Unlocking New Markets with Open Source Software.
More than a decade ago, Linus Torvalds, a little known Finnish programmer, posted the core of a powerful operating system for free to fellow programmers to improve it with their own code; the proviso being that they must share their work with the rest of the “community.” Today, Linux, a play on Torvalds’ first name and that of the venerable Unix operating system, has been accepted by the computer industry’s mainstream: IBM, Hewlett-Packard, and Dell Computer, offer Linux on their hardware. Customers like Linux for its power, its flexibility (it runs on a variety of computers), and its affordability.
With Linux, Open Source, a style of developing software by offering a basic version for free to programmers who, in turn, share their embellishments over the Internet, is now accepted and is to some, a more effective way for fostering and delivering innovation to a market hungry for it. Open Source software threatens to upend pricing and more importantly distribution models in the traditional software industry.
Since the rise of Linux and RedHat, the dominant independent provider of Linux, private companies have emerged in other key areas of infrastructure technology. The largest categories in infrastructure software: operating systems, database, application server, content management, systems management and others are all being addressed by a new generation of open source companies.
In each of these traditional markets, it isn’t necessarily through an exact replacement solution of the incumbent product. As an example, instead of competing directly against Oracle’s dominance in transactional application database solutions, MySQL has flourished as the solution of choice for web applications. Similarly, JBoss and XenSource found their approaches to compete and succeed against the incumbents. Alfresco is taking a similar open source approach by combining the key ingredients of enterprise content management – document, web content, records and image management in a modern web 2.0 collaboration environment.
Alfresco was started in 2005 by two entrepreneurs whose roots are deep in enterprise systems, the complex – and expensive - software used to automate corporate functions like human resources and manufacturing. Chief Executive John Powell is a veteran of the industry having been COO at Business Objects; Chief Technology Officer John Newton started Documentum, which by the end of the 1990’s was the leading enterprise content management solution.
From their experiences, Powell and Newton knew that only the top corporate initiatives were able to take advantage of the efficiencies promised by enterprise software products. Most small and mid-sized organizations were dissuaded by the software’s complexity and by its price. Despite its strong performance, even a successful enterprise vendor like Documentum only captures a small piece of the overall market for content management. It is estimated that only 5% to 10% of users in any enterprise use content management. Most users use a shared drive and email for managing their content.
The slow growth of the enterprise vendors is in stark contrast to the ballooning need for content repositories due to the explosive growth of digital content. Powell and Newton understand that the traditional proprietary enterprise content solutions won’t be able to address this need due to their inability to provide a low cost, easy-to-use, standards-based solution that combines legacy and new media content while allowing end users the ability to communicate and collaborate around the content.
Alfresco launched its first product in October 2005, and since then the company has attracted a broad community and raised $10 million in financing from Mayfield Fund and Accel Partners. Mayfield Managing Director Robin Vasan said he was drawn to Alfresco by “their strong initial customer traction and the strength of the management team. But more importantly, Alfresco is in the unique position to bridge the market needs between enterprise solutions like Documentum and Interwoven and departmental solutions like Microsoft Sharepoint.”
Alfresco has been downloaded over 700,000 times, has 21,000 live sites and over 300 paying customers, nearly all form the Global 2000. Global customers include 3 of the top 5 global banks, the American Stock Exchange; leading media and entertainment companies such as Sony Pictures Digital, Electronic Arts, CBS Interactive and Activision; major Government departments across the world from the US to Switzerland such as FAA, Federal Supreme Court of Switzerland, Government of Andalucia; World class education establishments such as Harvard and MIT.
Customers may download the software for free, but must pay for support. Support contracts start at $15,000, with average enterprise customers spending $50,000 per year. It charges based on the number of CPUs using the software - rather than the number of seats, or users, the traditional measure used by enterprise software companies. It is a change customers had long argued for.
Using an Open Source methodology has not only allowed Alfresco to garner a strong technology and product position, but it has also allowed them to drastically change the sales and distribution model associated with software. Alfresco Chief Marketing Officer Ian Howells believes that open source provides a “blue ocean” opportunity, as described in the best-selling business strategy book by W. Chan Kim and Renee Mauborgne.
The blue ocean is the huge untapped market for an easy-to-use content management and collaboration solution. “We believe we have developed electronic content management for the masses,” Howells says. “Open source software is most effective in a well-established and well-understood market. The market for content management products is mature and ripe for commoditization.”
