Application FocusFeature (January 2006)
Manufacturing Software Consolidating
by John P. DesmondRipple effect being felt as big ERP players move into competition in the mid-market; some firms still able to grow organically
The ripple effect of acquisitions by the biggest players in ERP manufacturing software is reaching into the mid-market, where more consolidation has been happening as those players try to protect their customer bases and continue to grow.
And while some manufacturing software suppliers, such as Oracle and Lawson/Intentia, see the acquisition and assimilation strategy as best, other companies, such as IFS and SYSPRO, are trying to grow organically for the most part, investing in R&D to develop new products and be responsive to customer demands for features. (See Fig. 1.)
In the view of Bob Ferrari, supply chain services program director for IDC’s Manufacturing Insights analyst service, companies pursue an acquisition strategy for one of three reasons: to extend their vertical industry focus; to get a head start on new technology such as Services Oriented Architecture (SOA); or to buy a customer base.
Oracle’s 2004 acquisition of PeopleSoft, which had already acquired the mid-market manufacturing software company JD Edwards, gave the company more customers in the mid-market and in consumer product goods, Ferrari notes, even though Oracle historically has never supported such IBM mid-range machines as the AS/400 and the follow-on iSeries.
Acquisitions to fill the gap for SOA and Web services are picking up pace. “SAP, Oracle, IBM and others are in a race to get these SOA products to market,” Ferrari explains. SAP has NetWeaver; Oracle is further developing its Fusion product, and IBM has WebSphere as its holistic approach to Web services. A recent example of buying to get a customer base was Oracle’s acquisition of Siebel as a means to gain CRM customers, even though Oracle already had a CRM offering.
“The most obvious negative for a potential customer is the concern about whether the software supplier can pull it all together, and how long it’s going to take them to rationalize the acquired products,” says Ferrari. Whether the supplier will lose key talent is another concern. At the recent Oracle OpenWorld, many of the people attending to find out whatever they could about the Oracle acquisitions of Siebel, Peoplesoft, and JD Edwards were in fact employees of one of those companies.
Snapshots of how a few companies have pursued the acquisition or the organic growth strategy provide insight for software buyers.
Major Mid-market Marriage
Lawson Software’s intended merger with Intentia offers a look at many of the market forces at work in manufacturing and supply chain software segments. Announced in June 2005, this transaction will create a company with more than 3,500 employees serving 4,000 customers in 40 countries, with business applications for the manufacturing, distribution, service and maintenance sectors.
The analyst community has generally reacted favorably to the announced merger, seeing much in the product lines of the two companies that is complementary. (See Fig. 2.) Forrester Research indicated that the transaction moves the combined company into fourth place in the consolidating ERP market — behind SAP, Oracle, and Sage — and ahead of Microsoft Business Solutions and SSA Global.
Forrester identified new Web services standards and microvertical channel strategies as opportunities for the merged company; they also noted such threats to the merged companies as micro-vertical assaults from well-funded challengers, as well as hosted solutions with no integration issues.
The merger with Lawson was still pending approval by the Securities and Exchange Commission (SEC) as this was written. That approval is expected between January and March.
“We’ve seen a huge consolidation in the market in the last 12 to 18 months,” says Bertrand Sciard, CEO of Intentia. “In the past, the market was organized into major segments: the high end, the mid-market, and the low end. More and more, we are seeing that very big companies are not spending the amount of money they used to spend on software; they have become resource-constrained. That means they are short on one of three things: money, time, or people. In fact, today we see many large enterprises exhibit the same behavior as what we could have called in the past the mid-market.”
Given this scenario, Sciard continues, “SAP and Oracle, who dominate the high end of the market, have to go down to the mid-market. There is nothing left at the high end; they can try to sell more users or increase maintenance charges, but these will be rejected by customers.” Sciard says. This new strategy is exemplified by SAP with its Business One and Oracle with its new iteration of JD Edwards’s One World. “We don’t see them yet,” notes Sciard. “They’re busy digesting PeopleSoft and Siebel, but I know this is their strategy.”
