... with lower operating expenses. Generally speaking, that means cutting back on sales and marketing.
Aras, for example, eliminated its sales positions and is replacing them with application engineers who will provide support to customers' nitty-gritty questions. Those are "the people the customers want to talk to anyway. They don't want to talk to a salesperson," Schroer said.
Another company that decided to jump into the open source realm is Iona Technologies, which sells integration middleware to large corporate customers.
In 2005, Iona decided to create an open source project for its Java-based integration middleware. Last month, it began offering support services for those freely available products.
That decision to go open source had some risk because the company, started in 1991, is a relative neophyte to open source projects and has yet to prove it can earn money from a support-only business, said company chief executive Peter Zotto.
But the move has helped make Iona, which was struggling financially, "relevant" in the marketplace again, Zotto said. By adopting some elements of open source, customers and other vendors see Iona staying on top of industry trends, he said. For example, Iona was invited to participate in important standards groups with other industry players like IBM, BEA Systems and Oracle.
"From the day we announced (the open source plan), even though we had not made any revenue yet, it gave us more marketing visibility than $10m (£5m) would have given us," Zotto said.
Even Wall Street analysts have been enthusiastic with the plan, despite the potential lost revenue, he added.
For a small company like Aras, giving customers the code to the product effectively gives them a site-wide licence, rather than restricting the product's use to licensed customers. It also functions as a form of code escrow, a common practice where business customers have a copy of the product in case a smaller provider runs into financial straits.
"Early customers have an opportunity to have more influence, with the level of support they get. And they can have a greater effect on product road maps," said 451 Group's Zachary.
Free and open source are firmly rooted in a philosophy of sharing and collaboration. But for software companies adopting open source, it's far more pragmatic.
Even Microsoft, the largest proprietary software company, has adopted various open source practices such as sharing code. The code from Aras' PLM application, for example, will be hosted on Microsoft's CodePlex code-sharing site and use one of Microsoft's Shared Source licences.
Microsoft's change in tactics vis-a-vis open source allowed Aras to go ahead with its open source strategy.
"Historically, Microsoft and open source have not been thought of together, but we saw a pervasiveness of Microsoft infrastructure and even more importantly, the skill sets companies have in working with Microsoft products," said Marc Lind, Aras' vice president of marketing.
While Aras intends to give away its entire product, often software companies hold something back.
OpenMFG, a company that sells ERP applications to small businesses, is typical of many software companies in that it embraces only aspects of open source development.
The company's application is built using the open source PostgreSQL database and Trolltech's Qt development framework. The company has set up a collaborative development process, where customers and resellers can contribute customisations to the base product.
Venture capitalists and others have urged OpenMFG to open up entirely by making its software free, but the hybrid approach suits the company, said chief executive Ned Lilly. He regularly considers whether OpenMFG should offer its software for free, but he hasn't seen the demand from customers.
The advantage of going fully open source is that it would get the software into more potential customers' hands, particularly as the company seeks to expand in Asia. But the company is growing at a manageable pace, Lilly said.
Lilly said that many companies have made products open source to try to resurrect a poorly received product, which is a mistake, he added.
"There will be plenty of people who do it for the wrong reasons, and the pendulum will swing the other way and people will ask, 'What were we thinking, giving away our software,'" Lilly said. "They'll be blaming open source, but in all likelihood the blame will lie with a failure to execute, or taking care of customers — all those old-fashioned things."
Zachary said that many smaller companies are forced into taking a free product strategy. Large vendors like Oracle and SAP can count on recurring maintenance and support revenue, while companies with a small number of customers are far more dependent on licence revenue.
"The only way to (compete) is to go open source or software as a service — do something disruptive," Zachary said. "You have to do something to generate demand."
