Own the Code
Browse through Backcountry.com, an online retailer for outdoor enthusiasts, and you're sure to find some interesting gadgets: avalanche beacons, ice axes, a flask holder for your mountain bike.
But the most useful gadgets on the site are the ones customers never see. Like the software that checks inventory levels and sales histories of more than 15,000 products and automatically calculates the best discount prices. Or the program that cuts in half the time it takes a customer to complete a transaction. These programs are as critical to Backcountry's eye-popping growth--more than 600 percent in the past three years, to $51 million in revenue--as the products the company sells.
Indeed, Backcountry.com may appear to be a thriving online retailer. But just as importantly, it's also a software developer, with a fully staffed IT department constantly working to improve the company's tech infrastructure. Doing both things at once is not easy. Backcountry pulls it off thanks in large part to open-source software. Not only are such applications substantially cheaper than traditional, licensed products (they're often available for free), but with open-source applications, the software code is freely available, allowing users to engage in endless customization. "If you have new ideas, ideas that no one has thought of, there is no software off the shelf that's going to suit your needs," says Dave Jenkins, the company's chief technology officer. "That's the beauty of open source."
Companies like Backcountry are just now starting to recognize the other benefits of owning your own code. Business owners who have bumped up against the functional limitations of traditional, one-size-fits-all software are tapping into the innovative power of open source. With open applications, you can constantly innovate without having to wait for a major vendor like Microsoft (NASDAQ:MSFT) or Oracle (NASDAQ:ORCL) to roll out a pricey upgrade--one that's available to everyone, including your rivals. Businesses can create applications that don't exist commercially and are specifically tailored to their own needs. "This is really starting to take off in small business," says Raven Zachary, senior analyst and open-source practice head at the 451 Group, a research firm. "Cost savings still remain the No. 1 attraction, but we find that after they have implemented the software, the primary benefit becomes flexibility."
But choosing the open-source path can make substantive changes to the nature of a company. It requires a real commitment to maintaining a staff of first-rate developers because there is no customer service rep an 800 number away. "One way or another you have to understand the technical side if you're going to be on the Internet," says Backcountry co-founder and president John Bresee. "I work closely with the developers, probably more closely than they would like."
As a kid growing up in Vermont, Bresee hung around the computer center at Dartmouth, chatting on primitive, paper-based terminals with Coast Guard technicians over Darpanet. Then during the dot-com boom, he hooked up with a wireless e-commerce company called Cellmania, a classic Silicon Valley start-up with $20 million of VC backing behind it.
As director of e-commerce at Cellmania, and nursing a nascent Backcountry.com at night and on weekends, Bresee was in a rare position to go to school on the mistakes of his deep-pocketed employer. "I was watching them spend money on these massive e-commerce platforms, with $300,000 licensing fees and all this complexity," he says. "So during the day I was learning what not to do, and at night I was applying the lessons to Backcountry.com."
When he began devoting himself full time to Backcountry.com in 2001, Bresee knew the company, by then bringing in about $3 million a year, would need to invest in a real e-commerce platform. Price was certainly among the factors that Bresee considered during his search, but more important to him was the ability to control the code. There were a number of reasons that owning the code was deemed critical.
First, Bresee wanted to be able to build the e-commerce site so that each individual page could be found easily by search engines. Google was just starting to catch on in 2001, and Bresee knew it would be a powerful tool for selling on the Web. He had seen how other e-commerce sites served up convoluted URLs that were difficult to bookmark and search. Second, the ability to make quick changes to the site was critical for Backcountry. Bresee knew that kayaks and skis, products that customers like to touch and feel, were a tough sell on the Web. He knew his site would have to innovate and adapt quickly to market trends to compete with the big retailers such as REI and Eastern Mountain Sports. Finally, the dot-com bubble was beginning to burst. Bresee wanted to avoid going with a software vendor that might suddenly evaporate when the venture capital money dried up. And the company couldn't afford any of the big e-commerce platforms from more stable companies such as IBM or Microsoft.
Given this set of requirements, Bresee found that an open-source e-commerce platform from Red Hat called Interchange was the only product that fit his needs. Indeed, he was so impressed with Interchange that he hired Dave Jenkins, who was the Red Hat (NYSE:RHT) consultant who helped implement the software, as his chief technology officer. The software was free, but Backcountry ended up spending about $100,000 on consulting fees. Bresee and Jenkins estimate that similar software plus consulting from one of the big vendors would have run Backcountry at least $800,000.
Backcountry now uses open-source applications for everything from its e-mail to its enterprise resource planning. That has allowed the company to roll out new products and services quickly. For example, last year employees conceived of an ancillary website called Steepandcheap.com, which sells a single product at a time at a major discount until the entire inventory is sold--"the QVC of outdoor gear," says Bresee. It took developers just six weeks to get the site up and running, from concept to production. Steepandcheap now has 100,000 visitors a day, and is the fastest-growing part of Backcountry's business.
The flexibility shows up in other ways as well. Backcountry is constantly tweaking its systems, such as cutting steps out of the checkout process. Or making order numbers that are included as live links in e-mails sent around the company, or from customers, connect back to the company's ERP system.
And did we mention that it's free? Okay, not exactly. Backcountry has estimated that with all its up-front costs and consulting fees, its open-source shop cost $380,000. That includes operating system, databases, e-commerce platform, knowledge management, and e-mail. The company figures the same setup from traditional software vendors would have run up to $3 million. (See "The Open-Source Advantage".)
But going open source is not for everyone, as the folks at Backcountry would be the first to attest. "If you take this path, you become a software development firm, and that kind of company needs to be run differently than a traditional retailer," says Dustin Roberston, vice president of marketing. "The to-do list for maintaining the site gets so jammed that if you don't have developers to throw at it, the list just grows and grows."
Backcountry has 25 developers and engineers on a staff of 260. And Jenkins admits that even open-source software has limitations that the best developers cannot overcome. In those cases, he's perfectly happy to purchase old-fashioned licensed applications. "I'm not going to go the extra mile just to be the zealot," he says.