Looking further at the mid-market position, Sciard acknowledges a number of players, including Epicor, but the dominant two he sees as Sage, based in the U.K., and Microsoft. In an effort to dominate its market, Sage has made a series of U.S. acquisitions, including Peachtree in 1999, Best in 2000, Interact in 2001, and ACCPAC in 2004.
Assuming the Lawson/Intentia merger is approved, “we will be an alternative to the big three,” Sciard says, referring to SAP, Oracle and Microsoft.
He further notes that any software company will have trouble trying to invest between 12% and 15% in research and development while maintaining three to five product lines. “Many prospects in the mid-market are resource-constrained and don’t want to fall into the claws of Oracle, SAP or Microsoft. At the same time, they don’t want to invest in dead technology.”
SSA Global Continues to Acquire
SSA Global may dispute Sciard’s positioning of Microsoft in the third position, behind SAP and Oracle. The company has pursued an acquisition strategy, most recently by adding Boniva, a specialist in human capital management, and Epiphany, a CRM firm. (See Fig. 3.) “We are finding that the manufacturing and supply chain companies are starting to try to really understand the customer,” said Graeme Cooksley, executive VP and president of Baan Global for SSA Global. “And the customers are looking for extended ERP solutions, covering everything from the supplier’s supplier to the customer’s customer.”
Customers aim to take costs out of the supply chain; some manufacturers are trying to accommodate them by seeking more efficiency in their distribution methods. These include the DHL shipping company and the Del Monte agricultural firm — both SSA Global customers.
With the series of acquisitions SSA Global has made since 2001, “we have the extension market pretty well covered,” Cooksley says. “Now we’re moving towards a trusted-adviser relationship with our customers. We want a deeper relationship with them — we want to be market-driven and to better understand their business issues.” Internal challenges include training the sales force to tune into the customer’s business issues, and achieving a better knowledge of different vertical markets.
Cooksley acknowledges the same pressure on software prices as does Intentia’s Sciard. “Prices have gone down dramatically,” he notes. “And there’s pressure on the maintenance charges. Customers have a budget, and they want value for their money.”
SSA Global is committed to IBM WebSphere as its integration layer, and the company has built a development force of 700 in India to help it stay competitive. As a technical thrust, SSA Global is focused on a “demand-driven supply network,” a phrase coined by AMR Research analysts. As Cory Eaves, SSA Global’s global chief technology officer, explains, “Manufacturers are trying to build systems that help them forecast and manage demand as they provide procurement, sourcing, manufacturing, and distribution. That way they can design and retire products in a controlled way over time.”
Globalization is another priority for SSA Global. For example, Eaves says, every U.S. manufacturing company with $200 million in revenue and above is now doing business in China. A few years ago, only the biggest companies were doing that. And SOA is a major technical thrust, notes Eaves: “We see that the average midsize manufacturing firm has about three ERP systems, and the biggest companies may have 100. It’s mind-boggling — the challenges are almost impossible. The trend towards making systems adhere to the SOA standard helps to solve some of those problems,” he says.
SSA Open Architecture, built on top of WebSphere, is SSA Global’s answer to SAP’s NetWeaver. It is being used to help integrate the acquisitions of Boniva and Epiphany. In fact, a major release integrating the Epiphany technology is planned for May 2006.
Offering some advice for buyers, Eaves suggests separating the product from the company. He uses Epiphany as an example: “The product was outstanding; technically, it was one of the best in the industry. So even though the company was not financially stable when independent, you would know what whoever bought that company would preserve the product because it has so much value. Savvy buyers can see which products are strong and have a future,” he says.
Epicor Strong in Mid-Market
Epicor Software has built itself into a strong mid-market player; its acquisition strategy has targeted companies from $10 million to $500 million in revenue. The company offers three product lines: Vantage, for manufacturers; iScala, for industrial; and Enterprise, for distribution and service companies in specific vertical industries. The company’s products support more than 30 languages. It has four US development centers and two outside the U.S., in Mexico and Russia. Epicor software localized for the Chinese market is developed in Moscow.
“We feel we are the SAP of the mid-market,” says John Hiraoka, Epicor’s senior VP and chief marketing officer. The company is ranked No. 141 on the 2005 Software 500.
