Zend seeks a sustainable open-source model

Venture-backed Zend makes development tools for running Web applications written with PHP, an open-source scripting language.

As it seeks to grow beyond its current size--with annual revenue between $10 million and $30 million--Goldberg said he intends to focus the company on a handful of growth initiatives, down from eight or nine now.

He said the obvious routes are doubling efforts to sell to corporations and governments, particularly in Europe, where open-source applications and standards are gaining favor. Because PHP is used in millions of Web sites, so-called Web 2.0 start-ups are another potential focus for company sales.

Harold Goldberg

Zend also has a partnership with IBM to make PHP a better development language to pull data from back-end servers such as mainframes. The IBM "ecosystem" alone is a "huge business," Goldberg said.

The company is also filling out its product line, which includes development tools and software for running PHP applications.

This month, it intends to release Zend Core, a certified version of the PHP language that includes software to optimize PHP applications to work with Oracle and IBM databases, as well as Microsoft's Windows.

More Red Hats out there?
But even with thousands of customers, millions of dollars in the bank and a route to profitability, Goldberg still has a concern shared by many CEOs of open-source companies: can we grow to a size that will rival today's tech giants?

"One thing that I've learned is that the business model has not been fully figured out," he said. "Apart from Red Hat, no one has cracked the nut to get to a sustainable business model."

Goldberg, who joined Zend from enterprise software company BMC Software, said being a company that relies on an open-source community for product development poses challenges different from traditional software.

Zend employees, including company founders, are active in PHP open-source efforts, but the company does not have "complete control" over the project, Goldberg said.

With the business software industry consolidated around a handful of very large companies, many companies formed over the past five years have bet on free products and open-source business models to undercut the giants.

But despite hundreds of millions of venture capital dollars, it's not clear how many of those companies will endure or grow to earn hundreds of millions of dollars a year.

MySQL Chief Executive Marten Mickos this week told a British journalist that the company intends to go public. Another open-source company, Trolltech, went public last year. JBoss was acquired by Red Hat for $420 million.

Goldberg said Zend's revenue's doubled last year, setting a pace it intends to keep up this year. The company expects to be cash flow-positive by the end of the year. But, he notes, the strength of the PHP open-source community is very important to Zend's fortunes.

"We're talking about using open source to develop the primary code" for our product, he said. "Zend's future is tied to the PHP community and open source in general."