Alfresco CEO John Powell on the Value of Free

Is it possible to make money by giving something away for free? John Powell, CEO of Alfresco Software, believes that the open source software market is worth US$60 billion. The value doesn’t accrue from the revenue that it generates. Rather, that value is rooted in the cost savings for his customers.

Looked at from this angle, open source is the largest technology industry, Powell believes. That was the basis for a decision he made when Alfresco began developing an open source alternative for enterprise content management (ECM), document management, collaboration, records and knowledge management, content management and imaging solutions.

By eliminating the hefty licensing fees for proprietary software, open source saves money for more effective and customized software implementations, according to Powell. He firmly believes that large corporations are taking notice. With major acquisitions like Sun Microsystems and MySQL, Yahoo and Zimbra, and Citrix and XenSource, global market leaders appear to be changing the way they are looking at proprietary software and moving to a more open architecture.

“Over 500 customers are subscribing to our support services, much like the Red Hat Linux model. We are seeing one million plus downloads of our product from SourceForge.com and have 40,000 permanent users,” Powell told LinuxInsider.

John Powell’s bold statements about the impact the open source market is having on business — especially Fortune 1000 companies — is not a belief he acquired in isolation. Research firm The Standish Group concluded in April after five years of researching software markets that open source is raising havoc throughout.

“Our company would not have advanced to where it is today without it. Open source is the most fundamental change in software since the dawn of computers. It is not changing the bits and bytes, only how users can apply them. It is incredible how people respond to the free downloads of open source products. Otherwise, with traditional trial usage of products, the user would be experiencing a bait and switch when the free version times out,” Powell said.

The Standish Report

Today’s open source market is only 6 percent of an estimated $1 trillion that IT departments budget annually. However, it represents a real loss of $60 billion in annual revenues to software companies, said Jim Johnson, chairman of The Standish Group International, in a statement announcing the release of the market study in the spring.

This report, titled “Trends in Open Source,” discusses The Standish group’s research study of the top 10 drivers that are influencing decisions on how IT is adopting open source technology.

“The Standish Group’s new study clearly shows how pervasive open source software is used in industry today. It is a shocking examination of Open Source usage by commercial and government organizations,” said Timothy Chou, Ph.D. and former president of Oracle OnDemand and author of The End of Software: Transforming Your Business for the On Demand Future.

LinuxInsider met with John Powell to discuss the findings of the Standish Group’s report. Without a doubt, he said, Alfresco has seen the dynamics mentioned in the market report played out with its own customers.

LinuxInsider: What was one of the critical decisions you faced in starting Alfresco in 2006?

Someone on my staff predicted that the world had a huge demand for content management. I asked myself, “How can we commoditize that demand to the largest number of people?” I had to choose between developing a commercial or an open source solution. I was leaning towards open source because that approach solved a number of other problems in deploying our product.

LI: Was this a win-win situation for you, or was there an opposing viewpoint?

From a business viewpoint, why should I give away a software product that ultimately some customers would wind up buying as a commercial product? But the open source model held an up-and-coming promise. But I used to run another company that put me in contact with customers who were leery about using local source code.

LI: In your view, what gave open source the advantage in the decision you made for Alfresco’s product direction?

I found that keeping source code secret is false security for a developer. It’s much easier to work on a product when it is out in the open. By opening up the code, you can leverage the product much better.

LI: In what way? What was the big advantage you found in directing your company as an open source developer?

Much of the leveraging comes down to how to generate revenue. Just like an open source operating system, you can distribute your product to as many people as you can interest in it. There is no need for an extensive sales force. You can also leverage the engineering cost by using community developers. Open source is the most efficient business model and the most effective development method.

LI: You have placed a lot of faith in open source. What makes you so sure that the open source model won’t go the way of the dot-com trend?

I think the open source industry is at a tipping point right now. I’m not saying open source adoption is in the lead. It doesn’t have to be a 50-50 split to be at a tipping point. I guess that looking at deployed software globally, commercial products are still in the lead. But open source is growing to that point fast.

LI: Are you saying that commercial or proprietary software development will ultimately become a thing of the past?

Not entirely. But look at what happened to the mainframe world. Some companies are still using proprietary products, but they are now in the minority. Mainframe commercial trends are not growing.

LI: Does this mean that the mainframe scenario is indicative of a coming shakeout in the commercial software marketplace?

I think where the software industry is going is in a more mutual direction. Proprietary developers will get into open source in one way or another. Some larger software companies are going to open source now rather than acquiring smaller companies to get their code. An example of that is a recent partnership Alfesco signed with Adobe to use our products. So companies are crossing over to the open source world.

LI: What do you see as the main driving force that brings customers to open source rather than to proprietary software?

Freedom and a lack of locking. By that I mean our customers can choose what they do, and they are not locked in or restricted in how they use the product. I see our competitors dropping their price to be on our level. Still, our customers come to us. They can leave us and still keep using support elsewhere because the code is available. In effect, this is making the software industry the same as any other industry. For example, think about what would happen in the literary field if William Shakespeare was a writer working for Microsoft.

LI: What distinguishes the open source model from try-before-you-buy marketing?

What makes software effective is the way you can use it in your environment. The service subscription we provide for support is what makes the difference.

LI: In terms of the content management space, where do you see the technology that controls it headed?

One trend is how people want to work in a social computing environment. This brings more demand for control management. I believe we need to provide users with social applications to do this. A second trend is that content management is moving away from systems and management and into the clouds. We are going in that direction with Adobe. It is not so much a need to provide storage in the clouds but the functionality. We will need application integration with Facebook-type features in the clouds.