Deal Radar 2009: eXo

eXo provides an open source software for areas including enterprise content management, workflow, and collaboration. The software is made for the Enterprise 2.0 workplace and was developed in partnership with its customers and partners.

Benjamin Mestrallet founded the eXo project in 2002 while studying computer science at the University of Paris IX-Dauphine. His initial plan was to provide mathematics exercises online, but while developing a portlet he abandoned mathematics in favor of software. In December 2002, he released an open source version of the industry’s first Java portlet container.

Soon after the portlet’s release, the U.S. Department of Defense (DoD) approached Mestrallet about using the platform for Allied operations in Iraq. Mestrallet worked with the DoD to create the eXo Portal in 2003, which has now been merged into the JBoss GateIn portal project.

The company has been bootstrapped from the beginning. The revenue it earned from its first customer, the U.S. DoD, was invested it back into the business.  The U.S. DoD deal that started eXo was a one-off, and the company is just kicking off operations in San Francisco this September. As the business grows and the company looks to build marketing and sales functions in the United States, it may seek financing in the next year.

With its new location in San Francisco, eXo also has a new board of advisors that includes Bob Bickel, co-founder of Bluestone, former general manager of HP Middleware and former VP of strategy at JBoss.  Also on board is Edwin Khodabakchian, currently founder of Feedly, and former VP of product development at Oracle, and Sacha Labourey, most recently co-general manager and CTO of Red Hat’s JBoss business.

When eXo was started, the big vendors such as IBM and BEA were trying to standardize the portal market. Meanwhile, a specification was being worked on through the Java Community Process (JSR-168), initiated by Sun Microsystems. Through this the eXo project, run by a university student, implemented the first Java portlet container which eventually forced a lowering of the price point across the portal market.

Today eXo is trying to bring the user experience of the consumer Web to the enterprise level. eXo has created software with rich user interfaces and features that let people collaborate, communicate, and manage the content and documents that drive their business while adhering to all the business processes and workflows common to most business organizations.

The available market is big, but often, organizations cannot recognize the need for what eXo offers since it is difficult to quantify these gains. The success of Microsoft’s SharePoint has shown that businesses are interested in putting software in place that helps their employees work better, and more efficiently. Since 2007, SharePoint has seen huge growth and adoption, so much so that 62% of CIOs in an IDG survey earlier this summer cited SharePoint as a critical component of their technology portfolio.

Although eXo and SharePoint are similar, SharePoint operates in the .net world while eXo’s focus is in the Java space. eXo is more interested in extending the value and cost savings of an open source infrastructure to the content services tier.

Last year, SharePoint surpassed the $1 billion mark, demonstrating that in spite of IT budget cutbacks, enterprise companies are interested in making their employees more productive and eliminating bottlenecks across the organization. SharePoint is one of Microsoft’s fastest-growing product lines, indicating that open source content services will likely be a huge market opportunity.

Because eXo is open source and develops its software with its Global 2000 customers, it can take innovation risks that companies in closed source cannot.  For example, eXo contributed its portal to another open source community, JBoss. In early September, eXo struck a partnership with Red Hat to merge its open source portal development with Red Hat’s JBoss portal to compete with IBM and Oracle.  Just three months after the code was moved to JBoss.org, the new GateIn portal combining eXo and JBoss portal technologies was previewed. The eXo stack, consisting of collaboration, enterprise content management, and knowledge management, will all run on GateIn.

eXo is one of the few companies that designed and built is software with R&D investment from its large customers, thereby the features added are tested and proven for large production environments for customers with demanding needs. It built its collaboration platform for Belgium’s Ministry of Finance, the largest open source application implementation project in Europe; and its document management software was designed for the State of Geneva as part of €20 million e-government initiative.

Other players in the space are Alfresco (for document management) and Liferay (for portal). Both are open source makers and have similar business models, but eXo differs mainly in the breadth of its software. These two companies have to partner up on deals, while eXo offers more than they have combined.

The company earns revenue by selling support around its open source software through editions. The Enterprise Edition offers a subscription sold directly to large customers while the Community-Supported Edition offers subscriptions for community releases sold to public sector customers (primarily in Europe).

The Enterprise Edition starts at $7,500 per CPU per year with services such as enterprise content management and collaboration at an additional cost.  The Community-Supported Edition, which is currently sold only in Europe to public sector organizations, averages $45,000.  eXo’s revenue mix is 70% subscription and 30% services. Currently, the company has around 60 customers.  In addition, eXo also has some OEM partnerships in place.

The company has been profitable from the beginning. It has doubled revenue growth year over year in the past two years and has also doubled the number of employees to 110 worldwide.

Built in collaboration with its customers, eXo’s products try to address the needs of large companies (or departments of very large companies), particularly in the financial services, insurance, and public sectors. Until this point, the company has used indirect sales and some OEM deals. Because of different sales dynamics in the U.S. market, its growth strategy is to now focus on direct sales.

After the U.S. DoD deal, eXo began to solidify partnerships with top European systems integrators such as Atos Origin, Bull Information Systems, and Capgemini. In the European market, software is sold indirectly, for the most part, through systems integrators who typically ‘own’ the customer relationship. After eXo has proven its software as a technology partner, the SI partner brings eXo into competitive bids. The company has grown in this manner.

The open source software has been downloaded half a million times, which doesn’t always translate into customers. eXo is deployed in large production environments for Global 2000 enterprises such as Generali and in e-government initiatives such as the State of Geneva’s effort to move its processes online.

In terms of an exit, Mestrallet says, “eXo has deliberately been growing at a manageable pace for six years because we are trying to build an independent company. We believe the application market in open source is much bigger than Linux and middleware combined, and can sustain an independent applications company.”

This segment is a part in the series : Deal Radar 2009