SYSPRO Pursues Organic Growth Successfully
In contrast, SYSPRO is pursuing an organic growth strategy. The firm started out targeting the mid-market, offering ERP software at an attractive price. SYSPRO committed itself early on to be supportive of the Microsoft .NET architecture, which put it in a position to grow along with acceptance of that architecture in the range of companies that commit their infrastructure to it. Using the Software 500 ranking as a barometer, the strategy is working for privately-held SYSPRO, which reported $49.4 million in global revenue in 2004, making it No. 278 on the 2005 Software 500.
“You want to do business with a software company that is focused, and we are focused on the mid-market,” says Harold Katz, SYSPRO’s vice president of strategy. Katz emphasizes that customers in this target market need personal contact with their software suppliers. “You need to be able to speak to a person as well as a corporation,” he explains.
“Anyone can get to the president here,” says SYSPRO president Joey Benadretti. “It’s all in the relationships. If implementations go bad, it’s often not because the software was bad, but because the people did not work well together.”
SYSPRO has stayed private since its origins in the 1970s. The company’s roots can be traced to a multi-user financial distribution system developed for Singer Corp. The British computer manufacturer ICL purchased Singer and marketed the software as STARS. SYSPRO was commissioned in the early 1980s to convert that product to a more generalized operating system, and SYSPRO subsequently bought the rights to the source code, combined it with manufacturing software it had been developing, and marketed IMPACT. That product was marketed until 2002, when SYSPRO unified the company and product name. The company extended from the base product into trade promotion, deductions management, and forecasting in 2004 and into analytics in 2005.
Benadretti suggests that customers of companies that have consolidated products from multiple acquisitions are taking the risk that the product they have been using will not continue to be fully supported if it’s no longer generating new business. “You can’t be everything to everybody,” he says. “We have one product that is componentized.”
Customers Seem to Like It
Lee Spring Company is a spring manufacturer founded in 1918 in Brooklyn, N.Y. Currently the company operates plants in Gilbert, Ariz., St. Charles, Mont., and Monterrey, Mexico. Prior to making a commitment to SYSPRO’s products, the company was using an application called Mandol, written in Thoroughbred Basic and running on a Data General Unix box. “It was every programmer’s worst nightmare of spaghetti code,” says Michael Gisonda, director of MIS for Lee Spring. The original software supplier was out of business and there was no company left to support the product. The only help available came from one of the original programmers. As if that weren’t enough, the system wasn’t year 2000-compliant. “We were facing some serious problems,” says Gisonda.
And the system posed other limitations: an inability to extract data; operations requiring dumb terminals, which made it difficult to have multiple windows open; inflexibility that limited the ability to add new functionality. “All of this hampered change in our business process,” says Gisonda. Eventually, Lee Spring went looking for new software.
Work on a request for quotes (RFQ) began in March of 1996, and the result wasn’t mailed until August. It was 225 pages long. Some 53 software suppliers were asked to participate, and eight responded, one of them a SYSPRO value-added reseller. “Our analysis showed that SYSPRO provided all of the functionality we required and was a 95% fit with our existing processes,” Gisonda says. SYSPRO also provided the best value for the money. Lee Spring signed the contract in March of 1998, and the company is still a happy customer of SYSPRO, using the software in all of its locations and currencies, and satisfied with the support. “SYSPRO just generally cares about their customers,” says Gisonda. “All software has problems. It’s how you respond to the problems that makes a difference.”
SYSPRO also made a believer out of Bags and Boxes 2 of St. Joseph, Mo. a firm that offers a comprehensive line of packaging products for the retail specialty market. Their parent corporation, which does the manufacturing, and Bags and Boxes shared the same software, which, being Unix-based and enterprise-scale in its functionality, was not a good fit for the smaller firm. “We wanted something Windows-based,” says Debbie Mahoney, controller for the company. The search for new software led to SYSPRO. “It stood out because of the ease of use of its sales order system,” Mahoney says. “The others were more accounting-driven and fell short when it came to meeting customers’ needs, especially on the distribution end. The notes feature that SYSPRO has, which allows us to save and copy notes with each order, is very important to us.”
Asked her opinion of the benefits of being the customer of a company that has developed all its own software, Mahoney says, “I think it does make a difference. They know the software in and out. Anytime we have a problem, they get right back to us.”
