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Conversations With My Dad About Open Source

Open source PR guru Bill Baker reflects on what open source means for business.

My father was one of those old school guys when it came to adopting computer technology. He managed to build and run a successful company, and retire in 1998, without ever actually having a computer in his office. It was just never an absolute necessity for him to do his job.

During the early years of the Internet, it took him a while to get his mind around the business model. Back in the go-go dot-com days, he would look at the IPOs and say to me, “Am I missing something, or are these guys selling one dollar bills for 80 cents? How is that a sustainable business?”

While his suspicions were spot-on for a large swath of dot-com flame-outs, he came around to the notion that the Internet’s effect on our lives was much more profound than the ability to buy dog food online.

By 1999, he had jumped online for stock trading. He called me one day and said “Know anything about this company Red Hat? They went public with a $3 billion market cap and near as I can tell, their software is free. Am I missing something? How is that a sustainable business? Or should I short Microsoft stock?”

I thought of my dad while attending this year’s Open Source Business Conference (OSBC) because about the time he passed away four years ago, I was just starting to do public relations work for open source companies. He did not live long enough to see the truly deep implications of open source. But I have no doubt that, as a savvy businessman, he would have figured it out.

Or would he?

I ask this because as I prepared to attend OSBC this year, I looked at the names of some of the panels and I asked myself: “Has the open source business community figured it out?”

After attending multiple sessions at this year’s conference, I heard some doubt, intermingled with unbridled enthusiasm for all things open source. Here are some random thoughts that I might have discussed with my dad as we tried to figure out this whole “open source thing”:

Work in Progress

Building a company around delivering open source software to customers is still a work in progress.

The conference session topics ranged from “this stuff is ready for prime time” to “um… how do we make money from this?” For example: there was an entire track of sessions dedicated to the legal side of running an open source business. We all know that lawyers will get involved in anything where there is perceived money to be made, but the titles of the tracks were really focused on real world business problems:

  • “Jumping into the Pool: A Legal Guide to Engineering you Open Source Code Release”
  • “Outsourcing, Contractors and Open Source Code”
  • “A Practical Guide to License Conflicts”

These are the problems of real businesses, just like in the proprietary software world.

On the other hand, there was a session entitled “There is No Such Thing as an Open Source Business Model.” Really? Don’t tell the folks who attended “Tailoring an Open Source Business Model for Your Business.”

Then of course, there was the session called “What Open Source Can Learn from Microsoft and the Proprietary World.” Wow. Who would have thought that at any open source conference someone would be extolling the virtues of Microsoft’s business practices? But then again, the head lawyer for Microsoft was a keynote speaker, so if you thought you felt the earth tilt slightly off its axis on March 25, now you know why.

How Big Can You Get?

Open source companies can be big, but can they be really big? The conference opened with a keynote by Jim Whitehurst, the CEO of Red Hat, which is the largest, pure-play open source company.

Whitehurst said a couple of things that really stuck out. First, he said that open source is not just about extracting value for customers, but also for shareholders. In other words, for an open source industry to succeed, both sides of the vendor/customer equation have to benefit.

He also asked, somewhat rhetorically, how does someone patent any technology that is essentially owned by the community? Good question. And one that follows the previous point quite well. If you can’t patent a technology, can you ever really make big money off it?

Whitehurst pointed out to the audience that, despite being the biggest and the most successful of the open source companies, Red Hat is still pretty small potatoes in the IT world. As previously mentioned, Red Hat’s market capitalization after the first day of trading in 1999 was about $3 billion. Today? About $4 billion. Not the worst stock in tech, but hardly a growth machine.

It is only fair, however, to point out that in 1999, Microsoft’s market cap was north of $500 billion. Today, it is around half that. In fact, since 2002, Red Hat’s stock price is up 190 percent, while Microsoft has lost 20 percent, though Microsoft has been paying a dividend since 2003. But, by the measure of pure stock performance, open source wins hands down.

From a revenue perspective, which one could argue is a much more accurate measure of industry impact, the story is a bit different. For its fiscal year ending February 2000, Red Hat booked $42.5 million in sales. In FY 2007, it was $400 million – so 10x revenue growth in eight years, but holding at less than half a billion. Microsoft, in that same period, grew revenue from $23 billion to $51 billion

Zimbra, or Microsoft?

If open source is ever to have meaningful financial impact in the market, entrepreneurs should build their companies as if they want to be the next Microsoft, not the next Zimbra.

Venture capitalists were well represented at OSBC. And, of course, the exhibit hall was well populated with lots of cool companies doing exceptionally cool stuff with open source. The VC agenda is clear: fund promising companies and hope to see a nice return with an exit event. Once upon a time, companies cashed out via the IPO. These days, buyouts are the way to go for open source companies, as evidenced by Zimbra and XenSource, to name a couple of prominent recent sellers.

