Three years ago Actuate made a bold move to differentiate itself from the rest of the BI pack by sponsoring an open source software project called BIRT, or Business Intelligence Reporting Tools, which is now firmly established as the Eclipse development framework.
BIRT downloads surpassed the million milestone last month and is now the centerpiece of Actuate’s hybrid business model that blends free custom open source BI application development and revenue-generating opportunities to deploy those applications on Actuate’s chargeable proprietary server-based BI products.
Computer Business Review recently caught up with Cittadini at Actuate’s user conference in Las Vegas to talk about BIRT and the company’s unusual business model.
Q. Is open source a gamble for Actuate?
A. Not really. It’s a must for us. The cost of developing, marketing, and selling enterprise software is becoming too high to be a sustainable business these days. If we didn’t do it our future wouldn’t have looked that rosy.
Q. How does your business model work?
A. We have a hybrid model that straddles between a traditional enterprise software company and channeling that software to a large community of developers via open source. With BIRT we’re specifically targeting the Java development community, a market that still has a lot of potential. BIRT lets us address that larger market with little or no cost. Once we’re in there our enterprise software comes into play with revenue earning opportunities for deployment. So we aren’t transitioning to a pure open source company. The primary purpose is get into companies that we didn’t market to before and at the same time lower the cost of selling our licensed BI products to them. We’re doing that by raising awareness and branding of our open source software.
Q. How does BIRT help Actuate save sales and marketing dollars?
A. We’re about to launch our BIRT Exchange website which will connect our commercially-branded software to BIRT developers. The Exchange is partly a developer resource but also a storefront for our commercial BI offerings that includes iServer, iPortal, eSpreadsheet Server and BusinessReport Studio. That will provide a conduit for quick and easy lead generation and up-sell sales opportunities. We’re taking that to the table in automated ways, but it won’t be a substitute for our direct, telesales and try-and-buy sales operations.
One of the benefits is lowering the sales and marketing costs typically associated with closing enterprise software deals. Front-ending our sales efforts with BIRT Exchange will help make our sales force a lot more productive as they’ll be pursuing well-qualified leads as opposed to chasing cold leads that have a six to ten month sales cycle. That’s because all the self-serve work has been done and the technology has already been surfaced and proven. I’d estimate that a 15% incremental percentage increase in the quality of our leads and deal closure rates would dramatically grow quarterly license sales, reduce marketing expenses, speed up close rates, and improve our operating margins.
Q. Explain the monetization process.
A. The process is simple. A BI developer that initially works with BIRT will discover how it makes life easier for them and eventually buy our server-based commercial software. BIRT Exchange will provide them with downloadable tidbits of additional value which they can try out and bookmark for the future as their BI requirements scale-out across the enterprise and evolve to support critical 24×7 operations. That raises the bar considerably in terms of scalability, performance, reliability and security. Because most developers won’t want to write that functionality into the code from scratch, those requirements become an on-ramp to our foundational server-based deployment technologies, iServer, iPortal, BusinessReport Studio and eSpreadsheet.
So what we actually monetize on is deployment of the application layer that the developer creates across the enterprise. Our commercial software adds enterprise-class scalability, performance, security and reliability. We’ve also integrated our commercial server-based products to work seamlessly with BIRT. In fact last September we also included incorporated BIRT code into our Actuate 9 platform which provides the missing link between BIRT’s development and Actuate’s deployment environments.
Q. Isn’t there a risk of open source cannibalizing your commercial BI products?
A. No, because we’re not planning to open source any of our commercial server-based BI products now or in the foreseeable future. We’re just commoditizing the development environment and don’t mind giving that up to open source community.
Q. Of course open source is only free, as in free puppy, right?
A. It’s still early days to gauge how tapping into a 3 million-strong Eclipse BIRT development community will drag down the total cost of ownership of BI. We haven’t calculated the overall savings, but it’s something that we’re working on.
Q. What goals and milestones have you set for your new business model?
A. We’re at the start of our transition towards a hybrid of open source and enterprise software model. I’d call 2007 an investment year. But already revenue growth is happening and we’re starting to see an increase in operating margins. We had originally estimated revenue of around $3m to $5m in open source revenue this year. We’ve now upped that to $5m to $7m in our last earnings call, since we’re already running at $3m in the middle of the year. This year I’d say that 10% of our business is open source-driven. Eventually we expect open source to drive 100% of our revenue. I envisage that by 2010 all of our customers will be building their new BI applications and reports on BIRT.
Q. Since you target developers how important was it to get the backing of Eclipse?
A. Hitching BIRT to Eclipse is paramount to our success. Any open source initiative needs to build up a credible reputation among developers. Some vendors have tried to incubate their own communities, like JasperSoft has tried to do with Jasperforge. We haven’t tried to do that. Being part of Eclipse allows us to tap into the $50m investment that IBM has made in the project.
More importantly we can immediately hook into 3 million developers when looking for BI projects, which is way more than the 10,000 developers using Actaute’s commercial enterprise software products today. That expansive community can substantially pull down the cost of their enterprise reporting and BI as companies can now readily reach outside of enterprise door and pull in BIRT resources. Plus our BIRT Exchange provides a complementary storefront for these Eclipse developers to more easily digest our commercial offerings.
Q. What do you make of your open source BI competitors?
A. I don’t think the BI suite route that Pentaho is going down is the right way to go. They’ve accumulated a bunch of open source BI products. But we don’t know of any enterprise that uses any of them. It all sounds like a PowerPoint reality. I believe JasperSoft, which is probably our nearest competitor, recently closed a Series D round of funding. I’m wondering if you’re spending good money after the bad when you’re financing a Series D. If Actuate generates $7m of open source revenue this year then both of these companies won’t even come close to us.
Q. Are you worried about dropping the ball in your core BI business?
A. Absolutely not. We have a roadmap in place for the future development of our commercial BI software. In fact we’ve just released a second service pack for our flagship Actuate 9 platform. There have now been three releases of the Actuate 9 family, and we expect one more to come in the 2008 time frame. Typically we see roll out a major version release every 18 to 24 months, with three point releases and two or three service packs thrown in for god measure.
Q. You once challenged the CEO of Cognos to game of golf. Did you ever play?
A. The loser would have had to caddy for the winner. But it never happened. Just as well as I suck at golf. I had a lot of respect for [Ron] Zambonini back then, and I think Cognos has taken a big step back after his retirement.
