Open source is more than free: The Untangle experience

I've been saying for some time that open source is not a price tag, or at least is much more than that. In criticizing Oracle's "lite"/express approach to competing with MySQL years ago, I insisted that "free, as in price, is just one part of the open source puzzle. But it's not necessarily the most important one."

I stand by that claim, and received confirmation from Untangle this week.

Untangle is an open-source network gateway company. It started out as a proprietary software company, but turned to open source for growth. This doesn't always work well for companies, largely because many get the model and/or culture wrong.

Untangle, however, has done it right, and the downloads have followed. From 145 in June of 2007 to 41,419 in April of 2008, interest in Untangle has rocketed with its adoption of open-source licensing.

Is this just because its code is free now, and not because it's open source? A quick look at the data suggests that "free" isn't selling Untangle. Open source is.

First off, consider that Untangle already offered a free download of (proprietary) software for trial purposes and also sold appliances with their network gateway software already installed and configured. Though the company leveraged open source in its code base (some 30 projects) to get to a finished product faster, it didn't release its code under an open-source license.

In other words, it was already using "free" (as in price) software as part of its model, both to entice would-be buyers and to improve its development. But it needed more than a great product: It also needed to more efficiently find new buyers for that product.

Enter open source.

In June of 2007, five years after the company started development and two years after it started to sell its product, Untangle open sourced the vast majority of its software. Here's what happened:

Untangle's active deployments skyrocket with open source

(Credit: Untangle)

The graph shows the POPS or activations of live instances of Untangle's gateway servers running each month. These are real deployments: The blue line represents boxed appliance sales that have gone live. Meaning money coming in the door. Lots and lots of money.

How much? 300 percent over the bad old days of proprietary.

Free proprietary is only marginally better than expensive proprietary. Open source makes for a better way to distribute software. Period. You can take that to the bank. Just like Untangle did.

[ashimmy]

Matt- Maybe I am reading the blue line wrong, but it doesn't seem to be rocketing up at all, especially compared to the downloads number. I think Untangle though offers other revenue generating services such as support, etc. However, all in all I would say the book is still open on whether the model they are following is going to result in significant uptake from free, open source to paying customers. I have met the Untangle guys and wish them luck, but I am not sure you are representing the facts here.

[PierreTDC]

I concur, Untangle is going after the SMBs with very low margins and although adoption is going well sales are not keeping up.

BTW there is an interesting piece on Untangle philosophy here:
http://blog.milkingthegnu.org/2008/03/from-close-to-o.html

[Matt Asay]

Sales are up 300% and that's not good? Last time I checked, I'd take that any day over the lower growth of before (which was well under 100%, I believe). You shouldn't expect the "blue line" to follow the "red line" exactly - that's called proprietary software, and it rarely hockey sticks. This is the open source model: More adoption than monetization, but more than enough monetization to pay the bills and feed the kids. In the case of MySQL, JBoss, Alfresco, etc., *much* more than enough. I'm optimistic that Untangle and others will get this right, too.

[PierreTDC]

Ahem Matt, 300% out of what exactly? Say they have 200 paying customers generating initially maybe 50-100K a year overall (remember they price a couple of dollars/month/employees) Multiplying this amount by 3 is not going to derive a substantial business. The blue curve is for now linear; if they survive 3 more years they might reach 1 or 2K customers, in the very best case hitting maybe $1M a year. Could be Ok for a self-funded company, probably not for a 30-person company running out of their initial $10M VC funding.

Going open source is a very good move but you've got to have the right business model. They might have had a chance if they had adopted an open source model right from scratch though.

At this point their best shot is being acquired by somebody like Barracuda Networks that could see in them a cheaper avenue to reach customers.

[Adelmann]

Guys, I think there is some confusion with the graph which is understandable. I've been reselling Untangle for about 5 months so know a little about them. The blue line "Box POPs" represents their hardware appliance -- which they don't really push. However they also sell a software subscription (it's mostly support but you end up really needing that Active Directory Connector). Trust me they push the software subscription. I don't buy their appliance (it's too expensive) but I do use their software and end up buying a software subscription for each of my clients. The graph doesn't show Subscriptions but from what i've gathered from them it's about 1,000. So, 1,000 paid subscriptions from 5,000 deployments. That looks pretty good to me.

[tristanbob]

I am interested to see how Untangle develops. I was initially very excited to see what their product offered - almost every network security function that you could want!

I am also curious how they will compete with Vyatta, an open source product that has some overlap with Untangle. Vyatta has routing, firewall, VPN, QoS, WAN load-balancing, and other networking features. I expect with time that Vyatta will add more security functions similar to what Untangle has.

Vyatta appears to currently have the lead in brand awareness and enterprise deployments. From what I can tell, Untangle is focused on SMB market for now.

Tristan