IFS: Growing Organically, Staying Focused
At No. 112 in the 2005 Software 500, IFS has found success by growing for the most part organically and staying focused on the mid-market in manufacturing software. The company’s roots are in 1980s Sweden, with software used to maintain assets for large utilities. After extending into manufacturing, distribution, and order entry — the traditional ERP applications — IFS acquired Effective Management Systems in the late 1990s as a way to move into the North American market. That company’s product line was discontinued and its customers migrated to the IFS product.
“Our goal in 1999 was to get a sales force team, a development team, and a local footprint in North America,” says Steve Andrew, IFS’s director of marketing for North America. Since 1999, the company has made no substantial acquisitions. “We want to keep a single product focus. We don’t want to manage seven product lines across multiple industries,” Andrew says.
IFS differentiates on lower total cost of ownership, since all its applications are based on the same code base and have the same user interface. The company has 2,600 employees in 45 countries. North America now contributes up to 20% of total company revenue, and the percentage is growing. All sales were direct until 2005, when IFS started building a reseller channel in the U.S. “Now is an excellent time for that, because a lot of systems integrators out there are nervous,” explains Andrew. Integrators that support JD Edwards products, for example, are uncertain about the future. “We are kind of a safe haven,” says Andrew.
IFS Application is scheduled for release in April 2006. It will have an improved UI and enhancements in the supply chain modules that respond to the requirements for “splits” between manufacturers and third-party suppliers that are becoming more common today. “In North America, we’re seeing a shift in the manufacturing environment to one that is based on projects and outsourcing to other countries,” Andrew says. “Companies making money are the ones that are outsourcing and doing a good job managing the whole project.”
Stretching Supply Chains
Click Commerce, No. 324 on the 3005 Software 500, has positioned itself to help manufacturers that are stretching their supply chains by working with suppliers in distant countries. The company sells primarily on a Software as a Service (SaaS) pricing model and has over 1,400 customers and users in 70 countries supporting 15 languages. Click Commerce has made a number of acquisitions in the last 30 months among companies that have developed the kinds of tools that will build out its product line, which targets the demand chain, supply chain, and service chain — basically, everything that happens after a sale.
Technology Trend: More Data Analysis back to top
The most innovative supply chain software available today focuses more on data analysis than on transaction automation, says Jeffrey P. Wincel, founder and principal of LSC Consulting Group in Holland, Mich. Wincel is the author of Lean Supply Chain Management — A Handbook for Strategic Procurement, published by Productivity Press in 2003. “While transactions automation may be adequately handled via ERP modules, these tools are not reflective of the decision-making processes in ’best in class’ supply chain organizations,” he says.
Tools that provide the best data analytic capability are likely to be stand-alone, in his view, and they should work seamlessly with the resident ERP system.
Supply chain software today should also have a transparent international component. “For them to be truly valuable,” Wincel says, “the packages need to include an international consideration of currency, duties, laws and routing.”
Moreover, supply chain is more than demand planning, distribution, transportation and procurement. “The thought leaders in supply chain recognize the importance of integrating the broadest definition of supply chain disciplines,” Wincel says. “Software decision makers need to understand both their existing definition of what supply chain consists of, as well as the future vision their company holds. The purchase decision should be more heavily based on future needs rather than simply addressing the immediate issues.”
Consolidations trends in the industry are a mixed blessing. Having a broad range of product alternatives that support and complement each other under the same roof provides some advantages, such as a single point of inquiry for support. “However, some products get lost in the consolidation activity,” as decisions are made on which products to keep and which to let go, Wincel says.
In his view, the tools that provide the best data analytic capabilities are likely to be stand-alone best-in-breed applications that work seamlessly with the resident ERP system.
“We offer a practical solution to a compelling business problem,” says Johan Sauer, general manager of the Click Commerce Master Data Management division. “The more touch points added into the supply chain, the better it is for us. We solve problems in long, complex supply chains.”
The company’s products provide better visibility into each supply chain partner, enabling more accurate forecasts and quicker response — building “a more agile enterprise,” Sauer says. “And the service chain is about increasing customer loyalty.”
