Open-Source E-Mail Goes Commercial

Start-up Sendmail Inc. hopes it can answer, "Why buy when it's free?"

Sendmail Inc.

Location: 6425 Christie Ave., 4th Floor, Emeryville, Calif. 94608

Telephone: (510) 594-5495

Web: www.sendmail.com

Niche: Open-source e-mail and message-transfer technology

Why it's worth watching: Open source code is storming into information technology shops. Sendmail is poised to convert these users into paying customers.

Company officers:

  • Greg Olson, co-founder, president and CEO
  • Eric Allman, co-founder and chief technology officer
  • Richard Guth, vice president of marketing
  • Number of employees: 150

    Customers: Amway Corp. in Ada, Mich.; Texaco Inc. in White Plains, N.Y.; Sybase; and Johnson & Johnson in New Brunswick, N.J.

    Burn money: Sendmail got going with $18 million from angel investors and technology partners such as Sun Microsystems Inc. founders Andy Bechtolsheim and Bill Joy, Compaq Computer Corp. Chairman Ben Rosen and Novell Inc. CEO Eric Schmidt. It just secured an additional $35 million from Morgan Stanley Dean Witter & Co. in New York and two other venture capital firms.

    Products: Sendmail Switch and Sendmail Multi Switch

    Red flags for IT:

  • High-end enterprise messaging servers already include robust MTAs and a wide variety of GUI tools for managing their systems.
  • Adding Sendmail's product might just be overkill.
  • If your company is using the free, open-source version effectively now, why would it pay for the upgrade?
  • Geoff Butterfield says he knew exactly what to expect from Sendmail Inc.'s Simple Mail Transfer Protocol gateway and e-mail package -- hands-off, user-friendly efficiency -- and he says he got it.

    Although he was a first-time user of the commercial product, he wasn't exactly your typical new-software owner. Butterfield had used the open-source-code version of Sendmail for several years. When the packaged product became available two years ago, Butterfield, director of Internet technologies at the George Lucas Educational Foundation, upgraded to the commercial version for the San Rafael, Calif.-based nonprofit research group's Internet mail system.

    "What kept us with Sendmail instead of one of the numerous other mail products is that the graphical user interface (GUI) makes it more friendly to use. I check on it once a month to make sure it isn't broken, and it runs like a champ," Butterfield reports.

    Butterfield adds that cost was an important factor in the decision as well. "I like to use open-source software as much as I can. It's a huge problem to pay for (a) network software license for many education systems because the schools don't have money."

    Prior Foundation

    Unlike most start-ups, Sendmail inherited a huge installed base when it formed as a private company in March 1998. Since Eric Allman developed the Sendmail message-transfer agent at the University of California, Berkeley, in 1981, literally thousands of developers have tweaked and improved the code and thousands of users have made it the basis for storing and forwarding Internet e-mail.

    Emeryville, Calif.-based Sendmail estimates that 75% of Internet mail servers in use today exchange mail with this open-source message-transfer agent.

    CEO Greg Olson and Allman, now chief technical officer, founded the company to tap into the existing market. But Olson says the firm's biggest challenge is convincing the user base to try the commercial version of the message-transfer agent (MTA).

    "The open-source software is too good," says Olson. "Folks have been using it a long time. It hardly ever crashes or loses messages, so why change the approach?"

    To get Sendmail open-source users to upgrade, the commerce company created GUI tools to make configuring and managing the mail system easier. The company also developed a version for Windows NT.

    Analyst Mark Levitt at International Data Corp. in Framingham, Mass., says converting open-source customers to the commercial product may not be as difficult as it first appears. "Getting someone to upgrade is easier than getting them to buy something new," Levitt says.

    "They would have been open-source aliens a few years ago, but the concept is more approachable now," adds Butterfield. "A number of companies have shown that open-source software can become a quality and robust product."

    Indeed with the success of Linux open-source code, it has become easier for firms like Caldera Systems Inc. in Orem, Utah, and Red Hat Inc. in Durham, N.C., to sell support and GUIs for free software.

    Finding a Niche

    Analysts say Sendmail should find a niche, even among corporations that already use messaging software packages such as Lotus Development Corp.'s Notes/Domino or Microsoft Corp.'s Exchange Server.

    "We see a growing trend among corporate customers that want a pure Internet gateway for a lower price," says Sara Radicati, president of The Radicati Group Inc. in Palo Alto, Calif. "It's a way to break a little bit away from total vendor lock-in."

    Jim Lin, postmaster at database maker Sybase Inc. in Emeryville, Calif., says he uses Sendmail as an e-mail backbone to connect to the Internet. Lin's messaging environment includes Notes and Unix mail for 4,500 users spanning 30 countries.

    "One major reason for buying the commercial version is to have the vendor company backing it and more guaranteed support," says Lin. "We used to figure it out ourselves or rely on an independent contractor who is a Sendmail guru, but that isn't a reliable source. With a commercial company selling it, some liability is attached, so we feel we're buying (this) product with support."

    The Buzz: State of the Market

    Up Against The Big Guys

    Sendmail competes in two markets: corporate and Internet service provider. It faces stiff competition in both. Sendmail CEO Greg Olson estimates that one quarter of the company's business is with service providers, while sales to corporate customers make up the rest.

    In the corporate market, messaging systems such as Microsoft's Exchange Server, Lotus' Notes/Domino and Novell Inc.'s GroupWise include a Simple Mail Transfer Protocol gateway with their products. These firms have saturated the Fortune 1,000 and continue to move downmarket to small and medium-size businesses.

    Even so, analysts say Sendmail stands a chance against the competition because of its low price.

    Analyst Mark Levitt at International Data Corp. says a high percentage of companies with Notes and Exchange still use the free Sendmail MTA and may have several MTA servers dedicated to the Internet and internal e-mail.

    Information technology administrators "don't choose to use the MTAs with those products because they don't provide the same reliability and scalability of Sendmail," Levitt says. "As long as the price remains aggressive, there's little reason why an IT administrator would be reluctant to pay for the functionality and support of the commercial version."

    Still, companies like Critical Path Inc. in San Francisco and Rockliffe Systems Inc. in Santa Clara, Calif., offer an SMTP gateway to many e-mail systems.

    In the Internet service provider market, Sendmail competes with companies like Software.com Inc. in Santa Barbara, Calif.; Ipswitch Inc. in Lexington, Mass.; and Sun Microsystems Inc. Each of these firms offers a scalable messaging product with an Internet gateway.

    Mirapoint Inc. in Cupertino, Calif., also develops a Web mail appliance with preconfigured software and hardware in a Unix-derivative environment. The turnkey approach lowers the administrative cost for corporate customers and service providers alike. Analysts say appliances offer an attractive alternative to providers looking to streamline costs.

    Olson says price and the existing penetration of the free product will better his company's competitive chances.

    Pricing for Sendmail Switch starts at $495, and pricing for Sendmail Multi Switch begins at $4,495. Pricing for Domino Mail Server 5.0 starts at $695, Exchange 5.5 starts at $799 and GroupWise 5.5 starts at $718.

    Copyright © 2000 IDG Communications, Inc.

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