Why Hasn’t Open Source Software Disrupted Esri?

I recently tweeted that open source software is slowly but surely devouring Esri’s entire product offering after seeing a beautiful new tool from Mapbox that directly competes with Esri’s product StoryMaps.

The tweet is a riff on a common refrain among open source enthusiasts (like myself). The argument goes like this: Esri’s days are numbered because most of their core software is gradually being matched or bested by mature, free, open source alternatives.

Well, today is officially GIS Day, and I figure it’s as good an excuse to ruminate on this topic as any. After some reflection, I’ve come to the conclusion that while this line of thinking feels logically obvious (how do you out-compete free and open?), it’s flagrantly wrong. At least, for the subset of the market that employs “GIS professionals” it’s wrong. How successful Esri has been at penetrating markets where “GIS” is an annoying and slightly incomprehensible distinction from the broader challenge of data science and data engineering is a different topic for a different day.

The open source software movement, while formidable, is objectively not disrupting Esri’s core business, nor in my opinion is it threatening to any time soon. This question eats at me: how does Esri not only survive but thrive as enterprise-grade, open source software challenges an increasing share of its product offering?

Briefly, Who is Esri?

Moat #1: Brand

One way Esri preserves their status as the market leader is their maniacal focus on becoming the de facto tool for teaching GIS in higher education. I doubt much of their revenue growth comes directly from academic licenses, but I would wager that selling into universities has indirectly driven a significant portion of their growth over the long term. At this point, decades of college graduates have matriculated with a degree in one hand and hard drive full of ArcGIS projects in the other. When a GIS manager at an engineering firm makes the easy decision to renew their Esri license, that quiet moment is often the conclusion of sales cycle that started 30+ years ago when they were still an undergraduate following instructions about how to use ArcInfo in their first ever GIS course.

Conversely, the average open source project has limited brand equity. A seminal example is QGIS, the preeminent alternative to Esri’s desktop offering. Up until a few years ago, the officially sanctioned way to download QGIS for Mac was to visit the most incredibly suspicious-looking website I’ve ever seen in a professional context…

(the legendary https://www.kyngchaos.com/ as it looked the day I started working at Azavea)

As a newcomer, I found it pretty confusing that a core distribution for one of the leading open source GIS projects in the world was hosted on a pink anime blog. Truthfully, this experience only endeared me to QGIS and its incalculably generous community (shoutout to William Kyngesburye, KyngChaos, whoever you are). I can only imagine what it would have been like to pitch QGIS to an IT department at a Fortune 500 organization knowing you had to eventually show them this site. Today, the Mac distribution lives on this much more, um, pedestrian webpage: https://download.qgis.org.

Moat #2: Corporate Procurement Practices

One particularly insidious form of risk IT professionals worry about is the issue of vendor liability, and it introduces a tremendous amount of inertia into enterprise software procurement in general. If you’ve ever negotiated a contract with a 1,000+ employee company, you know just how desperately they want to protect their right to blame you when something goes wrong (no matter how little you deserve to be blamed). Imagine the thoughts going through the mind of an IT professional while hearing the pitch for a free and open source alternative to Esri:

  • Am I going to be responsible for rolling this out without any vendor support?
  • Does my department assume all liability when things go wrong?
  • Now I have to write up a justification for why this is worth replacing software we’ve been using uneventfully for several decades?

Over the years, a handful of companies have formed specifically to address the problem of vendor liability for open source GIS, the most noteworthy of which was probably Boundless Geospatial before it was acquired and then unceremoniously dismantled almost immediately. Their business made a lot of intuitive sense — Boundless packaged up many of the major open source GIS projects in a tidy bundle, spruced up their branding a bit, and then offered them to customers along with support contracts and consulting engagements. Suddenly, the vendor liability problem was irrelevant — if your copy of QGIS wasn’t working, you could pick up the phone and scream at a recent college grad working at Boundless. Better yet, their business model allowed them to attract many of the most talented software engineers in the open source community who had the rare opportunity to get paid to contribute directly to the open source projects they were already hacking on during nights and weekends. But, when the dust settled, Boundless was reportedly acquired for close to $16M, or about an average week of revenue for Esri — clearly they weren’t able to capture a significant amount of market share despite offering a viable alternative to Esri with much more enticing intellectual property rights and at a more affordable price.

Moat #3: Licensing Strategy

One of the ways Esri keeps customers from mutinying and replacing them with an open source alternative is through its licensing strategy. As my friend Sean Gorman recently pointed out, one of the most underrated parts of Esri’s overall business model is their prodigious use of Enterprise Licensing Agreements (ELAs). He probably knows what he’s talking about considering he once sold his company to Esri. The ELA is a stroke of genius because of its simplicity — for one flat price, you get access to practically all of Esri’s products and a bundle of support services. What this means in practice is that once an ELA has been signed, there is no incremental cost to deploy a new instance of an Esri product (either in terms of money or red tape). If you want to set up an open source service and use IT time to do it, the argument that it’s “free” and will therefore save the company money doesn’t hold water — the money’s already been spent. In some ways, it’s more expensive because there’s no customer support organization available 24/7 to help them when things inevitably go wrong.

A quick aside — many open source projects shoot themselves in the foot with well-meaning but overly restrictive licenses. In my opinion, if you’ve licensed your open source project such that commercial reuse is restricted or even outlawed entirely, you’ve probably sunk the ship before it has even left port. And that clever share-alike clause is probably a non-starter for most businesses, so that’s going to slow things down a great deal. For software, I personally think Apache 2.0 is the gold standard — broadly used, easy to understand, and truly open in that there are so few restrictions on how the software can be used, shared, and adapted.

Moat #4: Network Effects

Esri doesn’t enjoy network effects in the traditional sense; each additional user of one of their products does not make the product experience better or more valuable for the rest of its users. But it does benefit from tremendous organic growth due to a form of network effects: talkative customers. The field of GIS applies to countless industries — geospatial data has proliferated and is impossible to ignore whether you’re siting a new retail store or conducting a door-to-door survey. People are happy to refer Esri products to other folks in their industry because, almost always, GIS is not the core competency of their business and therefore isn’t part of their competitive advantage. Meanwhile, in my experience, GIS professionals tend to be unusually passionate about their work. Many of them are working in Esri products all day long, so it’s only natural that when they get together that’s what they talk about.

Moat #5: Breadth of Offering & Partner Network

There’s a lot going on here…Image courtesy of Esri.com

Need to process drone imagery? Need a survey tool? Need to visualize 3D data? Need to make a floor plan? You get the idea…they’ve got a tool for just about anything you can think of relating to geospatial data. And if they don’t have that tool, one of their 1,600+ official partners either has it or will build it for you. Heck, even Esri might just do it for you themselves — an entire wing of their business is dedicated to GIS consulting. The idea that you don’t really have to think very hard to tackle any problem that comes up is extremely attractive in an enterprise IT context. It doesn’t matter much if the tool is very good or not as long as it’s manageable. Even if there were an open source alternative for everything Esri did (there is not), the fact they aren’t neatly cataloged and offered as a package deal is a huge disadvantage.

A Final Word

I tend to agree; the very premise of most open source projects is that the world is not a zero sum game. I think open source GIS tools will likely benefit Esri more than they take market share away — they’ll actually grow the market for GIS by making it accessible to anyone with an internet connection, which in turn, will eventually grow the number of potential customers for Esri.

Comedic relief at Umbra. Writing about maps and the people that make them. For inquiries: jrmorrison.jrm [at] gmail [dot] com

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