Prepare for an SOA Future
The transition to SOA will lead to an increased focus on business process management, since those processes will need to be precisely defined. “Companies serious about SOA need to make sure that data and process are in line. This is more challenging than past transitions have been,” says Bob Ferrari at IDC. “SOA can be very powerful, but it can also go dark in the night.” Companies will need to make decisions about the software architecture and platforms on which they will choose to build, since they will not be able to support all of them.
Monday, March 27, 2006
Monday, March 13, 2006
Things You Have to Know When Raising Your First Round of Capital - Eric Wechselblatt :: American Venture Magazine
Things You Have to Know When Raising Your First Round of Capital - Eric Wechselblatt :: American Venture Magazine: "Things You Have to Know When Raising Your First Round of Capital
By Eric Wechselblatt"
Many entrepreneurs raising their first round of institutional capital already have the necessary skills to get from introduction to transaction closing. They just need some guidance to navigate the process. Here are three common questions and, more importantly, answers, regarding the funding process. Like many things in life, once you understand the process, your chances of success grow exponentially.
1. What is best way to target investors?
There are two main ways that companies are successful in meeting active investors. The first, and more targeted approach, is to find legal counsel, accountants or other professionals in your community to make the introductions for you. A venture capitalist or other institutional investor is more likely to read your executive summary if it is sent by a professional with whom the investor already has an established relationship, and many professionals who work with institutional funds and VC-backed companies have strong relationships with numerous investors. This approach allows you to truly target active funds who will be interested in investing in companies in your region and industry, and who fund the amounts that you are seeking to raise.
Companies seeking investment capital have also found success by making presentations at a local or regional venture fair. These presentations provide the company a forum to make a five to ten minute pitch to dozens of investment sources, depending upon the event.
You benefit by getting in front of a large number of possible investors at the same time. In addition, you identify your target audience by allowing investors to approach you at the event after your presentation. The downside is that first impressions are very important and moving straight to the venture fair presentation may not give you the opportunity to get enough feedback in order to make a polished presentation.
2. Why is it sometimes difficult to get a straight answer from investors that want to "pass"?
Some institutional funds may not be interested in investing in a specific industry or region. These investors will immediately say so. However, many investors are hesitant to say “no thanks” even if they think the company is unfundable. These investors want to ensure that they still have some opportunity to invest if the technology or industry becomes “hot” or simply more mature, they want to maintain good relationships with the people who may become the region’s serial entrepreneurs, or they may simply want to hedge their bets if they realize they are wrong...
By Eric Wechselblatt"
Many entrepreneurs raising their first round of institutional capital already have the necessary skills to get from introduction to transaction closing. They just need some guidance to navigate the process. Here are three common questions and, more importantly, answers, regarding the funding process. Like many things in life, once you understand the process, your chances of success grow exponentially.
1. What is best way to target investors?
There are two main ways that companies are successful in meeting active investors. The first, and more targeted approach, is to find legal counsel, accountants or other professionals in your community to make the introductions for you. A venture capitalist or other institutional investor is more likely to read your executive summary if it is sent by a professional with whom the investor already has an established relationship, and many professionals who work with institutional funds and VC-backed companies have strong relationships with numerous investors. This approach allows you to truly target active funds who will be interested in investing in companies in your region and industry, and who fund the amounts that you are seeking to raise.
Companies seeking investment capital have also found success by making presentations at a local or regional venture fair. These presentations provide the company a forum to make a five to ten minute pitch to dozens of investment sources, depending upon the event.
You benefit by getting in front of a large number of possible investors at the same time. In addition, you identify your target audience by allowing investors to approach you at the event after your presentation. The downside is that first impressions are very important and moving straight to the venture fair presentation may not give you the opportunity to get enough feedback in order to make a polished presentation.
2. Why is it sometimes difficult to get a straight answer from investors that want to "pass"?
Some institutional funds may not be interested in investing in a specific industry or region. These investors will immediately say so. However, many investors are hesitant to say “no thanks” even if they think the company is unfundable. These investors want to ensure that they still have some opportunity to invest if the technology or industry becomes “hot” or simply more mature, they want to maintain good relationships with the people who may become the region’s serial entrepreneurs, or they may simply want to hedge their bets if they realize they are wrong...
