Untangle shows how to make open source pay in the SMB market

Last week I suggested that open source still has work to do to penetrate the SMB (small to medium-sized business) market. Immediately various open-source companies started contacting me, either corroborating my contention or contradicting it.

Untangle is in the latter camp.

Untangle CEO Bob Walters talked with me in 2008 and indicated the company's switch to open source had paid serious dividends. As I learned in this follow-up email, the momentum has accelerated, as shown in the graph at right, and it's apparently all coming from the hard-to-reach SMB market.

Untangle sells software that allows small businesses to securely connect their local networks (LAN's) to the Internet. In other words, Untangle is a "secure network gateway" company, as Bob describes it. The company has now open sourced roughly 90 percent of its code, which is given away free of cost, and then charges for advanced features, similar to the business models used by SugarCRM, Zimbra, and others.

That move to open source has proved beneficial, as can be seen in how deployments have soared since Untangle open sourced its code. But I still wanted to know how Untangle successfully reaches the SMB market, particularly in light of the fact that Untangle doesn't build appliances which might make the software easier to adopt than a download-and-install-it-yourself model.

Open source has helped turn Untangle's customers into a self-reinforcing community:

Nothing sells like free during a recession. And those 18,000 active Untangle sites become both spokespeople for and prospective customers of ours. It's then our job to put highly-useful complementary commercial products in front of them.

Well over 99 percent of our customers have fewer than 100 employees. These include accounting firms, professional services firms, retail franchises, and small government agencies/offices. We are also popular for schools, especially private middle and high schools. (These can sometimes exceed the 100-user mark.)

Fine, but how do you reach such a scattered, tight-fisted market?

SMBs will spend money, but never for something they don't need. We therefore avoid delusional behavior like trying to sell 'rocket science' (e.g., strong authentication). Enterprises buy that stuff. Sometimes consumers do too. But not small businesses. These are mainly owner-managed. Any hit to the bottom line is easy for them to feel.

So, the big challenge is reaching the SMB in the first place. To solve it, we first looked hard at who in the SMB ecosystem makes the actual IT purchase decision and vendor selection.

The answers kept coming back "business owner" and "trusted techie," respectively. We further learned that we could not really influence the decision to buy. That decision happened locally, and was pain-driven. So we focused on the vendor selection piece, which led us to the "trusted techie."

This techie takes many guises - sometimes friend, sometimes consultant, and sometimes even competitor. But, in every case, they had one thing in common. They loved open-source software! So that became the centerpiece of our strategy. "Free and open" became intrinsic parts of the Untangle brand.

I started to "get it." Many open-source vendors clearly pass the open source part of the test, but they fall down on making the software easy to understand and use. The key is getting both right, and selling both correctly.

Walters continued:

Our core message to the techie is this: "Our product is both open source and free. And it's better than the commercial appliances. Period. Try it and find out...."

We also built messaging (and a web site) that told the business owner: "We're solid, trustworthy, and focused 100 percent on small businesses." This resonates with this class of customer because, frankly, who else looks after them? Everyone else splits their time between big enterprise and SMB, and SMB invariably gets less attention.

We couple these marketing messages with constant applause for those that use our free offering and never hard selling.

Lastly, I asked Walters about support: SMBs pay less but often demand more in terms of support. How has Untangle made it profitable to support the SMB market?

It was tough to support our customers in the beginning, because our community was small, our wiki was weak, and we therefore had to do all of the work. But it has gotten much easier.

First off, I'd estimate that 95 percent of our technical support is done by our community. Just look at our forums. Feel free to compare them to other projects. Secondly, our wiki has gotten a lot stronger. Finally, with every version, we make our product easier to use. We avoid feature-bloat like the plague. Featuritus would kill us.

While some might be dismissive of the SMB market--who wants to sell to Mom and Pop Shop when you can sell to Bank of America?--the reality is that it's exceptionally hard to create products that are easy to use. Apple, for example, has made mountains of cash by selling primarily to the SMB and education markets, though it is starting to find purchase within enterprise IT. It does so by building simple yet powerful products.

In a similar manner, Untangle appears to be doing well with SMBs by giving them what they need, and no more, in an easy-to-consume open-source model that respects their time. There is a lesson in this for open-source companies, and really, any company that wants to build products that will appeal to the SMB market.

Follow me on Twitter @mjasay.