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Software // Enterprise Applications
01:05 PM

Open-Source Exuberance

Hot-shot entrepreneurs, VC money, even 'paradigm shifts.' Dot-coms revisited? No, it's today's flood of open-source startups.

Software entrepreneur John Newton has a tough act to follow: himself. When Documentum Inc. co-founder Newton and his top brass sold the company to EMC Corp. in 2003 for $1.7 billion, it was the pre-eminent content-management software provider in a global market that's now estimated to be worth $2.5 billion a year.

Rather than set sail for the Cayman Islands, Newton has returned to the scene of his earlier success to prove that he can do it again. And his strategy shows how much the software market is changing, particularly for startups. In June, he and former Business Objects S.A. chief operating officer John Powell launched Alfresco Software Inc., a content-management software provider whose core technology was assembled out in the open-source community by dozens of independent-minded programmers. By leveraging the power of the people, Alfresco is looking to upend the balance of power in a market for content-management systems dominated by EMC, Interwoven, Vignette, and other major players.

The people behind open-source software are better at listening to customers than are proprietary vendors, Alfresco's Newton says.

The people behind open-source software are better at listening to customers than are proprietary vendors, Alfresco's Newton says.

Photo by Jeffery Newbury
It's the kind of bold talk we haven't heard from startups since the dot-com days. And there are some similarities to that boom, bad and good. The bad is a lot of me-too sounding startups built on shoestring finances and the promise that their products will catch on if paying customers buy into their "vision." Alfresco, for example, joins more than a dozen open-source software content-management offerings already on the market. But on the good side, open-source applications are very real, and the ones attracting the attention and venture capital have a core of committed developers operating in the open-source community. The question is whether they'll mature into enterprise-class applications. With industry veterans like Newton and Powell involved--people who know how to attract venture-capital funding and build a product to satisfy business customers--the open-source model is giving birth to for-profit companies like SugarCRM, Greenplum, and Pentaho. These companies are building a new generation of business applications for managing Web content, customer relations, and enterprise resources that are cheaper and may be more dynamic than their commercial counterparts. And their approach just might succeed in changing the way software gets made and sold.

Just don't call it a Boom. Call it the Open-Source Boomlet.

Alfresco's success hinges on the savvy of its management team and their ability to sell services around software that anyone can download for free. To do this, the company has to start at the bottom by wooing smaller businesses that would rather create their own file-sharing systems or simply do without formal content management than invest princely sums on such software. Newton pitches Alfresco as breaking new ground by offering a product that's easy to use but also features the security, version control, metadata and full-text search, and workflow features found in more-expensive packages. "With our system, all you have to do is drag and drop the content," says Newton, who serves as the company's chairman and chief technology officer.

Alfresco also shows how the mainstream talent and money is chasing open-source strategy. Newton and Powell provide the experience and a good chunk of investment, and they also have $2 million in backing from Accel Partners, a venture-capital firm with successes such as radio-frequency identification hardware and software maker Savi Technology and Xensource Inc., a provider of open-source server-virtualization software.

Many open-source startups aren't even creating their own software--they get off the ground by selling services to help businesses implement popular open-source projects. That was the approach of Gluecode Software Inc., which was founded with $5 million in venture capital around an open-source software stack that includes the free Geronimo application server. IBM bought the company, which had fewer than 20 employees. That's the final ingredient propelling the current open-source movement: A number of the largest software makers, from IBM to Sun Microsystems, are embracing open-source strategies as never before, though to widely varying degrees.

There seems to be an open-source equivalent to just about every type of commercial software on the market and almost as many vendors charging money to help companies implement, use, and upgrade this software. Still, business-technology managers know all too well the adage about open source: It's free, as in a free puppy. The work and expense start once you get it home.

Still, open-source applications often represent the only opportunity for midmarket companies like construction-management firm Rudolph and Sletten to get packaged software to meet their sophisticated IT needs. Rudolph and Sletten IT manager Sam Lamonica chose the GroundWork Monitor network- management application from GroundWork Open Source Solutions Inc. rather than more expensive options from BMC Software Inc. or Computer Associates. GroundWork is built on top of open-source monitoring, Web portal, and network-traffic-analysis applications, so there was no up-front software license to pay. Says Lamonica, "Otherwise, I would have had to start looking at the bigger players, which would have been cost-prohibitive."

More than half of the $2.5 billion spent annually on content management is for services, Newton says. It's the dependence on services revenue that makes content management such a strong opportunity for a company employing an open-source model.

New open-source products can't compete with the breadth of functions in established commercial software. Instead, the open-source sales pitch often hinges on responsiveness--offering exactly what customers want, by letting them have a hand in development. Since users are directly involved in the evolution of an open-source application, the promise goes, their needs are met more directly than they would be by a commercial vendor that's trying to get its customer base to spend money on the latest upgrade. "Think of any system like Interwoven or Vignette and its most-advanced features, such as language translation," says John Harney, president of ASPWatch, a consulting firm for application-hosting companies, whose evaluation of nine open-source content-management systems was recently published by research firm Cutter Consortium. A major international company would need data from different countries in different languages. But most open-source vendors don't offer this, and their users don't need it--or want to pay for it.

But Alfresco's ambition isn't to be a niche application. Newton has a sky's-the-limit view similar to that of JBoss Inc. and MySQL AB, meaning the company is selling products and services to users with the hope that developers in the open-source community will supplement Alfresco's efforts and eventually help create products that rival the market leaders. Proprietary vendors don't interact with their customers the way the open-source community keeps tabs on the needs of its users. "It becomes more of a dialogue between the person who developed the system and the person using the system," Newton says.

Yet balancing commercial and community needs isn't easy. In fact, given the growing crowds of open-source startups, one of the biggest questions is this: Can this new crop of open-source entrepreneurs build successful businesses when their core software is built by an army of faceless code jockeys, with little interest in helping guys like Newton earn his next million? "There is a disincentive to contribute, and most of those vendors have difficulty building up a healthy number of outside engineers that give them the leverage of the open-source community when developing their products and services," says Brian Behlendorf, co-founder of one of open source's great successes, the Apache Web Server Project, and founder and chief technology officer of CollabNet Inc., a maker of software that helps programmers work together. "You see some developers who say, 'There's someone already getting paid to develop the complex stuff, so I'll leave that to them.'"

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