Aras Corporation is the small but successful publisher of Aras Innovator, an open source enterprise PLM suite. “Open source” means Aras gives the software away for free, and that others can modify the code. So, how does the company make money?
By Randall S. Newton
Aras Corporation is a vendor of enterprise open source PLM software. It is built on the Microsoft technology stack and is generally one of the first software companies to achieve Gold status whenever Microsoft updates its enterprise stack. Aras major customers include Motorola, Rolls-Royce, Xerox, Freudenberg, Lockheed Martin, Ingersoll Rand, Klockner Desma, Hi-P and ACCO Brands. All of these companies acquired their thousands of seats of Aras Innovator Suite without paying Aras a dime; they downloaded it for free directly from the Aras website.
[At this point the reader interrupts to ask a question.]
Reader: If all those companies didn’t pay for their software, how does Aras make any money?
Author: By moving the monetization point.
Reader: Say what?
[The article continues.]
Wikitonary says monetization is “the conversion of something into money, the act of monetizing.” All software companies convert their labors and intellectual property into money—they monetize their labors. But there is a key difference between how traditional, commercial software vendors make money and how open source software vendors like Aras make money.
First, a note about terminology. I was tempted to refer to non-open source PLM companies as “proprietary.” But that’s a loaded word in regards to interoperability and industry standards for data reuse. So, in this article all PLM companies except Aras are referred to as “commercial” not “proprietary.”
Yes, Aras Makes Money
Let’s set the record straight: Aras does have customers and Aras is making money. As Aras CEO Peter Schroer told me about a year after switching from being a small struggling commercial PLM vendor to a fast-growing open source PLM vendor, “Not having to pay sales people made us profitable for the first time in eight years.” What’s more, Aras customers really like working with their PLM “vendor.” In May Motorola hosted the first-ever Aras customer conference at the Motorola Innovation Center in Schaumburg, Illinois. Xerox recently posted a video explaining how they’ve made Aras Innovator the center of their product development process.
Schroer says the install rate onto servers for downloaded copies of Aras Innovator is steadily climbing, and is now at 30% of downloads. “This is unusually high for open source” says Schroer. Recently India’s Tejas Networks, a fast-growing network products vendor, shut off its installation of MatrixOne (from Dassault Systemes ENOVIA) and installed Aras Innovator without any contact with Aras.
Schroer says 5% of companies which install Aras Innovator (their PLM suite) eventually spend money with Aras on support. And, on that 5% of installed products, Aras says its revenue is growing at 60% per year.
Aras Versus the Competition
When you compare Aras to its competition in PLM, the contrast is huge. In one category we have Siemens, Oracle, and SAP, multi-billion dollar companies where PLM is a small part of their business. Then we have the big specialists: Dassault Systemes, PTC, and Autodesk (which does not like to be called a PLM company, but that’s their problem). Their revenues can be measured in the hundreds of millions or billions of dollars. Then there are a variety of smaller specialist firms, including PLM Plus, Arena Solutions, Synergis, and Aras. (For the sake of simplification, we are excluding PLM firms that are primarily about CAD and geometry, but more about data management.) These are firms whose revenue can be counted in millions or at best tens of millions. Among them, Aras stands alone as a open source PLM vendor.
The Commercial PLM Conversation
To understand how Aras can compete and survive as an open source software company, we must correctly identify the nature of their business, and correctly compare it to the business of being a commercial PLM vendor. To put it in economic terms, we must compare where the buyer allocates resources in order to achieve the result of efficient Product Lifecycle Management.
A purchase with a commercial PLM vendor is like a conversation:
Manufacturer: You have nice PLM technology. May I have some?
Vendor: Yes, we will share it with you, as long as you pay for it on a continuing basis.
Commercial PLM firms don’t sell software, they sell permission to use a system. The formula is:
Commercial PLM product = software + certifications + integration + training + VARs + online services + support.
This system, this coupling of intellectual property (IP) with services, is the product, not merely the code you download. You give them money, they give you permission to use their PLM system.
Conventional wisdom says only a whole product can succeed in the larger marketplace of mainstream adopters and enterprise vendors. When a manufacturer allocates resources (money) to a PLM vendor, it is buying a partner in product development. Your partner brings the PLM IP, you bring the engineering and manufacturing; together you make a product.
To put a point on it, in the world of commercial PLM, the unit of competition—and thus the point of monetization—is the software company, not the software product. The vendor is the authority, and you pay to benefit from that authority.
