Aras Corp (Photo credit: Wikipedia)

Image via CrunchBase

According to a 24 September 2012 article by D.C. Dension in The Boston Globe, the profits from freemium business models lie in related support services. 

In
its first seven years, Aras
Corp. grew slowly, with a handful of sales people selling its proprietary
software to manufacturing clients.

Frustrated
by the slow pace of business, founder Peter Schroer had a realization: “Selling
corporate software was not profitable, and the scalability of the business was
limited to the number of feet on the street.”

So,
in 2007, Schroer took a gamble and embraced the open-source model of software that was sweeping corporate
computing. He fired the sales teams and started giving away Aras’s software;
the company would make money through services, such as technical support,
security updates, training, and related consulting work.

Clients
could use, modify, and share the software as they saw fit, while buying from
Aras the kind of 24/7 support that services manufacturers expect from vendors.

Since
then, Aras’s revenues have increased 50 percent each year, on average; client
downloads of Aras ­software are up tenfold, to more than 1,000 companies each
month, from 100 in 2007.

Open
source software is now ‘absolutely mainstream,’ an analyst says.

 

The
workforce has quad­rupled to 68 employees.

“The
difference has been night and day,” said Schroer, Aras’s chief executive.

Aras,
of Andover, is among a number of Massachusetts companies following the
pioneering path of Red Hat
Inc., and basing their businesses on open source software, where the
underlying source code to run ­applications is available for free.

Another
is Acquia Inc., of Burlington,
which provides support for an open source content-management system developed
by its cofounder.

Moreover,
the trend of migrating corporate computing systems to offsite “cloud” systems
could accelerate the use of open source products, creating even more business
for those firms.

“If
you have an open source system in the cloud and it needs to grow, you just add
another server,” said Jeffrey Hammond, principal analyst at Forrester Research
Inc., in Cambridge. “You don’t have to worry about adding another license,
because it’s free. That’s very appealing.” He said open source software has
become “absolutely mainstream” and that Forrester’s survey of software
developers indicated 80 percent use of it in some form.

Though
based in Raleigh, N.C., Red Hat maintains a ­research and development operation
in Westford, with more than 400 employees.

The
company distributes and supports versions of the open source Linux operating
system, which is at the heart of many corporate computer systems. The company
is expanding in Westford, to more than 700 employees over the next few years,
largely because of the growing use of open source software in cloud computing.

“Open
source is free, which is very attractive,” said Brian Stevens, chief technology
officer. “But companies still need a relationship with someone who can help
make it work, because software is very complex and constantly moving.”

Acquia’s
product is Drupal, a content management system used to manage websites. Drupal
was launched in Belgium as a free, open source project in 2001 by Dries
Buytaert. It now has more than 870,000 registered community membersin 228
countries, who use it to create websites and develop related tools and
applications.

In
2007, Buytaert and a cofounder launched Acquia in Massachusetts; its customers
include Twitter, Warner Music Group, Turner Sports, World Economic Forum,
Stanford University, Mercedes-Benz, and NPR. Revenue in 2011 was $21.7 million,
a 150 percent ­increase from the previous year.

The
company has 230 employees.

The
trick to building a company in the open source business, said Acquia chief
executive Thomas Erickson, is “to identify your value-add.”

In
Acquia’s case, Erickson said it is serving as a guide to corporate customers
through the sprawling Drupal community, which is constantly adding tools,
fixing bugs, and creating applications, called modules, that extend and
customize what Drupal can do.

“There
are more than 16,000 modules available to use with Drupal,” he said. “People
need to know where to start, whom to trust, how to put these things together.
They also want someone to call when something doesn’t work as expected.”

Acquia’s
business model is similar to Aras’s and Red Hat’s: It sells support services
and products that are related to Drupal, such as Web hosting and training.

One
client is Maxim, the monthly men’s magazine, which uses Drupal for its website.

“We
wanted to go the open source route,” said Michael Le Du, Maxim’s chief
technology officer, “but we needed expertise when we hit a wall. That’s what
Acquia gives us.”

Meanwhile,
among Aras clients is Carestream Health, a provider of medical imaging
technologies.

Its
chief information officer, Bruce Leidal, had conducted a “bake-off” among Aras
software and similar proprietary programs, and chose Aras for the lower cost:
under $200 per user, with Aras support, versus $350 per user for the
proprietary systems. 

