SAN FRANCISCO—Long-established producers of enterprise application software will have to contend with a rising tide of vigorous competition from open-source software developers, according to Larry Augustin, CEO of Medsphere Systems Corp., a maker of open-source electronic medical records management software.
Open-source software developers are poised to become a "fundamental disruptor of the enterprise software model" because they will provide compelling economic advantages over vendors of proprietary software applications, said Augustin, speaking at the Open Source Business Conference here Tuesday.
Companies such as SugarCRM Inc., which markets customer relationship management software; ComPiere Inc., a maker of ERP (enterprise resource planning) software; and Digium Inc., developer of the Asterix Linux PBX, are all examples of companies that are successfully marketing open-source examples of enterprise applications.
A few years ago these applications were the exclusive preserve of companies selling big, expensive software packages under proprietary licenses, Augustin noted.
For example, Digium is "completely disrupting the PBX model that for years was based on companies supplying everything from the handsets to the wiring" as well as a specialized computer that ran the PBX software, Augustin said.
Now companies that need a new voice system can buy a standard server from their usual hardware vendor "drop in a piece of software—the Asterix PBX—and you have a phone system," Augustin said.
He identified six areas where open-source developers have advantages over large commercial software vendors.
Most proprietary enterprise applications "are big, expensive, heavy applications" that have long sales cycles and "take forever to install, in some cases several years," Augustin said.
Medsphere and other open-source companies can frequently install their applications in six months or less, allowing customers to start getting a return on investment faster, he said.
Proprietary software companies are also big slow moving companies that usually require "big upfront development fees just to get in the door," Augustin said.
They usually start out by building a pilot application as part of the process of convincing the customer to buy a full-scale application, he noted.
Augustin contends that the proprietary software vendors are highly vulnerable to competitive inroads by open-source vendors because "they are dependent on that large license revenue to make this model work," he said.
Open source represents a lower cost, lower overhead alternative, he said.
With open-source products, customers can often download and install a full-scale edition of the enterprise application so they can get up and running quickly, he said.
Most open-source applications have a large and enthusiastic user base that is familiar with the product and knows how to use it.
As a result, open-source software vendors dont have to spend huge amounts of money on marketing to introduce people to the product and show them how it works, Augustin said.