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Software: No longer business as usual
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April 5, 2005 -
Survival of software's fittest
August 16, 2004
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said Intalio's Ghalimi.
By giving customers the source code to its products, Intalio provides customers a sort of insurance policy that they could keep operating even if Intalio company goes away, Ghalimi said. In addition, having a widely used open-source business process management product makes the company attractive as a potential acquisition down the road, he said.
Several other companies are seeking to commercialize open-source products, such as databases and development tools, by selling support services. Another common model is to provide a free open-source version and charge for an enhanced edition.
Embracing open source also means completely revamping a company's operations. For example, the low acquisition-price of open-source products means that software companies cannot support high-cost sales and marketing employees. Instead of hiring a large cadre of salespeople, some software companies say they rely on developer interest and telesales.
Although open-source may be a popular business model for new companies, larger incumbent providers are dipping their toes into open source as well--without totally undercutting their profitable product lines.
Microsoft shares code with developers. IBM last year bought Gluecode, an open-source application server company, and offered its Geronimo products to small business customers as an alternative to WebSphere Application Server.
Like open source, a software-as-service company needs a different operation than traditional software companies as well, said Alms at Agistics.
Having a single version of an application makes ongoing support simpler but the company needs to coordinate with several different service providers. Also, far more attention needs to be paid to software design to ensure it can stand up over time, he said.
The amount of money required to start a hosted-software venture may be higher than a traditional software company. Salesforce.com, for example, required about $65 million in venture funding before it went public, according to Trinity Ventures. Rangaswami noted that payments to hosted-software companies tend to be spread out over time, rather than pay out upfront.
Matrix Partners' Skok said companies that sell on-premise software--rather than hosted software--need about $30 million to $35 million, in general, to get started, which is consistent with years past.
However, firms have to find a way to break into corporate accounts without an expensive sales process, he said. For example, storage management company AppIQ, recently acquired by Hewlett-Packard, signed reseller partnerships with more established providers, such as Hitachi.
Open-source companies can be started and operated for lower costs than the traditional enterprise software model, said some software entrepreneurs and investors.
In a recent blog entry, Marc Fleury, CEO of open-source company JBoss, argued that a shift to open-source products and yearly subscription contracts will disrupt business models run by incumbent software companies. "We can survive, nay, thrive on lower revenues, and that is a crazy new world for our competition," Fleury wrote.
Running the numbers
Corporate buyers--who often seek to work with fewer, trusted vendors--still spend money on software, particularly to make IT infrastructures more cost-effective and flexible.
In a report from November last year, Gartner forecasted spending on applications and software infrastructure to grow 7.7 percent through 2009, fueled by spending on products to revamp corporate computing systems around more flexible service-oriented architectures.
Gartner predicts consolidation in the software will continue through 2007 as large vendors fill out their sell a "stack," or broad suite of integrated components.
If start-ups are not acquired by a larger player, they can't cash in through the public stock market as easily as in the past. More rigorous regulations make filing for an IPO--a route to riches for many software companies in the past--more difficult.
"In general, the cost of IPOs has gone up a lot, probably in the three-and-a-half to five million dollar range," said Ben Horowitz, CEO of data center automation software provider Opsware. "If you look at how big you have to be to afford that off your bottom line, that's pretty substantial."
Still, optimism and entrepreneurial spirit live on in software. Ultimately, the new tacks taken by software start-ups are a sign of changing market conditions, rather than a sign of flagging innovation, said Ram Gupta, CEO of startup Cast Iron Systems and a former Peoplesoft executive.
Cast Iron has taken a novel approach to tackling application integration, a costly job that can cost large-business customers millions of dollars a year. The company's appliance approach changes the picture dramatically, Gupta claims. In one case, Cast Iron closed a deal in thirty days--a process that takes several months for incumbent integration-software providers.
"It does become harder in the enterprise space, of course, because of consolidation," Gupta said. "That being said, any time in history of innovation, if you have good innovation, a good, differentiated offering and execute flawlessly, you will succeed, times being whatever they are."
See more CNET content tagged:
Intalio Inc., enterprise software, consolidation, PeopleSoft Inc., entrepreneur
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I will try to get it working in Linux pronto.
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This means our market leading eAuditorium Web conferencing which was perviously $9,995.00 for 100 Seats, is now FREE.
Here:
http://www.netdive.com/indexea.htm
Our market leading CallSite for Web Live Support which was perviously $8,995.00 for 50 Agent Seats, is now FREE.
Here:
http://www.netdive.com/indexcs.htm
The world's number 1 Chat software system, SiteSticky, is now Free, here:
http://www.netdive.com/indexss.htm
And the leading Corporate Instant messaging, WeMeeting, it is Free too, here:
http://www.netdive.com/indexwme.htm
In all these cases, customer gets our software products for Free and just pays for Support
and Hosting services fees should they want them.
And also of course we offer the free Oxygen web browser, the only real alternative to Microsoft IE, here:
http://www.netdive.com/oxygen/download.htm
I will try to get it working in Linux pronto.
It's just too fastpaced today with the broadband market saturation. Good stuff but better to let the code/product fly freely and then charge if customer needs extras which in the end will slow the process down so a charge I guess I necessary.
I think companies should do this with Hard products too and just charge for repairs but that?s a big wish.
That's like some car salesman telling you the car is free if we just buy the $20,000 warranty.
Be careful in how you market this, else you're going to end up just making people mad - like me.
- by kpolson October 22, 2009 9:23 AM PDT
- I am glad to hear this. We have been basing our business model on offering immerging software companies a solution for QA and Support Services. We have been bringing on companies that are looking to do this same business model.
- Reply to this comment
-
(15 Comments)We have expertise in software QA, Support and back end systems for deployment. This is something we are hoping takes hold. We have seeing smaller companies actually gaining headway against larger competitors by offering the free software, but charging for the support and upgrades. Those customers are told upfront this program and most have opted for a prepay option on so many hours of support.
www.virtualmanagedsolutions.com