I can guess what you might be thinking at this point. We are all conditioned to the idea that we pay for software and services. Mostly we think the money is for software and the vendor throws in—or gives us a good deal on—the extra stuff. But the real point of competition is between companies, not products.
The Open Source PLM Conversation
Commercial PLM vendors sell their authority and access to their IP as a unit. The Open Source PLM vendor decouples authority and intellectual property. Aras gives away the IP and sells the authority separately in the form of product support. Or, if you don’t like their version of authority, allocate resources internally and develop your own authority as you dig into the free software Aras gave you.
Open source software changes the monetization point, by removing authority over intellectual property (IP) from the economic equation. Money is not spent to acquire PLM, but to deploy it and enhance it. The open source PLM conversation starts with the same question as the commercial PLM conversation, but the answer is different:
Manufacturer: You have nice PLM technology. May I have some?
Vendor: Yes, download as many copies as you would like. It is all free. If you want help with it, come back and ask us, or talk to others who are also using the software.
When you compare the traditional model to Open Source, that thing psychologists call cognitive dissonance sets in. “That’s crazy! You can’t give away the software!” The free market model—where competition is measured in profit—is familiar and comfortable. If Aras doesn’t get any profit from its software, how the heck does it stay in business?
Aras stays in business because it is not driven to achieve by a marketplace measurement—the size of its profit. Aras is driven by a social measurement—the size of its user community. Profits are the by-product of having a large user community. It grows its user community by playing nice and sharing its toys freely. Many in the user community are only too happy to pay Aras to customize their installation or train their employees.
Feed the Software, Not the Vendor
Every time a manufacturing company switches to Aras, about $100,000 of maintenance revenue is removed from the PLM market, according to Schroer. “We are shrinking the spend and expanding the PLM user share.”
The $100,000 of lost revenue to other PLM companies may sound like a pittance to the likes of PTC, Dassault, and Siemens, but in this economy every dollar counts. The beauty of the open source model for Aras is that companies don’t have to decide who gets a seat of PLM and who goes without. Everybody gets a copy, freeing up money for support.
The companies switching to Aras don’t pocket the $100,000, they invest it in other ways. The deep thinkers in open source software say open source adopters change from feeding the vendor to feeding the software directly. Once the focus can be directly on the software, without the interference of a vendor, users find new and interesting way to extend the product. At the Aras website there is a long list of Community Projects—custom additions to Aras Innovator written by users and shared with the wider user community.
Aras gets a free ride into the manufacturing IT environment because it is built on the Microsoft stack; there is no proprietary middleware requiring a small army of installation experts. The people who intend to use Aras Innovator already have Microsoft enterprise software experts in-house or on-call.
In the wider world of IT, there are robust open source developer communities built around such essential services as Web Services, office productivity, customer relationship management, and more. The Internet itself is open source software supported by thousands of developers. The programmers who contribute to its creation and upkeep have a vested interest—their companies run on the products they help to create.
Creation Vs. Evolution, Software Style
One more analogy and we are finished. Our shared mental map of the software market can be compared to the model most people have in their heads of what the Creationism approach to biology looks like: a sovereign deity executes a grand plan, populating a world. That works for commercial software, where the “deity” is a corporate ego giving permission for what “life forms” exist and where they may be used. (I could digress into what I think of some of those corporate egos, but that’s another article for another time.) But creationism falls apart as an analogy for open source software. It might be initially “created” by one ego, but once it is in the wild there are thousands of possible transformative influences, and no one controlling the outcome. A better model might be the “selfish gene” interpretation of evolution as first articulated by Richard Dawkins.
Dawkins says all past interpreters of evolution got it all “utterly wrong” because they interpreted the behavior of evolving life forms in terms of the good of the species. He says it is all about the good of the individual unit, all the way down to the gene level.
Open source software is a selfish agent, acting in its own self interest. It seeks out ways to be fed and cared for, so that it can grow and reproduce itself. It seduces programmers with promises of free access and easy modification, and cunningly transmutes their enthusiasm into a free ride into other computers and other companies.
In the evolutionary analogy, commercial PLM companies might view Aras as a cancer, while users might see it as a domesticated mammal, easily trained to perform many useful tasks.
All analogies aside, open source software is not a fad, it has already irrevocably changed the marketplace. Economist Yochai Benkler calls the social means of production enabled by open source software the greatest achievement of the Internet. Aras may be the first to bring open source software to product lifecycle development, but it won’t be the last.