Open Source

A new frontier is opening up in the open-source space, where a third wave of software adoption is taking root higher up the stack—at the business application layer—and further downmarket, where solution providers are best positioned to profit.

Emerging open-source business applications from companies such as SugarCRM, Plone, Compiere, JasperSoft and Pentaho are being adopted even more quickly in the midmarket than in the enterprise, where the first two waves of open-source adoption—the operating system and infrastructure stacks—got their first blessings from deep-pocketed Fortune 500 and Wall Street firms.

This is happening, observers say, because small to midsize companies find open-source applications affordable compared with proprietary applications from vendors such as Oracle, Siebel and SAP, especially when customizing those apps has been out of the financial reach of most midmarket customers.

“The first wave of open-source adoption was the OS, and the second wave was the infrastructure stack, but the OS and the infrastructure are commodity layers,” said Larry Augustin, a SugarCRM board member and vice president at Medsphere, an open-source ISV in Aliso Viejo, Calif. “Applications are expensive. [With open-source applications], I can undercut Siebel and get to a market that Siebel has been unable to reach.”

And numerous service firms have sprung up to capitalize on the wave of open-source business application adoption and new partner opportunities cropping up. These include AgileCo, Cignex, KnowledgeBlue and Optaros.

“[Open source] is taking off in midsize companies with up to $1 billion in revenue and for applications that require heavy customization,” said Navin Nagiah, CEO of Cignex, a Santa Clara, Calif.-based consulting partner for SugarCRM and Plone that generated $10 million last year.

The availability of open-source CRM, ERP, content management and business intelligence applications, which all will figure prominently at LinuxWorld Expo in San Francisco this week, is changing the game in an already rapidly consolidating business applications market. To date, open-source apps have done little to dent the sizable market share and revenue of proprietary ISVs. And most remain relatively unknown. Plone, for example, is one of many Web content management systems based on the Zope open-source content management project. And Compiere is an emerging open-source ERP platform that has gained popularity in Europe as an alternative to SAP and Microsoft.

Still, open-source applications are gaining modest traction and soon should begin to worry entrenched players in the proprietary applications market, observers note. Even Microsoft should be concerned about these open-source applications, sources said, particularly since its Microsoft Business Solutions unit has not grown as quickly as executives had hoped after the Redmond, Wash.-based software giant acquired Great Plains Software five years ago.

Executives at ZeOmega, which generated $2 million in services revenue building portals for health-care and insurance companies based on Linux, Zope and Plone, also point out that Microsoft Content Management Server (CMS) has not sold as well as expected. “We have a couple customers that don’t want to be locked into Microsoft or pay a license fee to Vignette,” said Sathya (Sam) Rangaswamy, founder and CEO of Frisco, Texas-based ZeOmega.

KnowledgeBlue wraps services around Compiere for midsize companies in vertical niches. The Salt Lake City-based firm sells the software under its OpenBlue private label and makes money by offering consulting and integration services and implementing accounting software and customer order, payment and contact management software. Founded this year by former IBM and Unisys executives, KnowledgeBlue is growing 500 percent quarter over quarter in Microsoft’s sweet spot—small to midsize enterprises with revenue between $500 million and $2 billion, said Robert Kunz, CEO of the company.

These new open-source offerings are giving commercial software vendors “a run for their money,” said Chris Maresca, a principal at Olliance Consulting, an open-source consultancy in Palo Alto, Calif. “This area represents a huge opportunity, as traditional enterprise applications carry enterprise price tags.”

APPS AT LINUXWORLD
Last week at the O’Reilly Open Source Conference, Intel, SpikeSource and Carnegie-Mellon University announced a Business Readiness Rating System for open-source software. This week at LinuxWorld Expo, the spotlight will shine on open-source business applications and the strategic partnerships around them.

At the conference, for example, SugarCRM, which targeted SMB customers with its first product, plans to announce an enterprise version of Sugar Suite, as well as new partnerships with JBoss and SpikeSource, a services firm that certifies “Linux + Apache + MySQL + PHP/Perl/Python” (LAMP) open-source infrastructure stacks for customers. SugarCRM launched a two-tiered channel program in February.

And Novell will announce at the expo a partnership with Pentaho. As part of the deal, the open-source business intelligence company will participate in Novell’s MarketStart incubation program, one Pentaho source said.