Friday, March 03, 2006
Open Season On Open Source?
Open Season On Open Source?
Aggressive acquisitions by Oracle and others could co-opt the movement In 1999, Ethan Galstad was thinking about starting a business with a friend. Among other things on their to-do list was digging up software to monitor their network and flag any problems. They couldn't afford any of the programs on the market, however, so Galstad wrote his own. Almost on a whim, he posted it on an open-source Web site where geeks around the world browse code and download programs for free.
Galstad's original business idea never took off. But his software quickly became a hit. Some 50,000 companies downloaded the open-source project, called Nagios, and rely on it to monitor their networks. Galstad, now 31, works with other coders around the world to keep the software up to date and earns money by consulting. "It has really grown on its own, beyond anything I could have imagined," he says.Galstad is one of the many true believers who have helped turn open-source software into a booming field. The highest-profile, open-source project is the free operating system Linux. Yet there are dozens of other projects to develop open-source versions of almost any software companies pay money for. The projects, whether organized by a company or by a nonprofit, are typically supported by an army of volunteers. Altogether, tens of thousands of programmers work together on open-source software, typically sharing their code with one another over the Net.Their success has had a far-reaching impact on the tech industry. Linux has spread to more than 25% of the world's servers and has become a legitimate rival to Microsoft Corp.'s (MSFT ) Windows. The open-source approach is compelling enough that IBM (IBM ) and Sun Microsystems Inc. (SUNW ) have become major supporters, utterly changing how they market software. There's even talk of taking the open-source method into semiconductors and tech hardware.Yet in recent weeks the open-source community has been thrown into tumult. Software giant Oracle Corp. (ORCL ) has acquired two small open-source companies and is in negotiations to buy at least one more. Many experts believe this is the beginning of a broader trend in which established tech companies scoop up promising open-source startups. While the validation is thrilling for Galstad and others in the community, it's also unsettling. Many young idealists who set out to create an alternative to the tech Establishment now find themselves becoming part of it. "When your main goal is to turn a profit, you start to lose some of the things that made open-source projects thrive," Galstad says.The fear is that a round of buyouts could undermine the ethos of open source. Many coders volunteer their time, spending nights and weekends testing bugs and writing patches because they see themselves as part of an important, grassroots movement. Will that motivation remain if they're just helping to fill the coffers of Oracle or other tech giants?Oracle, which has quickly become the most aggressive acquirer in the field, is undeterred. After striking deals for database companies Innobase Oy and Sleepycat Software, it's in talks to purchase JBoss, an open-source company that makes so-called middleware, for as much as $500 million. Sources close to Oracle say this is only the beginning of an open-source shopping spree. These companies, though they typically charge little or nothing up front for their software, bring in predictable and profitable subscription fees. "We are moving aggressively into open source," said Chief Executive Lawrence J. Ellison at a Feb. 8 investor conference. "We are not going to fight this trend."FEELING THE TUG For decades, the only people who cared about open source were the geeks who stayed up for all hours swilling Jolt Cola and writing code. But the movement has gone mainstream in recent years. IBM has been one of its biggest champions, pushing Linux and hiring some of its best engineers. The company has more than 900 software engineers working on open-source projects. Venture capitalists have rushed into the field, too, pouring millions into scores of startups.The outside money has led to the creation of two parallel open-source worlds. On one side are the traditionalists who have been around longer and typically don't have outside investors. They tap into the worldwide community of coders to polish their software. Then there are the newcomers who took venture money to set up shop in the booming field. They don't engage much with the network of open-source coders, doing most development themselves. For them, open-source is less about community and more about marketing. As traditionalists are offered venture money, many are being pulled into the second group.Galstad is one of the people feeling the tug. He says he has received dozens of unsolicited calls from venture capitalists interested in taking a stake in Nagios. But he isn't tempted. He figures that if he takes venture money he'll have to start looking for a way to cash the investors out, probably through a sale. That could drive him into the hands of a big software company, where he may not be able to pursue the projects he wants. "Once you incorporate, you get shareholders who want to see their investment turn a profit, and all of a sudden the goals and ideals of