Dear ESRI Business Partner: Your Revenue Model Died Last Week

by Brian Timoney

It wasn’t supposed to be this way.

The Cloud was supposed to be mostly hype, and the part that wasn’t had something to do with Google.  If this year’s ESRI Users’ Conference was overly focused on ArcGIS Online, you reasoned, it was merely the new shiny bauble in Redlands.  If its president seemed a little fixated on The Cloud, well, he’s an excitable guy eager to communicate his excitement about exciting things. But with the conference being the great venue to catch up with colleagues and clients  (not to mention the car-free nightlife), you told everyone it was a “good conference”: mostly meaning that San Diego is one of the few pleasant places left in America to spend a week in July.  Maybe after the conference you went on vacation to recover spend quality time with the family. Two weeks out of the office–you know how the game is played.

Let me bring you up to speed on what you missed while you were away: ESRI killed your business model.

See, you make your money as an “intergrator”: tweaking software, servers, and interfaces to meet end-user needs. Your bread and butter are the big government contracts: federal agencies (DoD and Homeland Security if you’re especially lucky) and some larger state projects.  Margins are nice, and they make for a comfortable office building in a suburban office park (see: Reston, VA).

it's business, not personal

Hyman Roth explains to Michael Corleone that "this is the business we've chosen": never personal, just business


First, during the UC, a press release dropped on a Lockheed/ESRI collaboration on web-based apps using ESRI’s cloud infrastructure aimed particularly at the DoD/Homeland Security sector. In and of itself, not red-flag worthy. But then this little gem dropped, detailing a USDA-wide implementation of ESRI’s cloud infrastructure. Read between the lines: ESRI is no longer content to merely have its software be a line-item in the large contracts: it’s selling its platform and all of the ancillary services around it, with “scalability” being code for “we plan on being the dominant provider for the largest clients.”  Think about this way:  ArcGIS Online means fewer ArcServer licenses for small- and medium-sized shops; direct-connect to spatial databases means a lot less use cases for ArcSDE (thank goodness).  That loss of revenue has to be made up somewhere, and Redlands has pushed its chips on the square marked “Cloud”.  See this as a page out of the IBM playbook where the real money is in high-margin services, with software merely being the means to that end.

So where does leave you, the ESRI Business Partner? You better have some serious stroke in your business domain (e.g. Lockheed), or have analytic “secret-sauce” services not easily replicated by ESRI. The “me-too” stuff and the marginally useful branded add-ons won’t be enough anymore in a world where ESRI is no longer shy about doing ESRI better than you do ESRI.

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But let’s stop being gloomy and address the situation in a proactive way, a forward-leaning posture if you will. Change doesn’t happen overnight, so I’d estimate you have about two years to figure out how you’re going to make money five years from now. If there was ever a time to engage in a little of that out-of-the-box thinking, now would be that time. Because you need ideas. If the phrases “Vice President”, “Strategic”, “Accounts”, “Marketing”, etc., appear anywhere on your business card, your company is looking to you to figure this one out. Lucky for you I can help out.  In mid-September, the brightest minds in geospatial will be gathering in Denver, Colorado discussing software and possibilities without the vendor pep rally vibe.

“Open source?  But there’s no business model there.”

Yeah, we knew you would say that. So we set up a special day-long event that is both an introduction to geospatial open source as well as a broad discussion of how people are making money integrating open source components. And then we take the discussion to a microbrewery.

Details here.

We realize it’s a busy world, so you can just pay for this one-day event, or add it on to a full-conference registration. If time is tight, my playbook would be to go to the one-day event on September 13th, and have your most trusted geek do the deep-dive sessions during the rest of the week. You’ll come away with a bunch of intriguing ideas; the rest is up to you.

Get with the program.


—Brian Timoney