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Open-Source ExuberanceOpen-Source Exuberance

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

Larry Greenemeier

July 9, 2005

5 Min Read

Yet the new breed of hybrid commercial, open-source startups depends on open-source programmers to contribute and test code, and to bring new ideas, so winning the respect of the fickle open-source developer community is vital. And even if a company succeeds in getting a mass of supportive programmers, it's difficult to manage toward business goals. Some open-source efforts, like the growing open-source database MySQL, have a for-profit company--MySQL AB--employ the key developers on a project. But even these need active input and interaction from customers to fulfill the promise of software that responds to user needs.

Apparently, investors don't fear these challenges to the open-source business model. Alfresco isn't the only open-source startup attracting VC dollars. GroundWork, which provides open-source IT-monitoring applications, has attracted $11.5 million in funding from firms such as Mayfield Fund and Canaan Partners. SugarCRM Inc., which provides open-source software for customer-relationship management as well as support services, has raised $7.8 million from Draper Fisher Jurvetson and Walden International.

Unlike their dot-com predecessors, these open-source startups are bringing in experienced executives, many of whom are veterans of the proprietary software world. And they're moving into nearly every segment of the business-computing market.

SugarCRM CEO John Roberts says he launched the company when vendor consolidation began to stifle innovation in the CRM market. "The barrier to entry into this market wasn't building a better application, but rather who could spend 70% of their revenues on sales and marketing. So we started looking at open-source business models," says Roberts, who held product-management and sales positions at commercial CRM vendor E.piphany as well as BroadVision and IBM.

SugarCRM has been downloaded 250,000 times since the product became available 12 months ago, and Roberts estimates that the software is being used at 35,000 sites. But like many open-source efforts, it's being implemented on a small scale in businesses: Companies generally have three to 20 users.

In databases, MySQL AB has helped keep the MySQL project ahead of the open-source PostgreSQL database project, although that could change over time. Backers of PostgreSQL are looking to even the playing field. Greenplum Corp. in April launched a test version of its DeepGreen open-source data-warehousing software based on PostgreSQL. Greenplum, whose CEO, Sam Mohamad Sakakini, spent 10 years in sales and marketing at Oracle, plans this summer to release a high-end data-warehousing system called DeepGreen MPP and also is working on something called the Bizgres project to enhance PostgreSQL for business-intelligence applications, another growing area of open-source interest.

Greenplum's open-source strategy is complementary to that of Pentaho Corp., a company that launched in June to act as the steward for the Pentaho BI Project. Whereas many business-intelligence applications act as standalone reporting and analysis modules separate from the enterprise stack, Pentaho is designed to be part of a business process, offering reporting, analysis, information delivery, data mining, and workflow capabilities.

Pentaho chairman Andre Boisvert was president and chief operating officer for SAS Institute Inc., senior VP of worldwide marketing at Oracle, and has held senior management positions with Cognos and IBM. CEO Richard Daley was CEO and founder of Keyola, a business-intelligence software company acquired in 2002 by Lawson Software. Before that, Daley was CEO and founder of Appsource Corp., a software company that specialized in front-end business-intelligence query, reporting, and analysis products. In 1997, Appsource was acquired by Arbor Software, which a year later acquired Hyperion Software and changed its name to Hyperion Solutions Corp.

Daley and his team chose the open-source route to developing and launching Pentaho because open source let them create a business-intelligence platform that was different from the ones he'd already developed. The resources of the open-source community also meant that Pentaho could leverage software modules already freely available and get input from programmers worldwide. "A lot of what we've done is take pieces of code and glue them together, add value, and contribute them back to the original authors," Daley says.

Daley has big ambitions for Pentaho eventually taking on the leaders in the market for business-intelligence software. "We will seriously challenge the market leaders, though it will take three to five years," he says. Daley's vision is that, because business-intelligence software is modular, it can be replaced one component at a time. "People won't throw everything out, but they could migrate to open source more gradually," Daley says.

Rudolph and Sletten's Lamonica chose open source for the low cost.

Rudolph and Sletten's Lamonica chose open source for the low cost.

For Rudolph and Sletten's Lamonica, the introduction of open-source GroundWork software could lead to more open source, if he can find applications that are a good fit. "There aren't a lot of open-source applications for our construction vertical," Lamonica says. "Right now, it's Microsoft or bust, although Microsoft has been very stable for us."

To help keep on top of developments in the open-source market, Lamonica recently joined the advisory board of SpikeSource Inc., a startup software and services provider formed by ex-Marimba Inc. executive Kim Polese to facilitate the adoption of open-source software in the enterprise through testing, certification, and support services. "I truly believe that in order to come up with alternatives, it has to come from the grassroots level," he says.

Lamonica is looking for an open-source middleware application that would allow his systems to store and forward messages between applications. He's hoping that working on the SpikeSource advisory board will expose him to new ideas and alternatives by networking with other CIOs.

Today there's a huge gap in the world of open-source software. A few, such as the Linux operating system and Apache Web server, run in some of the most-sophisticated, high-demand IT operations. And then there are the rest--companies such as Pentaho, SugarCRM, and Alfresco that might serve 20 users in small companies. Will they make the leap to compete with established, proprietary software? The question pivots on whether business customers are willing to put their trust in a bundle of software that's partly controlled by businesses with managers and revenue expectations--and partly not controlled at all. A growing number of entrepreneurs and venture capitalists are betting that they will.

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