such approaches.

Implications:

Ricoh has acquired a number of key competitors over the years, with the result that they now have a number of entities to manage and, at least as important, to position within the market and against each other.

While the general philosophy of increasing coverage through such investments is legitimate, it remains to be seen whether this action can really produce a net increase of Ricoh’s clout (and revenue) in Europe. It is also possible that they have (at least for now) reached the limits of this acquisition strategy.

Analysis:

In addition to offering my agreement with Ed Crowley’s analysis of this development,* I would like to add my comments as someone active in the European office IT market and as a competitor.

Ricoh has taken over a number of companies involved in the office equipment industry over the years. In addition to the list of acquisitions mentioned by Ed, I would like to add at least Nashuatec, Rex Rotary and Savin. With the exception of Hitachi Koki, which was definitely a technology-based acquisition, the other companies were most likely attractive to Ricoh because of the channel opportunities they offered.

But this approach also poses a dilemma: can so many various “fascias” of what is essentially the same product line be appropriately positioned, communicated and ultimately understood by the market? This question has been raised several times previously and it is absolutely justified to raise the same point again at this time.

The first wave of acquisitions included Nashuatec, Rex Rotary and Gestetner. These were definitely wise moves by Ricoh and taken together provided good additional sales coverage across most countries. In Europe, some countries did not have great difficulties or conflicts, as only one of these companies were significantly present. But in some countries there were potential conflicts, and from an international management perspective it would be difficult to allow these companies too much independence. As a result, Ricoh formed the NRG group as a new core organization within the Ricoh family of companies.

As a single entity complementing Ricoh, NRG has been positioned more for the professional / corporate environment, while the Ricoh brand remains more mainstream and dealer oriented. This approach offers a channel balance and can be seen to deliver complementary sales which would have been missed otherwise. Altogether, the arrangement has without question worked well. These acquisitions and the ensuing structuring and positioning of the companies were clearly complementary in nature.

With the acquisition of Lanier, this strategy took on more of a defensive nature. In most cases Lanier was active in similar markets and approaches as the existing Ricoh/NRG channels, and it is not really necessary to maintain the Lanier name or organization. Despite early statements to the contrary, it is now evident that Lanier will not be left as an independent entity. Continuing a process already initiated, Lanier will be absorbed into one of the existing organizations. In most countries, the best fit is to integrate Lanier into the NRG organization, although some country situations will allow other solutions.

It is still too early to see exactly what will happen with Danka Europe. They do have a somewhat unique positioning with their corporate solutions and higher-end sales expertise, so maybe it is not immediately necessary to absorb them (for example) into an expanded NRG. But if Danka are to remain independent and if they are to contribute a net positive result for Ricoh (as opposed to simply shifting sales within the Ricoh family of companies), they must demonstrate that the independence offers definite value for some customer group which would otherwise feel less well served, for example by NRG.

While it is definitely good to offer a small number of alternative brands and channels to the market(s), Ricoh has already demonstrated that a half-dozen brands and parallel organizations are too many. They are now faced with the choice of settling on either two or three, which will finally decide the fate of Danka in Europe.

My bet for now is that Danka will stay independent and Ricoh will try to position that organization as the corporate / major account sales and service group. If successful, that approach would indeed provide a justification for maintaining an independent entity. If not, we can assume that NRG would be the beneficiary.

* With one exception - no comments are available (or allowed!) on the prospects regarding Konica Minolta.

Implications: While it is not surprising that Hewlett Packard is the best-known printer brand, it was further noted in this article that HP was listed as a leading brand for product groups that they do not actually dominate, such as copiers and fax machines.

This fact demonstrates the impressive brand power that carries HP.  In fact, if (and as) they choose to move more actively into these product areas, they are, at least in terms of branding and customer acceptance, very well positioned.  Nonetheless, their products and services are what ultimately will really have to deliver to ensure success.

Analysis: This article reports that Hewlett Packard has been ranked as the top brand by small and medium businesses in the field of printing and imaging.  Any other result would be a surprise.  But in addition to printers, HP was also listed as a top brand for other product groups, such as copiers and fax machines.  This is indeed a surprise, since objectively HP is not the market leader of these product groups.

There is a famous adage in the business world that no IT manager ever got fired for choosing HP.  This is almost undoubtedly true and demonstrates the power of the HP brand within that key community of decision makers and influencers.  The products are without question good (if not always great), but it is to a large extent the brand and not the product performance that commands such behavior and loyalty.

