After exiting the hardware market in mid-2008, Untangle’s open source security gateway business is skyrocketing. What’s the secret to Untangle’s apparent success? A growing list of OEM relationships certainly helps. Here’s the scoop, from The VAR Guy.

First, a little background. Untangle‘s open source security gateway software supports spam blocking, web filtering, and remote access. The company positions itself as an open source alternative to SonicWall.

By around August 2008, Untangle exited the hardware appliance business to build stronger OEM relationships. Apparently, it was a smart move. A case in point: Untangle’s March 2009 software subscription sales were up 5 times over March 2008, according to Andrew Fife, a senior product marketing manager at Untangle.

“Solutions providers offering pre-built Untangle boxes have become increasingly common since we decided to focus exclusively on software and no longer sell the Untangle XD appliance,” says Fife.

True Believers

To wit, ZaReason — which specializes in Ubuntu servers, desktops and notebooks — has seen strong demand for the company’s UntangleBox — a low-cost security gateway appliance, notes ZaReason CTO Earl Malmrose.

ZaReason isn’t alone. A start-up called Untangle Appliances develops custom server and appliance platforms. And Untangle itself maintains a list of known hardware providers on this Wiki, notes Fife.

Untangle has been developing its partner DNA for nearly two years. The company launched a channel program for managed service providers in October 2007. Roughly 60 MSPs signed up by January 2008 and Untangle reached a tipping point around May 2008.

Still, The VAR Guy must concede that he doesn’t know whether privately held Untangle has a profitable, sustainable business.

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