August 21, 2005 6:00 AM PDT

Unlocking the enterprise for open source

Bob Gatewood needed more control. The chief technology officer at Athena Healthcare was sick of multiple databases that contained the same customer record. He wanted to tightly integrate the company's customer data into its Web portal, its financial accounting system and its call center software.

He also needed to save money. Paying his existing customer relationship management--or CRM--vendor, Salesforce.com, was growing increasingly costly. The reason: He was adding 10 new employees a month to handle his company's workload, which in turn obliged him to pay for 10 additional CRM licenses under the terms of his contract with the vendor.

"We realized we needed to integrate CRM into our system," Gatewood recalls. "It was not a separate thing," he says of Salesforce.com's CRM applications, some of which are free and others licensed with a support contract, and of his company's other enterprise software applications. Gatewood was on the verge of directing Salesforce.com's in-house software developers to build a unique CRM product, which would integrate Athena Healthcare's customer relationship business tools with its other enterprise software applications, when he learned about an open-source CRM product offered by SugarCRM that might solve his problems.

After learning more, Gatewood did what a growing number of CTOs are doing today: He went open source, teaming up with the Cupertino, Calif.-based start-up to design and then graft his own CRM system onto his existing IT infrastructure, helping his company's bottom line and boosting employee efficiency across converging software platforms. Such a shift toward open-source software for CRM and other business software applications, such as enterprise resource planning, is now beginning at corporations across the globe.

"I've been surprised at how aggressively enterprises are looking at open-source software and how willing companies are to take on so much complexity," says Sam Jadallah, a general partner at venture capital firm Mohr Davidow Ventures, who spent 12 years working at Microsoft, where he ended up leading the software giant's sales and marketing efforts to commercial customers. "The market is telling us that open source is a viable approach to displace the incumbent vendors," adds Nick Sturiale, a general partner at Sevin Rosen Funds in Menlo Park, Calif. "That's why it's getting so much interest."

"Our customers don't want to be held hostage by a particular vendor."
--Steve Ciesinski, CEO, Laszlo Systems

This shift is motivated by a web of frustrations shared by corporate buyers of licensed business software, whether purchased from major vendors such as SAP or Oracle or rented as a service from alternative vendors such as Salesforce.com. Companies are paying too much for complex products that they can't fully control. They are then locked into that software provider for support or requests for additional functionality, which are often sizable and unplanned expenditures. And when previous versions of the program are no longer supported by the vendor, they have no choice but to upgrade at tremendous cost.

It's the software industry's version of planned obsolescence, or at least that's what open-source business software providers would like prospective customers to believe. "Our customers don't want to be held hostage by a particular vendor," explains Steve Ciesinski, CEO of Laszlo Systems, a San Mateo, Calif.-based open-source software start-up developing rich media applications for the Web. "They don't want to keep having to pay recurring license fees for underlying technology. That's what our competition offers them."

It's not that simple, of course. Open-source software also must be paid for, licensed and serviced, though not in the same way as big, licensed software platforms from SAP, Oracle or Microsoft. And application service providers or ASP business software makers such as Salesforce.com compete directly with open-source software providers by licensing their wares "on demand' over the Web.

But Ciesinski's point about planned obsolescence is still germane--corporations are tired of making strategic decisions about licensed software systems and then having to live with escalating costs and complexity for increasingly inefficient services, only to start all over again when the next upgrade is unveiled. What's more, the growing success of open-source software in other parts of corporations' IT infrastructure--think Linux--is abetting corporations' embrace of open-source applications software.

Opening the floodgates
The move toward Linux-based open-source operating systems, which began about 10 years ago but has gained momentum in recent years, then shifted to expensive Web server, database and application server software. Now, the open-source software revolution is cascading into

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2 comments

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planned obselescence
this is what will provide the major downfall for closed source software. new businesses will be looking at this and deciding that they cannot afford to constantly pay the upgrade fees when they could invest in the LAMP stack and be better off in the long run.
Posted by Scott W (419 comments )
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Planned obsolescence?!
I am not sure if there is such a thing but surely everything may become obsolete, even open-source software. Ever heard of versions, versioning and version management?

Inevitably, all products reach their point of obsolescence -- not because it is planned, but because it is expected to happen. The software technologies today are not finitely the technologies of tomorrow.

The negative message implied by the author's use of the phrase "planned obsolescence" is baseless and shows the author's bias towards open-source.
Posted by Mendz (519 comments )
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