Open Source Means Business

Sizable companies have been built from commercializing open-source software.

Everything around us is choking up: Credit, equity investments, mergers and acquisitions, initial public offerings. The slowdown is strangling innovation, and it is suffocating entrepreneurship.

But some entrepreneurs have found ways to build their companies on a shoestring using open source software, and they have figured out how to make money off something generally considered free.

Take Brian Behlendorf, an open source pioneer who recounts those early days. “The term ‘free software’ made it sound like an anti-capitalist movement, yet the reality is we were hardcore capitalists,” he says. “We liked a lot of the attributes of that type of software and felt a rebranding effort was needed. That is when the term ‘open source’ was coined.”

And it was Behlendorf’s capitalistic instincts that led him to later found Brisbane, Calif.-based CollabNet, which makes collaboration software that allows engineering teams spread across different geographies to work together. CollabNet’s software was built from a free open-source application called Subversion, which was used as a Trojan horse to get into accounts. Early customers like Hewlett-Packard (nyse: HPQ – news – people ) and Sun Microsystems (nasdaq: JAVA – news – people ) legitimized CollabNet’s product and the business model, which straddles the line between open source and software-as-a-service.

Eventually, Benchmark Capital funded CollabNet, but not before CollabNet was already quite far along. Today, the company has over 500 customers, including enterprises with over a thousand users each. By all accounts, Behlendorf’s venture has a firm footing in capitalism. (Read about Brian Behlendorf’s entrepreneurial journey here.)

Another entrepreneur, John Roberts, armed with a blind faith in the open-source movement, founded the now famous SugarCRM. Roberts had dyslexia as a child, making his later journey all the more inspiring. Roberts, formerly in product management at E.piphany, recounted how he founded Cupertino, Calif.-based SugarCRM.

“Around the same time MySQL started getting some traction, I convinced two strong engineers at E.piphany to join me,” Roberts says. “We all resigned together and started SugarCRM on April 10, 2004, without any angel or VC money. It was the three of us, each in his own house with headphones on, writing and designing code and posting it up on We did that for three months.”

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And soon enough, people all over the world started downloading the code. So Roberts decided to raise venture money–lots of it. Fast-forward to today: SugarCRM has more than 4,000 customers in 30 countries. (Read about John Roberts’ entrepreneurial journey here.)

On another continent, Australian entrepreneur Rod Johnson took his expertise in enterprise Java and wrote a book while caring for his sick mother. “With that book, I published 30,000 lines of code illustrating the concepts in the book,” Johnson says. “A lot of people were interested in the code, and I was approached to open-source it, which I did.”

Those lines of code became the framework for Johnson’s company, SpringSource. So how many people use the software? “Our best estimate is that two-thirds of enterprise Java users are utilizing SpringSource. I would say that the user population is around 1 million,” he says.

And how does SpringSource make money? “Monetization was originally around consulting and training,” Johnson says. “We still have a fairly large training business. The primary monetization model is around software. We have a number of software add-ons which improve the ownership experience of SpringSource. You can get 24-7 support via a subscription, which is important in large organizations.”

SpringSource revenues have been doubling every year, and venture firms Benchmark and Accel Partners have invested substantial funding. In the past year, SpringSource also launched an application server product that addresses many of the issues corporations will face as they move to cloud computing infrastructures.

The company also says its offering is less complex than products from Oracle (nasdaq: ORCL – news – people ) and IBM (nyse: IBM – news – people ). An open-source application server that challenges these two giants? Ambitious! (Read more of Johnson’s story here.)

What I like about all these entrepreneurs: They were able to use their own coding skills and the low-cost open-source development and distribution model to build up traction early on to solve a specific problem. Uttering the terms “open source” and “making money” in the same breath may seem like an oxymoron, but these entrepreneurs have managed to merge the two.

If you are an engineer pondering your career path, you can certainly look at commercial open source as a great model to innovate on a shoestring and jump-start your entrepreneurial career while the world scrambles to recover from the economic crisis.

After all, instead of wasting six to nine months looking for a job, wouldn’t you rather spend that time working to take your destiny into your own hands?

Author: Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy. She has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her first book, Entrepreneur Journeys (Volume One), is available from