A conversation with Pentaho's Lance Walters: A continued trend toward more open source

I spent a half-hour this morning talking with Lance Walter, VP of Marketing for Pentaho, a leading open source Business Intelligence vendor. I wanted to see if Pentaho's experience in the market matches up with what other open source application companies are seeing.

Indeed. The good news of open source goes well beyond any one particular vendor.

Question: I hear good things about Pentaho all the time. Can you give me a high-level update?

Sure. First off, you may have seen the news that we did a big competitive replacement of Crystal Reports at Boyne Resorts the largest family run four-season resort company in North America. We also just closed a deal with University of Montreal. Also, we hired a new EVP of Worldwide Sales, Matt Vitale from Ingres. Things are going very well.

Why? What's the big driver for Pentaho's open source Business Intelligence?

Cost is one of the biggest issues. It's the thing that brings prospects to the party in the first place, but there are several other reasons that close the sale: open standards, the fact that we're built for easy integration, etc.

In fact, this ease of integration is one of the key reasons that open source makes so much sense for Business Intelligence. One of the first things you do with BI is to integrate it into other systems and then serve up the data through a portal, or whatever. So, having it open source makes a big difference. Pentaho was architected for integration.

Funny enough, our proprietary competitors actually try to use our source code availability against us. They attempt to confuse customers with questions like, "Do you really want to assume the burden of managing all that source code?" Of course, customers don't have to view or touch source code unless they want to, so it's a complete non-argument. But it's funny how competitors will try to spin a benefit as a negative.

What's your licensing model? I believe you changed it last year?

We use a combination of the MPL, LGPL, and GPL licenses, in addition to some proprietary extensions. It used to be that we played up these proprietary extensions as our value; the reason customers should pay us money.

However, over time we've been putting more and more emphasis on open source as the cake. The proprietary pieces are increasingly becoming "frosting," things like single sign-on. The critical core of Pentaho is open source. Our ETL and reporting software are 100% open source, as are other core components. We've just come to realize that this model pays back in adoption and interest what we may lose in the proprietary hook.

What's your revenue mix? I'm betting you have a lot of OEM interest, given what you said about BI being integration-heavy.

Our OEM business is "ahead of schedule." By this I mean that we expected it to account for 40% of our business (with direct sales to end customers accounting for 60%), but today OEM accounts for 50% of the business. We expect direct sales to continue to increase its share over time, but OEMs have shown a marked propensity to want open source and so that part of the business has grown faster than expected.

How often do you compete with JasperSoft or other open source BI vendors?

We bump into Jasper in deals. Still, the market is big enough and the proprietary guys are vulnerable enough that it's not zero sum. Both Jasper and Pentaho can do very well without either starving.

Is open source BI expanding the overall BI market?

Absolutely. The big eye-opener has been how many individuals in Eastern Europe, South America, etc. are represented in the Pentaho community. You never would have seen these people participating in a Cognos or Business Objects world. They simply couldn't afford it.

Still, in terms of where we're monetizing today, most of our customers are already using proprietary BI tools. For these, BI is not new, but we're getting "the next BI project" within these shops. In other words, Pentaho is the "scale-out" preference within companies that have already made an investment in BI due to cost and other factors. So, it's probably fair to say that we are increasing the size of the BI market within both developing areas and in areas that have already adopted BI.

What about the SMB market?

Everyone - proprietary and open source - wants to reach the SMB market, and we certainly have SMB-type companies who buy Pentaho. That said, if you're a big company with a big IT budget, you can save a lot of money with open source. But in the SMB market, there aren't huge IT budgets and so the cost advantage is not driving BI sales to SMBs.

Even so, there is definitely BI pain in an SMB, and you see this as soon as the business has more than one system when they need to analyze the business' data. A prominent example is the Web 2.0 world. These are SMBs by traditional definitions with serious BI needs. This is a growing market for us, as it is for MySQL and other open source companies. For the web world, open source BI is their first choice.

Great to hear Pentaho is doing so well, Lance. Interestingly, I found many similarities between your comments and the ECM market in which I work. Whenever integration is a key driver for a market, open source plays particularly well and becomes first choice for such OEMs. Some would argue that open source should be last choice in the embedded market because of its licensing terms, but the opposite is proving true, at least where the open source company owns the code and so can offer commercial licensing terms if the would-be OEM doesn't want to embed open source-licensed code into their product.