Back in 1999, Dave Wreski was working as an Internet security architect at United Parcel Service (UPS). A aficionado of Linux -- one variety of the free and nonproprietary type of software known as open source -- Wreski thought he saw a future in computer security. In May of that year he ponied up $100,000, hired two programmer friends, and launched a company called Guardian Digital in Allendale, N.J. Originally a security consulting firm, Guardian Digital quickly morphed into a seller of security hardware and open-source software for e-commerce, e-mail, and so-called perimeter servers that run firewalls, intrusion-detection systems, and virtual private networks.
At the time, Wreski was bucking conventional wisdom: After all, who builds a security system from free software, when proprietary systems are seemingly safer? Today, however, Wreski's dream doesn't seem so ridiculous. Guardian Digital now employs more than 20 people and boasts more than 5,000 customers for its hardware, software updates, and support. They're mostly small and midsize companies, but they also include Sony Electronics (SNE) and AT&T New Zealand.
Wreski says Guardian Digital turned profitable eight months ago and is growing by 10% each quarter, much faster than the low single-digit growth for the overall security sector, according to tech consultancy Gartner. "I think there was some apprehension about [the software] being free. But that has changed," says Wreski, who adds that he's entertaining funding offers from venture capitalists.
HIGHER PROFILE. In fact, more and more businesses and government entities are deploying open-source security software, says Gartner analyst John Pescatore. "Even the big [security] players install Snort [a well known open-source intrusion-detection system]," adds Pescatore. Open-source software, hardware that runs open-source programs, and services to support such programs still account for only 0.5% to 1% of commercial spending in the computer-security market. But that's up from zero only two years ago.
A number of factors have combined to give open-source products more prominence. The most important is more ready acceptance by corporate tech departments of Linux and other such applications, including Apache Web server. In fact, the standard open-source Apache package runs about 60% of all Web servers, according to tech consultancy Netcraft. "I found [open-source security software] to be a viable alternative," says Scott DeKramer, information-technology manager for orthopedics company Implex in Allendale, N.J., and a Guardian Digital customer. "I was fairly familiar with Linux, and I liked the flexibility it could give me" to customize software.
Adds Gartner's Pescatore: "People are getting more comfortable using Linux in their business. It's bleeding over into a lot more open-source security tools."
FEDERAL BOOSTER. The tough economy has also pushed customers in this direction. Though the software is almost never really free -- once the cost of programming and consulting needed to make it work are thrown in -- many IT managers believe it remains far cheaper than proprietary software -- and cheaper to manage day-to-day. Moreover, open-source products tend to be strong in some of the fastest-growing areas of tech security. For example, millions of Web surfers have downloaded Snort as freeware. It's considered one of the better programs in what will be about a $400 million intrusion-detection market this year, according to networking tracker Infonetics. That's good news for SourceFire and Silicon Defense, two open-source security companies that have built product offerings around Snort.
Open-source security software is also getting a boost from the federal government. Top programmers at the super-secretiveational Security Agency made public a security-enhanced version of the core Linux operating system, called SELinux, in April, 2001. And the Defense Dept. is funding a number of projects aimed at making open-source computing secure. Since that research rapidly enters the public domain, it amounts to free R&D for small open-source security companies.
The bottom line is that security products based on open-source software are becoming a viable business. While no huge players are in that business yet, several companies have significant name recognition. Managed-security company Guardent, which created a hardware-based open-source security product last year, says 25% of its business now comes from open-source applications. Sources close to Guardent say its revenues will be about $25 million in 2002, and that its open-source business is quintupling every year.
VCs CHANGE THEIR TUNE. Other open-source-oriented companies that are doing well include Tripwire, a Portland (Ore.) maker of intrusion-detection systems that had revenues of $12 million in 2001, plus competitors such as SourceFire and Guardian Digital.
Such successes are attracting notice from venture capitalists. When Snort author and SourceFire founder Martin Roesch went trolling for VC backing in 2000, "as soon as I said 'open source,' they couldn't get off the phone fast enough," he recalls. Then Roesch sold several hundred thousand dollars worth of security setups from his house in Eldersburg, Md. "Between October of last year and when we got funded [with $7.5 million in June] I talked to 20 or 30 different VC organizations and got term sheets from several," says Roesch. Tripwire has received $46.3 million in venture funding.
Not that open-source security doesn't face obstacles: Guardent co-founder Dan McCall concedes that some tools haven't kept up with their proprietary competitors. For example, the Nessus security scanner, which checks networks for vulnerabilities, hasn't proven popular among his customers because they believe the proprietary versions are better and improving more quickly than Nessus. "Companies aren't interested in savingmoney on security hardware and software at the expense of good security," says McCall.
INVITING ATTACK? And most closed-source security companies claim to be unworried about the new competition. "We're frankly not seeing it as a commercial solution," says John Schwarz, president of security software and services giant Symantec (SYMC), which sells intrusion-detection systems that compete with Snort. "The opinion in the security space is that open source invites more attacks, so it isn't a safe alternative."
Certainly, most open-source security companies are still small enough to stay below the radar. That may not be the case for long, though. Roesch says his first customer was a Big Five accounting firm, and he's starting to sell six-figure installations to big companies -- a sign that, ultimately, open source could become a significant factor in what promises to be one of the healthiest tech markets of the future. By Alex Salkever, Technology editor for BusinessWeek Online