When Tony Losey came to the 3Sixty Group in 2003 he saw that, like many small companies, the manufacturing firm didn’t have much in the way of advanced systems. It was running an old ERP system on machines that dated back to 1992, there was no company Intranet and executives had pushed the company’s Web site, a key business driver, to an outside hosting provider.

The organization didn’t have a lot of money to throw at IT. But Losey, who took over as head of the one-person IT department, zeroed in on open source as the key to keeping the company competitive as it grew quickly through acquisition. It’s a direction that an increasing number of small and midsize firms are taking as Linux and open source become battle-tested and are finding mainstream acceptance among larger corporations.

While bigger companies look at open source for cost savings and flexibility, smaller businesses are viewing open source as an opportunity to bring in advanced technologies that in the past were available only through expensive, proprietary packages, analysts say.

“Open source really is becoming an entry into things [SMBs] couldn’t do before,” says Bob Igou, a research director at Gartner.

The 3Sixty Group, for example, has a company Intranet – thanks to the Plone open source content management system – and uses open source CRM software from SugarCRM. In addition, the company’s ERP system now is running on Red Hat’s free Fedora Linux and Losey wrapped up a project to move from Windows to the open source Samba file and print server and an open source directory server about two months ago.

“Open source allows us to bring in functionality that before we couldn’t afford, or didn’t have time to pay attention to,” says Losey, who now has three IT staff under him.

Sam Lamonica, CIO at Rudolph & Sletten in Redwood City, Calif., agrees that open source software can give SMBs a leg up, without breaking the bank. When the contracting firm needed a good network monitoring tool but didn’t want to pay for all the bells and whistles that came with proprietary packages from companies such as CA and HP, it looked to the open source community.

Lamonica deployed an open source monitoring system from GroundWork and says that moving forward he’ll weigh open source options along with commercial software packages in any buying decision.