It would be opportune to exploit such a dominant mindshare, especially in a sector where HP would like to be more active and more successful anyhow.  For example, HP has made numerous attempts to break into the copier / MFP segment.  The impact of these efforts has varied between negligible (remember the "mopier?") and modestly positive.  Recently, some MFP products from HP have indeed made more significant progress in the corporate environment, but it is still questionable how much business has been shifted from copier-based MFPs, or whether the new products have just replaced older network printers.  So there is still a sizable opportunity and therefore a task for HP to tackle.

HP is presently mounting another attempt to crack the corporate MFP market.  In preparation, they have already announced a number of new products, key technologies and sales strategies which confirm this intention, so the market (customers, investors and competitors) can anticipate an active and interesting phase in this regard in the upcoming period.

The positive brand image is a great boost to start with, but ultimately HP has to deliver value just like everybody else.  Their success in this field will still depend very much on the quality and suitability of the products.  Even more importantly, the development and performance of their service offerings will be instrumental in determining success in this segment. 

Implications: Open source software products/projects are now reaching a critical mass of usability and acceptability in a variety of application sectors.

Despite understandable business concerns, open source products can be considered an acceptable and viable alternative, both for SMBs as well as larger corporations

As with any sizeable project, it is necessary to apply appropriate due diligence when planning and to choose products and partners with care.

Analysis: The Linux operating system is the best-known and arguably the best-established open source product currently available.  In addition, there are a number of products/projects for specific applications (eg, ERM, internet CMS) which are also well developed and can be considered reasonable alternatives for implementation - not only for SMBs, but in companies of any size.

When comparing open source to commercial software products, there are a number of typical differentiators which may or may not be viewed as barriers, but which definitely must be understood and considered carefully.  In my experience the most prevalent issues are the following:

•  Functionality / compatibility:  regardless of a product's source, the user requirements have to be fully met, either out of the box or after appropriate adaptation development.  Otherwise there will be no significant acceptance.  For this point, I would argue there is no advantage for or against open source.  A rich set of functions and extensions, coupled with a stable running environment, will help establish a positive reputation and market acceptance for open source products.  Conversely, any commercial product which is not performing up to expectations will suffer.  Advantage:  neither.
•  Bug fixes / updates:  software is always a moving target and must be continually improved and updated.  Interestingly, the commercial providers have a distinct disincentive to recognize and actively address the need for frequent fixes and updates, as this would automatically imply that expensive programming resources must be dedicated to deliver such developments.  These factors can be problematic for either financial results or even for for liability issues (if I admit a problem, I am obliged to fix it - would it possibly be better to deny its existence?).  Open source products depend on a large and diverse developer community to provide such improvements.  While the development process must establish some minimum level of momentum, the process itself is actually highly efficient for providing minor patches, specialized extensions or even major upgrades.  Advantage:  open source.
•  Anonymity:  commercial software providers typically offer more formal contact structures with named partners or at least call center numbers for customer care and service, while open source projects offer a much more diffuse "face to the customer."  The anonymity of the situation can be mitigated somewhat if the user has an internal IT contact or a development partner to address as necessary, but the fact remains that the user does not have the same defined line of contacts.  Advantage:  commercial software providers, assuming that those contacts are available and responsive.
•  Contract obligations:  a major issue will always be the legal aspect.  If there is a problem or damages due to a software package, it is of course preferable to have a contract which helps determine liability and to help enforce claims.  Interestingly, even though the business with conventional software suppliers is carefully structured through such contracts, these are in many cases not as helpful as might be imagined when trying to resolve such issues.  Many readers may recall the frustration of bickering with a supplier about whether an issue will be covered with a (free) bugfix or a (chargeable) extension development.  A contract indeed provides a certain amount of clarity and security for problem issues, but in fact many topics will still be addressed without reference to the contract.  In addition, the large number of successful open source applications and implementations are proof in themselves that the loose legal framework of the open source model is not necessarily a problem.  Advantage:  neither.

Taken altogether, open source is an acceptable and viable alternative for organizations of all sizes.  The project manager must choose a supplier carefully, regardless of their commercial or open source status.  Look for an established community and a demonstrated level of development and implementation momentum.  Ensure that there are knowledgeable, capable and available internal or agency development resources to help with the development, implementation and maintenance.

Interestingly, these selection criteria are essentially the same as for commercial software, but that is the point.  While there are clear differences, the open source approach can be just as successful and effective.

Of course one point which I have not yet mentioned is possibly the most significant - open source is license free!  While you will always employ chargeable resources to implement open source or any software, the freedom from fees for licenses, extensions, updates and maintenance offers great benefits with respect to costs and overall flexibility.