Open Doors To Innovation

Small and midsize companies are creating IT infrastructures based on open-source software to reduce licensing fees and increase flexibility



It takes a lot of horsepower to create the 3-D virtual world known as Second Life, where users can build digital avatars to their likenesses, participate in a virtual economy that lets them purchase real estate and construct buildings, and fly through pixelated blue skies over a 100-square-kilometer computer-generated campus. In the past, the sticker shock of buying and managing the 1,400 CPUs and associated software needed to power this rapidly expanding massive multiplayer online game would have been enough to curb the enthusiasm of even the best-funded startup.

So it's not surprising that creator Linden Lab has turned to open-source software to power the IT engine that keeps Second Life alive. The sheer amount of processing power--the number of CPUs grows as much as 10% monthly--made Linux the obvious choice to run Linden Lab's servers. The company also chose to store the avatars that its nearly 60,000 users have created in a file system front-ended by the open-source Apache Web server, while the open-source Squid Web proxy cache keeps the data conveniently nearby. Metadata about the avatars is stored in an open-source MySQL database.

Linden Lab, a privately held company with 31 employees that's a subsidiary of Linden Research Inc., and other small, growing companies are the perfect candidates to pioneer the use of open source. Such companies have fresh ideas that they're anxious to introduce to the marketplace. To do this, they need plenty of IT infrastructure, so they build farms of x86-based servers running Linux, proliferate MySQL databases, and write their software to work with open-source application servers like JBoss.

Cost Cutting
Open source is most valuable to small and midsize companies as a way for them to cut IT costs, according to a September study conducted by InformationWeek Research and open-source service provider Optaros Inc. The study, which surveyed 296 open-source users with less than $1 billion in annual revenue, found that 81% look to open-source software to reduce the cost of using commercial packaged software. More than half of the companies surveyed cite the need to reduce their dependence on commercial software as a motive for adopting open-source software, while 41% cited the potential to reduce hardware costs. Nearly three-quarters of the open-source users surveyed are small businesses with less than $50 million in annual revenue.

The key to launching Second Life in 2003 was using quality software that didn't require shelling out a lot of money for licensing fees. "The need to pay licensing fees might have prevented the growth of Linden and Second Life," says Cory Ondrejka, Linden Lab's VP of product development.

Linden Lab founder Philip Rosedale, the former chief technology officer of RealNetworks Inc., and his team knew they were launching an online endeavor in a post-bubble environment. "We had all seen the writing on the wall in 2000 that we weren't going to be able to raise a lot of VC money," Ondrejka says. The company did raise $8 million in venture-capital funding, primarily from Benchmark Capital, a year ago. "Still, we went from zero to 500 machines before we had a system admin for them, so the idea of building out a sustainable structure was a priority."

When Scott Johnson got the idea a few years ago to create Feedster Inc., a blog aggregation site that delivers XML-based content, he executed on that idea using open source. Johnson wrote Feedster's initial Web spider and search engine using the open-source PHP development tool. "I took a list of about 300 RSS feeds and wrote a very primitive spider and a very primitive search engine," he says. "Would that have happened if I had to buy a database license? I don't think so." Feedster, which lets Web users search blogs for specific information, monitors more than 15 million feeds.

The Growth Factor
Feedster, a privately held company with 20 employees, updates its feeds several times per hour, adding millions of new documents daily. To keep up with these demands on the back end, the company has grown from 45 Linux servers at the beginning of the year to 75. Of those, 60 are Web servers that pump out its RSS feeds and run on Gentoo Linux, while the rest are database servers running SuSE or Red Hat Linux.

Feedster illustrates another characteristic about the use of open source within startups. The company, which launched without any legacy IT, uses open source at its core, relying on phpAdsNew, an advertising server that's written and supported by the open-source community. It pulls advertisements from the company's database and runs them in the search results that Feedster produces. Startups that emerge from larger or failed companies, as well as successful ongoing businesses, often find their use of open-source software limited by pre-existing investments in legacy IT systems.


Yellow Online depends on the open-source community for support information, says Dariush Zomorrodi, Yellow Online's VP of corporate development and technology. Photo by Peter Tym.

Yellow Online depends on the open-source community for support information, says Dariush Zomorrodi, Yellow Online's VP of corporate development and technology.


Photo by Peter Tym
Not all emerging companies have the luxury of building their business on open source from the ground up. Yellow Online Inc., an online directory service that provides listings for 1.2 million Canadian businesses and 12 million residents, moved its business fully to the Web in 1999 when it was launched as Yellow.ca. The company was actually founded in 1974 as Tele-Pages Inc., a provider of paper-based business listings. As a result, Yellow Online has 50 Gbytes of billing, customer-relationship-management, and human-resources data sitting in an Oracle database server running on Sun Solaris. Still, says Dariush Zomorrodi, the company's VP of corporate development and technology, open source is the best way to accommodate new online growth. "Expansion on Sun and Oracle wasn't something we could afford," he adds.