the project are going to change," he says.He's in good company. Many open-source projects, such as Linux and the popular Firefox Web browser, are supported by nonprofit foundations that can't be sold. In addition, some of the most successful open-source companies are resisting outside capital, including Digium Inc., which makes low-cost telephone systems for small companies. Mark Spencer, Digium's 28-year-old CEO, has warned several peers about cashing out. "If you give up control of the company, either through percentage ownership or by giving up control on the board, you are effectively selling your company, not taking an investment," he says.But others see outside cash as a huge help in getting their software into the hands of people who want to use it. Consider Teodor Danciu. Three years ago the Romanian coder wrote JasperReports, a business analytics program that several hundred thousand companies have downloaded. He was updating it on nights and weekends when its popularity became too much for him to handle. So he sold to a Silicon Valley startup, which renamed itself JasperSoft Corp. and hired him as part of the deal. He says it was the perfect opportunity for him to do what he loves: working on the code full-time while making money. Meanwhile, the business arm can invest more resources in support and training than he could on his own.DAY JOBS Coders such as Danciu have a powerful role model in Linus Torvalds, the Finnish programmer who wrote Linux in 1991. Torvalds strikes a balance between community and cash. He focuses on managing the Linux code while leaving the business aspects to companies such as Red Hat (RHAT ) and Novell (NOVL ) and the nonprofit Open Source Development Labs (OSDL), which organizes advocacy groups around the operating system. He and his followers haven't resisted commercialization. Torvalds draws a salary from OSDL, and many of his Linux contributors have day jobs at companies such as IBM and Oracle. Andrew Morton, Torvalds' top lieutenant, says such efforts have helped make the code stronger.A big reason people such as Morton and Torvalds are sanguine is their belief that while open-source companies may be for sale, open-source communities aren't. If contributors feel that Ellison & Co. are taking the software in the wrong direction, they can balk and start up a new project, taking along any of the open code they want. That would hurt Oracle's open-source credibility and leave it with little to show for the millions it has spent. "If Larry thinks he can have his way in the open-source community, he's going to find he can't get any developers to work [with him]," says Bruce Perens, a key figure in the open-source movement.
');
}
//-->
Aggressive acquisitions by Oracle and others could co-opt the movement In 1999, Ethan Galstad was thinking about starting a business with a friend. Among other things on their to-do list was digging up software to monitor their network and flag any problems. They couldn't afford any of the programs on the market, however, so Galstad wrote his own. Almost on a whim, he posted it on an open-source Web site where geeks around the world browse code and download programs for free.
Galstad's original business idea never took off. But his software quickly became a hit. Some 50,000 companies downloaded the open-source project, called Nagios, and rely on it to monitor their networks. Galstad, now 31, works with other coders around the world to keep the software up to date and earns money by consulting. "It has really grown on its own, beyond anything I could have imagined," he says.Galstad is one of the many true believers who have helped turn open-source software into a booming field. The highest-profile, open-source project is the free operating system Linux. Yet there are dozens of other projects to develop open-source versions of almost any software companies pay money for. The projects, whether organized by a company or by a nonprofit, are typically supported by an army of volunteers. Altogether, tens of thousands of programmers work together on open-source software, typically sharing their code with one another over the Net.Their success has had a far-reaching impact on the tech industry. Linux has spread to more than 25% of the world's servers and has become a legitimate rival to Microsoft Corp.'s (MSFT ) Windows. The open-source approach is compelling enough that IBM (IBM ) and Sun Microsystems Inc. (SUNW ) have become major supporters, utterly changing how they market software. There's even talk of taking the open-source method into semiconductors and tech hardware.Yet in recent weeks the open-source community has been thrown into tumult. Software giant Oracle Corp. (ORCL ) has acquired two small open-source companies and is in negotiations to buy at least one more. Many experts believe this is the beginning of a broader trend in which established tech companies scoop up promising open-source startups. While the validation is thrilling for Galstad and others in the community, it's also unsettling. Many young idealists who set out to create an alternative to the tech Establishment now find themselves becoming part of it. "When your main goal is to turn a profit, you start to lose some of the things that made open-source projects thrive," Galstad says.The fear is that a round of buyouts could undermine the ethos of