But while a buyout is certainly in the best interest of the investors and the founders, is it in the best interest of the open source industry, community and customers?

Let’s be honest — does anyone really believe that Zimbra has flourished under Yahoo? And what will happen to it if Microsoft acquires Yahoo? And what of XenSource? Sure, Xen will live on, but Citrix is pretty cozy with Microsoft and since it was acquired, XenSource has been pretty darn quiet.

So, it would seem that if an open source ecosystem is to take on proprietary software, it would be in that ecosystem’s best interest to build companies for the long-haul and not the quick cash. But then again, when it comes to cashing out, a bird in the hand…

A Useful Conference

OSBC, which seems to be about “how and why” open source can impact customers, is a much more useful and practical conference than, say, LinuxWorld Expo.

Anyone who has attended LinuxWorld Expo in the past couple of years knows that it seems to be slowly fading. Red Hat pulled out and one of the biggest exhibits was from… Unisys??? The Abe Vigoda of technology? (Who knew it/he was still alive?)

Maybe the demise of LinuxWorld is a good thing. Maybe it shows that the open source business is on the same maturity trajectory as the overall IT industry. After all, Comdex died. PC Expo died, but the computer industry thrives, with newer, more focused events cropping up all the time.

If LinuxWorld Expo was the “open source tradeshow 1.0,” OSBC is version 2.0. And that augurs well for open source as a viable business model. Evidence of this was all over the place at the conference. It was, after all, the “Open Source Business Conference” and over the course of two days, I attended sessions, saw technology demonstrations and spoke with seriously smart people associated with very cool companies that I honestly believe have the potential to change the face of IT while becoming big businesses.

That is because capitalism is about filling the supply/demand equation. There is absolutely a desire among business IT buyers to embrace and deploy open source. And there is a plethora of companies ready, willing and able to fill that need. So, there has to be a business model in there somewhere, wouldn’t you think?

My father used to say to me that his specialty — electrochemistry — was evolutionary, not revolutionary. Unlike computers, there was no Moore’s Law that predicted quantum leaps in speed and cost reduction. Rather, it was the hard work of smart scientists and engineers that made for batteries and fuel cells that get slightly better with each passing year.

The beauty of the open source development model is that it, too, is an iterative process. Improvements are being made every minute of every day. Generally speaking, there are never any explosively important improvements, but rather incremental, yet extremely useful ones.

Maybe that is the destiny for the business side of open source. Since the companies are based on technology that is not explosive by its very nature, then maybe we can never expect Google, VMware, or Salesforce types of valuation growth.

But the laws of supply and demand always seem to work in the long run. If we build it, they will come. And in time, that will result in very large businesses indeed.

I only wish my dad was still around to see it happen.

Comments on "Conversations With My Dad About Open Source"

brando

Zimbra, or Microsoft?

If open source is ever to have meaningful financial impact in the market, entrepreneurs should build their companies as if they want to be the next Microsoft, not the next Zimbra.

Microsoft didn’t put IBM out of business.
Google didn’t put Microsoft out of business.
A lot of people might be putting AT&T out of business or NOT?

Follow your passion, if you can. And you need customers to sell to and products/services they are willing to pay for. Or the Google/media model of selling advertising. Or…

Not every company is a Microsoft, nor do they need to be. I’d rather see a dozens of competing companies – but that is my consumer bias.

Monopolies (or too few companies) always seems to lead to abuse/corruption.

lsatenstein

There is a new paradigm in the industry that is there prompted by the changes in technology.

I suppose your dad would not have understood the change as he was motivated by money. But then is everything based on money? Do I stop flying model airplanes because of money; Do friends of mine stop operating their boats because of money, and other friends stop writing software because of money? No, money is not always the motivation.

Our motivation is our mind and the need to think, to solve problems and to be recognized.

Yesm, I think your dad would have understood and made the transition.

naga_pp_007

hi

can you tell me which program that i can run linux’s command on windowxp

khess

Naga, you can install Cygwin which allows you to run Unix commands on Windows. I install it on every Windows computer I use.

wassuse

Hi all. wasim, here fellow linux fan but no longer a linux zealot.

I think there are 2 sides to the “Open Source Buisiness Model”.

Side 1:

Closed + open = choice and profit

Eg: Xandros

Xandros, Suse, Companies Like these have had great market growth, Great innovation, And have grown up with reality: That is, Closed source + Open Source = innovation, market growth, and better computing.

Look at the continuing inclusion of Nvidia and ATI drivers, sound Eg, Etc, in Opensuse, SLED, and Xandros. Even Linus himself has come around and supported this business model. Closed + open does not eqaul evil, or lack of progress.