Alfred Nobel's application for patent, regarding his percussion cap and principles for initial ignition of nitroglycerine. (Photo credit: Wikipedia)

Featured in a Businees Week artilce by Ashlee Vance on August 09, 2012, Craig Ciesla set out five years ago to do something ridiculous and wonderful. He wanted to develop technology that would cause buttons to rise up out of the normally flat screens found on smartphones, tablets, TVs, and other devices when they were needed, and to disappear when they weren’t. Go to type an e-mail on a tablet and a keyboard appears as if by magic, only to vanish moments later and leave behind a nice, smooth screen.
Ciesla, a physicist, had a name for his company: Tactus Technology.

But before he began bringing his invention to life, Ciesla decided to sit down and hammer out a patent application, spending much of his company’s early days playing lawyer rather than inventor. “We filed 20 applications before even doing our first round of outside funding,” Ciesla says. “Our main office was my dining room table.”
Across Silicon Valley, desks strewn with patent applications compete with gritty garages as the standard birthplace of new products.

Startups no longer race headlong to develop prototypes as fast as possible. Instead, they must first protect them with bulletproof intellectual property portfolios that can take years to build. This is the fallout of an increasingly vicious patent war, where giants like Apple, Samsung, and Google clobber each other in court over smartphone designs, and patent trolls pounce on the rights to popular features.
Little firms like Tactus have begun turning to intellectual property coaches for help.

In 2008, Ciesla hired Jeffrey Schox, an attorney in San Francisco whose practice is tailored to startups struggling to survive in a litigious era. Unlike most large Silicon Valley law firms, Schox Patent Group charges clients a flat $15,000 fee per patent application, rather than by the billable hour. That means Schox doesn’t charge for things like e-mails or brain-storming sessions, making him more like a partner to his clients. Law firms typically charge an average of $40,000 to get a patent approved, says Schox. He’s also found a way to tap into a steady stream of clients.

Schox teaches a pair of courses at Stanford University and attends angel investing clubs to build his Rolodex and learn how to identify promising companies. He often plucks employees out of the Institute of Design at Stanford because of their ability to think imaginatively about a product’s uses and permutations. “This type of thinking can be outside of an engineer’s training,” Schox says. “So, you want people that have a multidisciplinary approach and can think creatively.”

Today, Schox Patent Group has dozens of clients in the mobile, medical, and Web areas, and will sometimes take an equity stake in the companies.
The Schox method revolves around teaching startups to view intellectual property as a weapon. How might a rival get around those patents? What features might they think of? Schox often asks engineers who haven’t even built their first prototype to conceptualize unusual extensions of the technology, so that these ideas can be protected just in case. It’s well worth the trouble. Schox says the going rate for a hot patent now is about $1 million. “Decades ago a machine might have five or 10 patents,” says Schox. “Today, the phone in your pocket has about 5,000. It’s just a much different landscape to think about.”

At Tactus, Ciesla and his co-founders spent years working in a makeshift lab. They devised a technique for creating patterns of tiny channels inside a film that could be filled with a proprietary liquid. Using a miniature pump, they could add pressure to make the area above the channels expand and form a button, and then release the pressure to make it go down. The first prototypes were shoebox-size contraptions that got affixed to smartphones and tablets. Over the years, they shrunk the technology so that it’s now a 1 mm film that gets its power right from the device.
The technology should appear on consumer devices next year. Tactus says TV makers have expressed interest in creating buttons that rise from the side of a TV screen when someone is nearby, then recede when you move to the couch. Tablets and smartphones could follow.

Ciesla notes that Tactus tried to keep its technology a secret for as long as possible. Following Schox’s advice, the company avoided looking for new investors even during the lean times out of fear that its ideas would be exposed. “We made a choice to go with the intellectual property,” Ciesla says. “Now that choice is paying off.”
The bottom line: The going rate for hot new patents is about $1 million, making them as valuable to startups as the products they protect.

Image via CrunchBase

For budding entrepreneurs looking for insights into life inside an incubator, or ideas on how to best prepare/get accepted, the just published The Launch Pad, is the place to start. Detailing life inside Y Combinator, The Launch Pad gives an unvarnished view of how to successfully start a company in three months.