Enterprise Software >> Open source

Unlocking the enterprise for open source

Published: August 21, 2005, 6:00 AM PDT

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these products are quality, deliver solid functionality and are extensible in ways to satisfy their unique needs, there's no stopping this. And that's what open source provides."

John Roberts, CEO and co-founder of SugarCRM, is even more upbeat. He believes his open-source CRM start-up is doing to Salesforce.com's on-demand business model what Salesforce.com did to San Mateo-based Siebel and other licensed software companies. SugarCRM was one of the first enterprise application developers to receive venture capital funding last year; its venture capital backers are Draper Fisher Jurvetson of Menlo Park and Walden International of San Francisco.

But the number of start-ups developing open-source enterprise applications is now multiplying and covering most major sectors, such as enterprise resource planning, business intelligence and project management. Some are even targeting specific industries. Aliso Viejo, Calif.-based Medsphere Systems, for example, makes open-source electronic medical records management software, and Huntsville, Ala.-based Digium develops an open-source public branch exchange, or PBX, office phone system.

Business models vary from company to company, however, among these start-ups--none of which clearly points to a path to profitability. "How you charge for it is an open question," says Russ Siegelman, a general partner at venture capital firm Kleiner Perkins Caufield & Byers who spent seven years working at Microsoft. "Value will come out of support, maintenance and making sure it is integrated properly."

But others are going beyond the support, maintenance and integration model, seeking a better base of revenue by providing the basic version of the code for free to anyone who wants to download it, but then also offering a premium version that comes with advanced functionality, installation, support or interoperability certification.

Ciesinski's Laszlo Systems offers its open-source development tools free of charge but then charges customers such as EarthLink for its closed-source e-mail application. JasperSoft offers its basic version for free but charges $9,999 for a license on a per-central-processing-unit, or CPU, basis, referring to the units that comprise the brains of a computer server.

"Open-source and commercial software applications will coexist in the enterprise for a very long time."

--Nick Halsey, vice president of marketing, SpikeSource

Then there's Lincoln, Mass.-based Sleepycat Software, which reasons that its product is better than its rivals and so charges the customers that use its code in commercial applications on a per-license basis of $185,000, comparable to its competitors' rates.

That sounds as expensive and as complicated to purchase as traditional licensed software or on-demand software. Indeed, Salesforce.com resides on both sides of this market divide. But for corporate executives, the cost is almost always less than closed-source rivals. And even if it's not, the product is usually easier to customize than closed-source code and extends further into a company's IT infrastructure. But will these open-source business enterprise software start-ups become viable enough to make the open-source business model work so that they will be around in the future to support their products?

Increasingly, it seems as if they can. Proof is in the number of large technology companies with significant proprietary software that have responded to the open-source challenge by open sourcing at least some of their code, which in turn ensures that smaller open-source software vendors have a chance in the marketplace. Bob Mack Peak, vice president for marketing and business development at SVC Financial Services, said the large software vendors have no choice but to experiment with open-source software development.

"They've built companies with massive infrastructures based on selling software that costs $100,000 to $200,000," he notes. "Well, people aren't buying that anymore," says Peak, a veteran software industry executive, who was vice president for worldwide sales at Computer

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