open source. Many coders volunteer their time, spending nights and weekends testing bugs and writing patches because they see themselves as part of an important, grassroots movement. Will that motivation remain if they're just helping to fill the coffers of Oracle or other tech giants?Oracle, which has quickly become the most aggressive acquirer in the field, is undeterred. After striking deals for database companies Innobase Oy and Sleepycat Software, it's in talks to purchase JBoss, an open-source company that makes so-called middleware, for as much as $500 million. Sources close to Oracle say this is only the beginning of an open-source shopping spree. These companies, though they typically charge little or nothing up front for their software, bring in predictable and profitable subscription fees. "We are moving aggressively into open source," said Chief Executive Lawrence J. Ellison at a Feb. 8 investor conference. "We are not going to fight this trend."FEELING THE TUG For decades, the only people who cared about open source were the geeks who stayed up for all hours swilling Jolt Cola and writing code. But the movement has gone mainstream in recent years. IBM has been one of its biggest champions, pushing Linux and hiring some of its best engineers. The company has more than 900 software engineers working on open-source projects. Venture capitalists have rushed into the field, too, pouring millions into scores of startups.The outside money has led to the creation of two parallel open-source worlds. On one side are the traditionalists who have been around longer and typically don't have outside investors. They tap into the worldwide community of coders to polish their software. Then there are the newcomers who took venture money to set up shop in the booming field. They don't engage much with the network of open-source coders, doing most development themselves. For them, open-source is less about community and more about marketing. As traditionalists are offered venture money, many are being pulled into the second group.Galstad is one of the people feeling the tug. He says he has received dozens of unsolicited calls from venture capitalists interested in taking a stake in Nagios. But he isn't tempted. He figures that if he takes venture money he'll have to start looking for a way to cash the investors out, probably through a sale. That could drive him into the hands of a big software company, where he may not be able to pursue the projects he wants. "Once you incorporate, you get shareholders who want to see their investment turn a profit, and all of a sudden the goals and ideals of the project are going to change," he says.He's in good company. Many open-source projects, such as Linux and the popular Firefox Web browser, are supported by nonprofit foundations that can't be sold. In addition, some of the most successful open-source companies are resisting outside capital, including Digium Inc., which makes low-cost telephone systems for small companies. Mark Spencer, Digium's 28-year-old CEO, has warned several peers about cashing out. "If you give up control of the company, either through percentage ownership or by giving up control on the board, you are effectively selling your company, not taking an investment," he says.But others see outside cash as a huge help in getting their software into the hands of people who want to use it. Consider Teodor Danciu. Three years ago the Romanian coder wrote JasperReports, a business analytics program that several hundred thousand companies have downloaded. He was updating it on nights and weekends when its popularity became too much for him to handle. So he sold to a Silicon Valley startup, which renamed itself JasperSoft Corp. and hired him as part of the deal. He says it was the perfect opportunity for him to do what he loves: working on the code full-time while making money. Meanwhile, the business arm can invest more resources in support and training than he could on his own.DAY JOBS Coders such as Danciu have a powerful role model in Linus Torvalds, the Finnish programmer who wrote Linux in 1991. Torvalds strikes a balance between community and cash. He focuses on managing the Linux code while leaving the business aspects to companies such as Red Hat (RHAT ) and Novell (NOVL ) and the nonprofit Open Source Development Labs (OSDL), which organizes advocacy groups around the operating system. He and his followers haven't resisted commercialization. Torvalds draws a salary from OSDL, and many of his Linux contributors have day jobs at companies such as IBM and Oracle. Andrew Morton, Torvalds' top lieutenant, says such efforts have helped make the code stronger.A big reason people such as Morton and Torvalds are sanguine is their belief that while open-source companies may be for sale, open-source communities aren't. If contributors feel that Ellison & Co. are taking the software in the wrong direction, they can balk and start up a new project, taking along any of the open code they want. That would hurt Oracle's open-source credibility and leave it with little to show for the millions it has spent. "If Larry thinks he can have his way in the open-source community, he's going to find he can't get any developers to work [with him]," says Bruce Perens, a key figure in the open-source movement.
');
}
//-->
Subscribe to:
Posts (Atom)