Open Source Strategies

A blog about open source software and business models, enterprise software, and the opentaps Open Source ERP + CRM Suite.

Wednesday, March 01, 2006

The Open Source Software Industry Emerges

At the rate we're going, we soon won't have to wonder why there are no open source billionaires. Last year's $25 million buyout of GlueCode is dwarfed by the $222 million buyout of Snortfire. The rumored merger of Oracle and JBoss could fetch up to $400 million.

There's no question that mega-mergers of open source software companies will fundamentally change open source software, but probably not in the way you think: "Open source" itself is quite safe, but there will now be an "open source software industry," and it could be very different from what most of us in open source are used to.

The Great Idea: Merging Open Source and Commercial Software

On paper, merging open source project into a commercial software vendor is actually a pretty attractive proposition. An open source project brings a large number of users, who could help find bugs or come up with new and innovative uses for the software. Just as importantly, a free open source product essentially denies your competitors of its user base.

At the same time, a commercial vendor could bring large resources and a strong sense of direction to an open source project. It could "wrap" the open source product for enterprise users with support and marketing. Those enterprise users could in turn contribute back to the project, making it even better.

Mergers In Reality

Unfortunately, the best laid plans of mice, men, and mergers usually come to naught. The big problem is usually people, and when you merge open source and commercial software, there are lots of people. While it's a stretch to say that open source projects have no sales, marketing, legal, or product management functions, they are handled very differently at open source projects than at commercial vendors. There are also huge differences in how developers at open source and commercial vendors write code. (Believe it or not, open source code is usually better organized and easier to understand, since open source projects require highly distributed development teams.) All of these differences could lead to personality clashes that could cause a merger to come unglued.

Then there's the issue of countermoves. Most merger plans don't take into account likely competitor responses which could derail their rosy projections. Did IBM buying GlueCode cause JBoss to start talking? Possibly. If somebody bought JBoss, would BEA respond? You can bet on it.

Risks to Open Source as a Software Model

The press has naturally zoomed in on the risk of mergers to open source software. Would it mean the end of true free open source software? Would commercial vendors stop innovation and leave them dead in the water? Even more diabolical, perhaps, are the ruminations that Oracle's purchases of Sleepycat and InnoDB are meant to keep MySQL out of the enterprise database market.

In reality, most of these fears are overblown. Open source software is extremely resilient. Even if the vendor "locks up" the code after the acquisition, the existing community of users and developers can keep innovating based on the last openly available code base. If the open source developers aren't happy at their new homes, there would be plenty of users and startups who would snap them up. (A great example of this is actually PostgreSQL: In 2000, all the key PostgreSQL developers worked for a startup called Great Bridge, which subsequently went bust. These developers all found new jobs elsewhere, and the project continues apace today.)

The Risks of the Open Source Software Industry

The real "risk," if you can call it that, is that we will see boom and bust cycles in open source software, now that it has entered the big leagues. With Red Hat commanding a market capitalization of $5 billion, this is perhaps inevitable. VC investments, mergers, and an eventual IPO will just make it happen sooner.

Today's mergers, which will make open source developers, entrepreneurs, and their investors look like rock stars, could easily be tomorrow's big writeoffs, especially given the risks of merging commercial and open source firms. If this were to happen, it would cause capital for new open source startups and open source projects to dry up. Then, like all the other capital intensive industries--real estate, oil and gas, and commercial software--there will be years of boom and years of bust in open source. Some years lots of new open source projects will show up, funded by eager investors or corporate parents. Other years, we'd be counting on our old academic standbys for free code.

Are we anywhere near a bust? Probably not. The open-commercial mergers of today are still puny by corporate standards. IBM's buyout of GlueCode is like someone making $90,000 spending $25. Even if Oracle were to acquire JBoss for $400 million, it is still not taking a big risk, since it has nearly $13 billion a year in revenues.

Perhaps the open source industry is still not big enough yet--we'll need some more boom years ahead before we can really menace our commercial competitors.

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