Feedster is different in another way: It bought a support contract with MySQL AB for its open-source database, a move that many small, tech-savvy businesses aren't willing to make. The InformationWeek Research and Optaros study found that only 8% of small and midsize open-source users are likely to use packaged open-source products that include a support contract.

"Whenever you push the outer limits of any system, you're going to have problems," Johnson says. Because the database is a core part of Feedster's business, Johnson says a service contract is cheap insurance, although he won't disclose what he's paying for the contract.



Community Support
Yellow Online, which has 50 employees, doesn't have a support contract for its MySQL database. Instead, Yellow Online's five-person IT staff relies on other MySQL users via the open-source community. "We're really tuned into the online community and don't need an organization to provide support," Zomorrodi says.

Decision Factors, barchartYellow Online runs its Web site, domain name system, and load-balancing servers on 20 Red Hat Linux servers, though the company doesn't have a support contract with Red Hat, either. Zomorrodi says he's not looking to commercial open-source service and support providers because his staff has the in-house capability to support the technology.

Zomorrodi discovered open source in 2002 while he was pursuing an MBA degree at Queens University's Queens School of Business in Kingston, Ontario. In 2002, Yellow Online started moving its front-end Web programs that were written in PL/SQL on Oracle's Internet platform to JavaServer Pages. This made the applications portable and independent of a specific product or vendor. Then the company deployed the applications to the open-source Tomcat app server.

By The Numbers
Like Yellow Online, Independence Air Inc. arose as a new model for doing business in its industry and relies heavily on IT to make it a nimble player. The startup, which had previously operated as a regional airline called Atlantic Coast Airlines and provided service as part of the Delta Connection and United Express programs, took its first solo flight in June 2004, not a great time to launch an airline. "The airline industry is really brutal," IT director Chris Hewes says. "The profit margins are very thin or, in our case, nonexistent." The company reported a loss of $192.2 million on revenue of $500.1 million in 2004.

Although Hewes, a pilot, had been with Atlantic Coast Airlines since 1993, bringing Independence online was the equivalent of launching a new company. No longer could Independence's staff count on having their Web site, reservations, and other systems managed by United.

Hewes promptly set up 300 Neoware Systems Inc. thin-client desktops running Red Hat Linux 6.1 on the back end for the airline's ticket agents. "We had a background in a thin-client environment, so that was definitely what we were going to use moving forward," he says. "I didn't want to put PCs in all the different airports because of the overhead to manage it."

Independence, which has around 3,700 employees, in June chose to test open-source Nagios software to become its network-monitoring platform. "Nagios was just out there on the Internet," Hewes says. He's looking to replace Micromuse Inc. management software, which has proven expensive and cumbersome. "We felt [Micromuse] was the best platform out there for monitoring network uptime and some network appliances," Hewes says. "But every time you wanted to do something with Micromuse, you were required to bring in a $180-per-hour consultant. We don't feel we're getting a good return on our investment with Micromuse."

Free Or Packaged?, piechartHow Far Can You Go?
Hewes says there's no question Nagios can handle what Micromuse is doing. The question is how much further the company, which operates 400 flights daily serving 41 destinations, can go with the open-source network-monitoring tool. "Will it grow with Independence? We haven't had time to fully investigate," Hewes says.

This spirit of experimentation is common among startups, especially those looking for technology that supports explosive growth. Riding the wave of online gaming's popularity, Bodog.com Entertainment Group SA's transaction volumes have doubled each of the past four years. On any given Sunday during football season, Bodog handles 150,000 sports bets. The company's online poker game, which processes 1,000 hands per minute, also is growing fast and can handle more than 5,000 players concurrently.

Twenty of Bodog's servers run Red Hat Linux, and 10 of those run the Apache Web server. Linux also lets the company choose from a range of hardware options, including 32-bit or 64-bit x86-based systems powered either by Intel's Xeon processors or Advanced Micro Devices Inc.'s Opteron processors.

Bodog, which launched in 1995, is looking for a chance to use more open-source applications, including database and CRM software. While its database is IBM's DB2, chief technology officer Carl Schmidt wants to replace that with several 100-Gbyte MySQL databases. "We're looking at a fully open-source business stack," he says.

As for CRM, "we'll wait as long as we can for a viable open-source solution," Schmidt says. Given the pace at which the market for open-source software is growing and the way it's been embraced by startups with an eye toward the future, Bodog is betting it won't be waiting too long.

This story is part of a cross-CMP Special Report on Business Innovation that should be of special interest to growing midmarket companies. Related stories are being published in six other CMP publications. You can see them and other material at businessinnovation.cmp.com.

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