What Does Half of the Fortune 100 do when their Proprietary Software Dies?

by Mark on October 30, 2009

KANAToday I saw a note that once high flier KANA was being sold for $49 million in cash to a private equity firm. Not because they have any real assets but because they have a $400 million operating loss. The company is essentially a publicly traded shell that might be used to roll a profitable or growing company who wants to go public into. This has many advantages I suppose for the shareholders of the new company but what about the customers?

Under the marquis with the big liquidation announcement is a link that states:  Half of Fortune 100 companies rely on Kana including Dell, Intel and AT&T yet after the Tuesday sale of the company it seems to me that they are out of luck.

The reason Kana struck a chord with me is because when I was the Director of Technical Support at MindSpring back in the 1990s —we acquired a company in Seattle called SpryNet. They were an early Kana customer. I remember hearing how great the software was and how much promise it had. As we consolidated we went with another vendor, Right Now Technologies, one reason was if I recall correctly, was because it ran on Linux (It’s been so long — in internet years— I can’t recall all the details).

According to the 451 Group’s Brenon Daly the software company has been dying a slow death for years:

“Exactly three years ago, we bluntly wrote that there was no reason for Kana Software (KANA.OB) to be a public company, at least in its current form. Kana’s performance in the intervening 1,000 days since we published that report did nothing to change our view. If anything, as the red ink continued to gush at Kana, we became even more convinced of the need for a sale of the customer support software vendor. The sale finally happened Tuesday, with Accel-KKR agreeing to pay $49m in cash for most of Kana.”

The reason I bring it up is because if the software was open source the companies that use open source would likely have some outs. In this case proprietary KANA according to some reports the CRM vendor went through billions in investment and other losses since being founded in 1996. As a open source business person my colleagues and I spend a lot of time talking about how open source is not risky and I am sure that this cautionary tale will make it into more than one of our counter-objection files. This is a great example of how proprietary software can be risky.

I have been waiting for our pundit-cum-software exec, Matt Asay, to publish his latest musing on the need for the open source savior we deserve. From the draft it looks like it will be yet another well written plea for our industry (software companies that build products and services on or around open source projects). However, it makes me think about one of my favorite movies, Martin Scorsese’s Casino. At one point in the movie Joe Pesci asks Sharon Stone’s character if she needs a sponsor, which she emphatically agrees to — if you saw the movie you can’t get much more affirmative than that. The movie ends with Sharon Stone’s character dead of a drug overdose and Joe Pesci’s character beaten and buried alive in a corn field. In Matt’s draft he suggests Google as the sponsor of OSS. Thanks but no thanks.

I don’t think we need a sponsor or savior for that matter— we need some wins. I mean putting our nose to grindstone and making viable businesses around OSS. I think there are quite a few contenders – Alfresco, SugarCRM, Pentaho and Zenoss to name a few. While I am sure most of us who work in the industry are dying for a liquidation event I think the days of tech stock mega-millionaires are over so while I am happy for the MySQL’s and Springsource’s of the world, I would hope numerous ISVs will find ways to make self-sustainable businesses around OSS. The idea of being a disruptive technology is to be disruptive and challenge the status quo. Maybe the time for the mega software vendor who buildit once, sells it a million times and sits on its laurels is over. Right now the right vendor who has succeeded with a business that’s symbiotic with open source software is Red Hat. They are not only profitable AND growing AND their customers seem to love them. No they aren’t Redmond rich but they are growing their business, sponsoring a number of thriving communities and redefining the model for delivering enterprise software. I think the industry has to execute on the mantras we love to expound: make better software, save money, drive innovation reduce vendor lock-in, etc. So let’s just take Red Hat for what they are —a role model for other open source companies, wish Google the best and leave the saviors for the tabernacle.

[Disclaimer: I don't use the term commercial open source software vendors simply because I personally feel that open source is a development method not a business model. This post is reflects only my own opinion and not necessarily that of my employer.]

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