Friday, May 16, 2008

Open source success a mixed bag

By Christopher Calnan

Local software developers both large and small are using a variety of business models to sell open source applications — and are finding mixed results a year or two down the road.

On the winning side, Andover-based Aras Corp. reported last week a 60 percent revenue increase one year after switching its business model to giving away its open source, product life cycle management software. The company, founded in 2000, relaunched with the new approach in January 2007 along with a $16 million recapitalization.

Reminiscent of Waltham-based Novell Corp.’s controversial alliance with Microsoft Corp., Aras shifted its focus exclusively to Microsoft platforms. Aras CEO Peter Schroer said he switched business models from a traditional licensing approach based on indications that Microsoft was embracing open source.

Novell, however, does not seem to have fared as well in hitching its open-source star to the Redmond, Wash.-based software giant’s wagon. Novell’s move to Microsoft two years ago was greeted with derision by open source advocates. Although sales of Novell’s Linux platform products have sharply increased following the deal, the business hasn’t been enough to pull the company out of its financial doldrums.

At Novell, director of marketing for open source products Justin Steinman said financial services, manufacturing and retail customers have been the biggest adopters of the company’s Linux products. And the alliance with Microsoft has resulted in support subscriptions valued at $100 million. But the bump in business hasn’t been enough to offset problems elsewhere in the company. In December, Novell reported a $44.6-million net loss during fiscal 2007 compared with a profit of $18.6 million the previous year.

Meanwhile, Boston-based Optaros Inc., an open source software consulting and integration firm, is expanding its business with Novell competitor Red Hat Inc. Optaros, which closed on a $13 million round of funding in late 2006, reached profitability for the first time last year while doubling its revenue, officials said.

Optaros vice president of marketing Marc Osofsky  said his firm’s business with Red Hat (rather than Novell) is based purely on customer demand. Last year, Red Hat captured 62 percent of the Linux server market, compared with 29 percent by Novell, according to Framingham market research firm IDC.

On the flip side of open source, Chicopee-based Apatar Inc. plans to shift to an on-demand model next month after only four of 3,200 users of Apatar’s open source integration software converted to paying customers during its first year of operation, founder Renat Khasanshyn said.

“It did not work out very well,” he said. “We couldn’t scale on the user base that we had.”

Aras, on the other hand, is reporting a 180-percent increase in subscriptions to date and Schroer said the shift enabled him to focus on selling support services instead of hiring sales and marketing workers to push his products.

“I couldn’t invest enough in selling to grow the business,” Schroer said. “It was almost like we were pushing rope ... to customers.”