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.
Tapping the developer community
Along with the user base is a substantial community of developers who can all produce enhancements and extensions to the product under the open-source license.
“This enables them to participate in the market and enables you to grow your solutions for your customers, but its not all dependent” on your companys efforts, he said.
Furthermore, the enterprise applications market is a rich and inviting one for open-source developments, Augustin said.
For example, the ERP market is expected to grow to $25 billion by 2007, while VOIP is going expected to grow to $6 billion by 2008, he said.
“This means you have an opportunity to build a really large business,” he said.
As a result, open-source developers are going to compete with the established proprietary vendors for a growing share of these markets, Augustin said.
Open-source vendors will have an advantage because it will be easy for them to develop on a cost effective basis for SMBs (small and midsize businesses).
While SMBs are hard-pressed to afford the big and expensive proprietary enterprise applications, they will find open-source software to be much more affordable.
While open source will pose more of a competitive challenge to proprietary enterprise application software, it will always coexist with the established corporate, said Stephen Walli, vice president of open source development strategy with Optaros Inc., a newly established open-source consulting and system integration company based in Cambridge, Mass.
For example, the MySQL database has grown by coexisting with large database installations.
But nobody seriously believes that MySQL will supplant many large, established Oracle installations, he said.
However, there is no question that there is a major new opportunity for the development of open-source enterprise applications, and that is one of the key reasons why Wallis company, Optaros, was organized last year.
However, David Goossen, director of legal affairs with Rogue Wave Software, a provider of software and services to create service-oriented architecture applications in Boulder, Colo., questioned whether open-source software was going to grow at the rate Augustin predicted.
He said he thought it was doubtful that significant open-source application acquisitions were on the agenda of most enterprises these days.
However, he said he came to the conference to learn more about open-source software and how the market was developing.
“It did intrigue me enough” to take a look at what was in the market, he said.