Open source entrant Dimdim looks to challenge WebEx

The battle for open source domination is heating up as startup Dimdim recently raised $2.4 million in Series A financing from Index Ventures and Nexus India Capital, according to a regulatory filing.

Dimdim, founded by a group of former Computer Associates employees, provides open source Web conferencing software and looks to give WebEx Communications (Nasdaq: WEBX) a run for its money. WebEx charges users $39 per month for its Web conferencing service and controls more than a third of the Web conferencing market, according to research by Goldman Sachs. Its closest competitor is Microsoft Corp., which controls 13% of the market.

Dimdim’s Web conferencing software is free for download, but users who want audio and video sharing, the ability to take polls or chat must pay for those features. The Burlington, Mass.-based company has not disclosed the prices it will charge for these additional services. Downloads of Dimdim’s free software from have hovered at about 200 to 300 per day since it was launched last fall, but hit new highs in January as it topped more than 2,000 downloads a day.

It’s too early to tell if Dimdim could pose a significant threat to WebEx. Open source companies can steal customers and may be better poised to tap into small businesses, but WebEx caters more to large corporate clients and has a low churn rate of less than 2% per month, according to Goldman Sachs.

WebEx booked $33.4 million per month during the third quarter in Monthly Recurring Revenue, which is the money it would earn if it no longer sold to new customers. WebEx reported $12.1 million in profit on $96.7 million in revenue during the third quarter of 2006, slightly less than the $12.6 million profit on $78.5 million in sales for the same quarter a year earlier.“The market hasn’t really been penetrated at every level,” says Bernard Dallé, a general partner at Index, who has joined the Dimdim board along with Suvir Sujan of Nexus. “There’s a lot of room for growth.”

Dallé estimates that Index Ventures has put $50 million into open source startups since the height of the dot-com boom. He says that software plays in the space continue to pop up because open source is an effective development and distribution model. “The two obvious ways of getting traction now are to sell it as a service or to go with open source and build a business model on top of that,” Dallé says. “There’s going to be a lot of interesting businesses in this area.”The funding of Dimdim comes as VCs saw last year how profitable an investment in the sector can become. In 2006, Atlanta-based JBoss Inc., a provider of open source application servers, was bought for $420 million by RedHat (NYSE: RHT). JBoss raised about $10 million from Accel Partners, Intel Capital, Matrix Partners and other investors.

Dimdim is the second startup that CEO Deb Dutta Ganguly has founded. He launched Advanced Internet Management, a company that helped businesses stay available to online consumers, which was sold to Computer Associates in 2001. Ganguly knew from his experience that running a startup can heighten your blood pressure, so he started tracking his anger levels each day. He keeps a spreadsheet that tracks what he calls his “Peace Index” of how angry he is each day and how much time he spends doing yoga to counteract the effects of stress.

In addition to inventing new Web conferencing software, the company has also developed and trademarked a new meal, according to its blog. It offers the simple acronym: BrUnNer (an amalgam of “Breakfast,” “Lunch” and “Dinner.” Company co-founder Saurav Mohapatra suggests taking the meal at 6:30 p.m. with generous doses of caffeine.