Cost-Conscious Companies Turn to Open-Source Software

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Existing Customers Step Up Use

Many analysts expect growth in corporate open-source use, whether paid or unpaid, to come from companies that are already using it and want to further cut costs. Japan's Shinsei Bank began using open source about four years ago. Working with Red Hat and other vendors, Shinsei later expanded its use of the software, replacing some of its infrastructure components. Along the way, Michael Tiemann, a founder of Red Hat introduced Shinsei to the folks at SugarCRM and other open source projects. In the interest of maintaining a diversity of suppliers, Shinsei now uses SugarCRM for certain customer service tasks, and MySQL open-source database management software running on low-cost Intel (INTC) servers.

The Los Angeles Times says it's drawn to open-source software by the community of developers constantly working to improve it. In January 2008, the newspaper began using Alfresco to manage some of the images and video for its Web site. "We called other companies using Alfresco, and we started asking questions," says Kamran Izadpanah, vice-president for technology and architecture at the Los Angeles Times. "Everybody has been helpful and open," he says, adding that he would not likely get the same kind of help from other companies using proprietary software.

Still, working with open-source software requires a lot more self-direction than working with proprietary software. Companies that aren't working with commercial open-source vendors or consultants will get a lot less hand-holding than they may be used to. "The question of self-sufficiency tends to be the biggest hurdle for organizations," says Bernard Golden, CEO of Navica, a consulting firm that helps organizations implement open-source software. "I always recommend to clients that unless they're going to save 30% or more, it's probably not worth the churn of trying to figure out how to use open source."

Benefits Beyond Saving Money

For some companies, the benefits of open source extend well beyond cost savings, to such areas as license management. "Your engineers spend less time on contract negotiation and more time on the technology, which is really what you want them to be doing," says E*Trade's Thompson.

The online trading company also says its systems have become more reliable under open-source software. On Jan. 22, around the time of an interest rate move by the U.S. Federal Reserve, nearly 55,000 customers logged in at once to Etrade.com, the highest level in the past five years. The site performed at normal levels across all its trading and investing platforms, and the company says it fared much better than the competition.

Today, Thompson is considering expanding E*Trade's use of the Alfresco open-source content management system. He's also starting to use open-source techniques for internal software development, such as using smaller, more agile teams and breaking up software projects into modular pieces. "If you look at what's happened in the last year and you look at what happened in the dot-com era, there are some parallels," Thompson says. "A lot of people who are under a budget crunch like we were in 2001 will come to the same conclusion about open source."

Business Exchange related topics:
Open Source Software
Information Technology Expenses
Customer Relationship Management
Cost Reduction

King is a writer for BusinessWeek.com in San Francisco.