The head of a British high-tech start-up went in to the old Department of Trade - one of whose roles was to help business - to make a pitch for his new program and how it could help save taxpayers' money while fostering the local software industry. It turned out that both these factors were irrelevant. The reason for dismissing him? "Oh, well, of course, we'd only ever select a US-branded product."
A story from the bad old days, you might think. But this meeting took place just over a year ago. "I couldn't believe that someone from the UK government was saying that to me," says John Powell, who co-founded Alfresco (alfresco.com) in January 2005. He received the astonishing reply when he was making a pitch for Alfresco's enterprise content management (ECM) software, which helps manage office documents, web pages, emails, images and records.
Things are no better today. "We're doing just over 50% of our business" - already running at around $10m a year - "in the US, just under 50% outside of the US," Powell says. "But when you drill on that piece that's outside of the US, the bulk of it is coming from continental Europe. We've had massive take-up in France, Benelux, Spain and Italy." By contrast, the UK represents a slim 5% of Alfresco's business.
That poor uptake in the home market is particularly ironic since it was a determination to become a UK-based global enterprise that shaped the company. "We decided that the only way to build a major software company out of the UK was with the open source business model," Powell says. "To build a global software company, you have to be successful in the US." However, "it costs a huge amount of money to start a marketing operation in the US when we're here [in the UK]".
Open source gets round this because prospective customers can download the product and try it - Alfresco has been downloaded 700,000 times. If they like it, they can pay for support, much of which can be provided online. Powell says: "When you get into it, you recognise that open source makes virtually every aspect of writing software and selling software and acquiring customers easier."
Benefits of collaboration
If the business model was determined by the choice of location, the particular market sector that Alfresco would serve was largely a consequence of the career of the other founder. John Newton is a Silicon Valley engineer who had decided in 1987 to move to the UK. Where Powell's background was in running and growing divisions of software companies such as Oracle and Business Objects, Newton was an acknowledged expert in designing ECM systems: he co-founded Documentum, which grew to be the first giant of a sector worth around $4.5bn today.
As Newton says, the strategy of using open source to create a global software company based in Europe was not a complete leap of faith: "We were very lucky when we started. We were able to study the business models of the likes of MySQL and JBoss and see why they had been successful." The MySQL database is the "M" in the popular open source web platform usually abbreviated as "LAMP" - Linux (operating system), Apache (web server), MySQL (database), Perl/PHP/Python (scripting language, to generate web pages on the fly); it drives many top web 2.0 sites, and its Swedish-based developer is on course for what is expected to be a very successful IPO. JBoss is an open source application server created by Marc Fleury, who sold his company to Red Hat for $420m in April last year.
Not only could Alfresco's founders look at these forerunners, it could ask them for advice. As Powell says: "What you recognise in open source is a completely different mindset. To be successful, you have to have this community approach. That means we work very successfully with the other open source companies."
The benefits of collaboration were also available at the technical level, since Newton could take existing open source components and adapt them to his needs. "It allowed us to move four or five times faster, because it was like pulling together Lego rather than building everything from the bottom up," he says.
Powell and Newton initially funded the company themselves, but soon they were looking for venture capital. It was here that the gulf between the UK and the US became clear. "Because of our backgrounds, we had interest [from UK venture capitalists]," Powell says. "But you just knew, from the type of conversations you were having, that they were sceptical." Things were very different when they had the same conversations in the US: "We did a one-day tour of a place called Sand Hills Road, met half a dozen VCs, and came back with two or three offers." Alfresco closed $8m in funding as a result.
The initial reaction of customers to Alfresco's product was strong. Powell says: "If you look at the revenues of enterprise content management [companies] since 1999, the growth has been OK - it's been like 10%, 15% per annum. Whereas the growth of content is astronomic - it's just an exponential growth. So we had the sense that there were a lot of people who needed the techniques of enterprise content management but weren't prepared to pay the ticket price and found those [proprietary] solutions much too complex."
Fear of risk
Alfresco's cost, customisability and lack of vendor lock-in have been popular with European public bodies: locally in Paris and Munich; regionally in Andalusia and Catalonia; nationally in Belgium; and at the pan-European level with the European Union. Everywhere, it seems, except in the UK. So what's the problem?
Powell says: "What's happened over the years is that [UK] government has tried to develop its skills in IT, and has been highly influenced by a small set of consultants of large global companies. They've really played on the government's fear of risk. So whenever we go and talk to government here in the UK, whether that be local or central, the risk thing is the first thing they always talk about. They don't look at any of the benefits. The cost, the ease of deployment, the speed - none of that matters: they just focus on the risk.
"Of course, as long as you're going to do that, then you're only ever going to choose the biggest company. Yet when you look at the projects in the UK, these projects are failing. The more they fail, the more it drives [the UK government] down this weird behaviour of only selecting the biggest people - even though they've failed two or three times before."
Powell says that the solution is openness - at all levels. "It's all kept among this cosy cartel of a few firms, a few consultants. It's all swept under the carpet. I think we just need to bring it out into the open" - to go al fresco, as it were.
· Glyn Moody writes about open source at opendotdotdot.blogspot.com