Open source will displace outdated software companies

The next frontier for open source lies with the small and midsized businesses according to Larry Augustin, chief executive of Medsphere and founder of VA Linux Systems.

He told attendees in a keynote that traditional vendors of enterprise software for customer relationship management (CRM) or enterprise resource planning (ERP) are too expensive and would be driven out of business by open source software.

"The traditional enterprise software model is fundamentally broken," Augustin said.

The established providers charge users a large upfront licence fee and have very long sales cycles that customers have to pay for, he explained. Due to those large overhead costs, these providers have a hard time selling to small and medium sized businesses.

The inability of existing vendors to address this market makes it a good target for open source providers.

Providers of open source enterprise applications stand a good chance to compete against established vendors as although they might lack the revenues from software licences they also save on the development process as the developer community helps with building and maintaining the application.

More importantly however, open source providers don't have to do pilot projects at customer sites. Interested users can download the software and test it in their own time and on their own terms. This results in shorter sales cycles and allows for a smaller sales and marketing budget.

There is a market for open source enterprise applications, acknowledged Dan Kusnetzky, vice president for system software at research firm IDC, but that is limited to certain segments and geographies that currently aren't serves.

He doesn't see open source enterprise applications replacing software from Oracle or SAP any time soon.

"It's pretty rare that people decommission something and walk away from it."