Software start-ups think inside the box

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center components. By contrast, its competitors, such as Relicore and Collation, sell their wares as software products.

Meanwhile, Google sells a corporate search appliance, and in the world of XML networking, there are a number of companies that sell appliances for tasks such as speeding up network traffic or providing Web services security.

These companies are taking advantage of the changing economics of the IT industry.

Costs of hardware have been pushed down persistently for years, making appliances cheaper to buy. Also, standardization is increasingly common in the IT industry, affecting everything from chips to software.

Netezza appliances, for example, employ commonly used database access interfaces, while XML hardware companies can use Web services protocols.

Hardware commoditization and better integrated components let start-ups use larger "building blocks" of preintegrated components and develop products more easily, industry executives said.

Dintersmith said this approach is a break with how companies have typically approached engineering. Typically, hardware companies dedicate three-fourths or more of their research and development budget to hardware and the rest to software, he noted.

"But with this new generation of companies, the software mix of their R&D budget is three-quarters or more. So for less than a quarter (of the budget), they are doing proprietary hardware, which is very different than business as usual," Dintersmith said.

Box nuances
Speed of installation is an important factor in choosing a hardware design, according to industry executives.

In the case of Cast Iron Systems, its "application router" can be in production in about a month--a fraction of the time it would take using the traditional method of purchasing integration software, server, storage and other software components.

Meyer, who used to be chief marketing officer at integration software company Tibco Software, said the application router is well suited to relatively simple integration tasks.

"Friday afternoons I used to have beers with the (Tibco) global architects and ask how things went with customers. They'd say that it went fine, but they only used 5 to 10 percent of the product," Meyer said.

Meyer and others said that appliances do not fit every need. For example, Cast Iron Systems' product does not handle some of the more complex jobs, such as multistep business process workflows, that software integration products do.

Also, there is a significant difference between a software product that is simply sold with a commodity server and a device with a proprietary hardware design, said Kevin Anderson, vice president of marketing at DataPower, which sells a line of XML network devices.

"Network appliances are supposed to reduce complexity," Anderson said. "But that requires a totally different engineering discipline. It's not just choosing between shipping on a CD versus (in) a box."