Vendors-turned-open source rally round midmarket

By Shamus McGillicuddy, News Writer 24 Jan 2007 | SearchCIO.com

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That's because a growing number of software companies, in need of bigger profit margins, are going open source.

"I think in general it's part of a larger trend," said Alex Fletcher, lead technology analyst at Entiva Group Inc. in Silver Spring, Md. "A lot of companies are realizing the benefits of having the code base open. A lot of times it's products that have reached the end of their lifecycle. The company puts it out there to see what comes of it."

The capital costs up front, that was a big influence. Dennis Henning IT manager, Ogihara America Corp.

But Fletcher said a growing number of small and midsized vendors are turning to open source to help them compete. "Open source is becoming a bit of a leveler, if you will. You can have a similar product, but when it's open source you are able to offer a little more value for people. For people who might be thinking of using your software, there is a lower barrier of participation. And you're able to tap into fixes from the community."

Aras Corp., a small Lawrence, Mass.-based vendor of product lifecycle management software, announced last week it would release its Aras Innovator product suite as free, downloadable open source software.

Aras President Peter Schroer said his company will earn revenue through maintenance and support contracts instead of software license fees. This will make his company's product more accessible to companies that don't have the IT budgets to pay for heavy industrial applications, he said.

"Whether you go to SMBs or enterprises, it's hard for a CIO to get a capital budget approval for a $500,000 software license," Schroer said.

Dennis Henning, IT manager at Ogihara America Corp., a Howell, Mich.-based manufacturer of automotive parts, searched for two years for software to improve his product quality department's processes.

Henning said his quality department had a quasi-manual system for quality control. "We have a number of point solutions that people have picked up over the years. Our customers expect us to turn in reports for each part number we build for them. They require this particular documentation. And we have all these point solutions that typically are spreadsheet-based. It becomes difficult to track all the information. We were looking for an application to help us unify that for us, a consistent process, a trackable process and an auditable process."

"I had been looking at [Aras] and their going to the open source model kind of happened during that process," Henning said. "That was one of the factors in going for their product. It made it more appealing. The capital costs up front, that was a big influence."

Henning said Aras' move to open source also limited the per-user license fee typically associated with such software. He could deploy the software to 100 users or 1,000 users without paying a higher license fee.

"This is an avenue where we can apply the software as the business needs us to apply it," Henning said. "We don't have to run around playing the game of how many users are we going to have on the system. It gets rid of all that guesswork and of trying to control license compliance."

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Henning downloaded the free software from Aras onto a couple of laptops and ran it through "a few paces" to see how it worked. He said this really allowed his IT staff to learn from the software before he committed to it.

Henning said his organization has experience with open source -- it has Linux servers and a number of Apache Web services servers. Aras will be his company's first foray into open source software built on Microsoft technology.

Michael Goulde, senior analyst at Cambridge, Mass.-based Forrester Research Inc., said Aras is taking a risk by going open source, but it is feasible it could be a good business model.

Companies will download the software and install it. Some might try using it without support from Aras, but eventually many will turn the company for help.

"This turns the traditional sales model inside out," Goulde said. "The customer brings their business to you. The sales cycle shrinks dramatically. Your overall revenue might be lower, but your margins will be lower, too. And you'll be more profitable."

Michael Burkett, vice president for product lifecycle management at Boston-based AMR Research Inc., said Aras' move to open source isn't quite the same as open source technology built on Linux, "where anything developed must be shared free with the world. Aras is using the term to describe their own version of this, which means anyone can download Aras free, develop their own process applications from components -- not the raw code -- and share these with other members of the Aras community for use free of charge."

Burkett said Aras is the first vendor he has seen to follow this model with a Microsoft application rather than Linux. But he said IBM and other major players are developing applications on Linux with the hope of capturing services opportunities.

Let us know what you think about the story; email: Shamus McGillicuddy, News Writer

Tags: Leadership and strategic planning,  Open source enterprise software,  VIEW ALL TAGS

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