Side 2:

Redhat/Debian etc

RedHat is thne ONLY company to have made a profit + exposure, in the IT business from “pure” Open Source. I think it’s still debatable how pure it is, but anyway, it shows that You CAN make profit from “pur5e” OS Business.

Side 3 :

Ubuntu/Canonical:

Ubuntu to me, is the best OS Linux hands down. Sure, Debain is in here too, but I have PPPoe internet at my place, DHCP internet, at my mum’s. I have not been able to get PPPOe gpoing on Ubuntu yet. And yes , I have tired older and newer versions, + ubuntu/linux mint etc. I found the option “PPPoe Internetr” under Network section of admin menu. But, I tried, i could not get a connection. Sure, You might say “:what about checking cables , etc?’. But I did it under Windows Fine, Ansd opensuse as well. I don’t think it is a lack of knowledge on my part, could just be a technicality that i have not noticed.

So,

1) I would LOVE all above business models tpo be accepted as kosher, and any others, eg as well as mixed licensing would be great.

I have never found a distro, that I could take and say” Hey I’m going to take this one, run it on all my machines, and forget the upgrade, crossgrade, and standardising nightmare.

I REALLY want to have a distro that I can standardise on for purely practical purposes(I can use just 1 version as well, wait until the updates reun out), so I acn run say quanta, on all desktops(eg for standarised web devel needs), or maybe eclipse on all of them for sytandarised devel, etc.

I have not found one that does. Suse does not include quanta anymore. On Opoensuse, there is no eclipse, But that’s less of a worry

I wish there was one and ONLY one codebase, for packages eg, ( everyone come to ubuntu and Redhat based combined repository_, and any package you need , our distors are preconfigured for all the packges under the sun. No more sources.listX8 hell, and no more yum lists x 8 hell.

This is my major gripe.

The progblem is not no buisiness model, prob is no standard way of creating a proper distro. business wise, linux has all the hype it needs, but we need good standrds too

my 2 cents

webdesignmiami

Is Salesforce.com the new ADP … or the next Datapoint?
What will happen if blue sky clears the cloud?

***

This headline recently appeared in several places across the Web:

“Salesforce.com Passes $1 Billion Annual Revenue Mark”

THIS IS NOT TRUE. I don’t know whether this material misstatement arose from media manipulation or an honest mistake, but it’s genesis is most likely this 20 August 2008 press release…

“Salesforce.com Announces Record Fiscal Second Quarter Results”
http://tinyurl.com/5m5mea

…the subheading of which claims:

“First Ever Software as a Service Company to Exceed $1 Billion Annual Revenue Run Rate”

THIS IS NOT TRUE, EITHER. “Software as a Service” is marketing technospin for “service bureau”. And payroll processing giant ADP–another service bureau–exceeded not only a “run rate” but actual annual revenues of $1 billion in 1985:

“The original outsourcer, Automatic Data Processing…”
http://tinyurl.com/56y5tx

Yes, SalesForce.com did report revenues of $263 million for their most recent quarter. And yes, they have raised “FY09 Revenue Guidance to $1.070 – $1.075 Billion”. But NO, Salesforce.com has NOT passed the “$1 Billion Annual Revenue Mark”. And despite Cheerleader/CEO Marc Benioff’s effusive exuberance, some like Tiernan Ray do not share his enthusiasm:

“Salesforce’s Deferred Revenue Debacle”
http://tinyurl.com/6oagtp

Perhaps in an effort to meet ever-inflating investor expectations–a fire they themselves have fueled–Mr. Ray notes that Wedbush Morgan analyst Michael Nemeroff “…thinks Salesforce may be pushing customers to sign more multi-year subscription contracts by lower prices, which could be hitting deferred revenue.” And reading that, for me, brought on a disturbing case of Datapoint deja vu:

http://tinyurl.com/gk77r

“By the early 1980s, Datapoint was a Fortune 500 company. Under immense pressure to increase sales figures, its sales representatives encouraged customers to place large orders at the end of the fiscal year, permitting the company to count the orders as revenue even though the money had not been received and, in some instances, the sold equipment had not yet even been produced…. When some of the customers went broke before paying their bills, Datapoint had to reverse sales or record substantial bad debts, which caused the company to lose $800 million of its market capitalization in a matter of a few months in early 1982. The U.S. Securities and Exchange Commission (SEC) ordered Datapoint to stop this practice.”

Is Salesforce.com the new ADP … or the next Datapoint? Some say their business model is to take your watch and then bill you for the time. If so, what will happen to all those watches if blue sky clears the cloud?

Bruce Arnold,
Web Design Miami Florida

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