Open source business model reaching tipping point

Open source business model reaching tipping point

Summary: Over the last several years open source has grown in stature and maturity, becoming more worthy in the eyes of corporate buyers and investors. Everyone could point to Red Hat, which dominates the Linux operating system space, as the poster child for open source but few other "pure" open source companies rose up to that level.

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TOPICS: Oracle, Open Source
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Over the last several years open source has grown in stature and maturity, becoming more worthy in the eyes of corporate buyers and investors. Everyone could point to Red Hat, which dominates the Linux operating system space, as the poster child for open source but few other "pure" open source companies rose up to that level. Sun has gradually been making its vast portfolio of software open source under various licenses, embracing the notion of FOSS (Free and Open Source Software). “Volume drives everything, and developers are picking free and open source software,” Sun CEO Jonathan Schwartz has said.

"Now just to relay my bias, if you had to ask me what's the most important initial in free and open source software, to me, if you want to reach the broadest marketplace in the world there's one price that works for everyone, and that's free… and so the free part is what we've been focused on," Schwartz said in 2005 during a keynote at JavaOne. Like Red Hat and a host of other open source-driven companies, Sun expects that enterprise customers will deploy the free software and pay for maintenance and support services.

Last week Sun acquired MySQL for $1 billion, following on other major open source acquisitions--XenSource (Citrix), JBoss (Red Hat) and Zimbra (Yahoo). This week several funding announcements point to a tipping point for the open source business model.

Automattic, publisher of the open source blogging platform WordPress (which we use for ZDNet blogs) raised $29.5 million in a Series B Round with funding, True Ventures, Polaris Ventures, Radar Ventures and the New York Times.

Greenplum, a developers of business intelligence software based on the open-source Bizgres software project, garnered $27 million series C investment from Meritech Capital, Sun and SAP Ventures.

Alfresco, which develops enterprise content management software, raised $9 million in series C funding from SAP Ventures, Accel Partners and Mayfield Fund. In other recent open source company financing, Zenoss, a developer of software for monitoring IT infrastructure, raised $11 million in series B funding; Openads, an open-source ad server, raised a $15.5 million in series B funding; and Acquia, which is developing solution around the Drupal open source web collaboration and publishing platform raised $7 million in a series A funding.

With the recent fundings and transactions, the financiers are no longer questioning whether open source, or software-as-a-service, are viable business models.

Topics: Oracle, Open Source

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16 comments
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  • yeah, but ....

    Thats all I keep reading about. These tools that add something, and extend Databases, W2 and other likewise services.

    BUT the real questions is, WHERE ARE the REAL services like Accounting Software (G/L, A/R, A/P, I/V, PO, HR-PR, FA ..etc) that are in GPL that will make Companies move to F/OSS ?
    Linux_4u!
    • All comming in due time, low hanging fruit and basic infrastructure first!!

      As we are seeing, compilers, OS, webservers, fileservers, virtualization, databases, J2EE, IDEs, content management, etc, coming in the first wave. The next wave will include many more product areas as the acceptance accelerates.
      DonnieBoy
    • accounting software...

      ...try turbo cash.
      Net-Tech_z
      • Will it do departments, payroll, etc. or...

        is it more like a checkbook program?
        bjbrock
  • One of the things driving this is the friction free ability to combine

    parts. No long negotiations on license fees, just put the parts together and make it work. You can have a product working in the time that it takes to negotiate all the details, and then there are no royalties . . . .

    And, just the ability for any brilliant person in the world to look at existing projects and extend / combine them and throw the results up for all. With lots of brilliant people out there, great things happen.
    DonnieBoy
  • Proprietary software model can't compete

    Proprietary development inevitably drags along so much overhead related to licensing. If I need a new LAMP server, I just stand it up. No phone calls, no licensing, no purchase requests. If I put on five new temporary workers, I just spin off five more instances of my standard desktop image, complete with web browsing, email, calendaring, and productivity software. No registration, no license fees, no dings on my enterprise licensing or CALS, no anti-virus subscriptions. None of that crap.

    It's simple, uncomplicated and it just works. I think more businesses are just starting to realize how much of their time they spend working for Microsoft, who has been very effective in shifting the burden and effort of proof to the customer.

    You can run a modern enterprise Microsoft free. For most a compromise hybrid may be a more workable solution. An OSS infrastructure with a few Windows functioning as kiosks for Windows only software.
    Chad_z
  • Hah...cred lost...

    "Red Hat, which dominates the Linux operating system space"

    Maybe 5 years ago! All the action is at Ubuntu now....
    Techboy_z
    • Still, on enterprise servers, where real money is being made, RedHat

      dominates, and will continue to dominate. Ubuntu is strong on the desktop, and will certainly get some traction on servers.

      That said, I switched to Ubuntu (from Fedora) for all my desktops 2 years ago, and personally will gravitate to Ubuntu on the server where it makes sense, but, will still use RedHat Enterprise Linux / CentOS. RedHat is a big contributer to Linux.
      DonnieBoy
  • RE: Open source business model reaching tipping point

    I really don???t understand Open Source as a viable business model.

    It???s like a Website having a free subscription that gives the customer a limited set of features (and sells ads), but if the customer wants to really use the product, they???re gonna have to pay for something (a premium subscription). Open Source products are the same way. Sure it???s free if you only need a small set of features, but once you need a real product, you have to pay. Like Red Hat???s Enterprise Linux ??? it???s not cheap.

    I really think they ???hide??? behind the Open Source label and at this point it???s merely a marketing game.
    chris@...
    • A better post.

      Let's try that again but this time with only UTF-8 characters. I love the fact that I can't edit my own posts...


      I really don't understand Open Source as a viable business model.

      It's like a Website having a free subscription that gives the customer a limited set of features (and sells ads), but if the customer wants to really use the product, they?re gonna have to pay for something (a premium subscription). Open Source products are the same way. Sure it?s free if you only need a small set of features, but once you need a real product, you have to pay. Like Red Hat's Enterprise Linux ? it's not cheap.

      I really think they "hide" behind the Open Source label and at this point it's merely a marketing game.
      chris@...
      • For some yes...

        But there are a lot of other open source companies that approach the business more like the millions of other service industries out there. Open source goes to the very heart of software as a service. That's where a lot of the money is made...the service. There's an old story about Oracle owner Larry Ellison upbraiding one of his sales staff for losing a sale because of up-front software costs. Ellison is in the business to make money on software, whether that's in up-front direct cost to the consumer or on the back-end with support and licensing. There is always going to be a market for open source, and the more technically savvy end users become the more that market will thrive. Go on thinking this is just a marketing game. It's making a whole lot of people plenty of money and providing value in return.
        jasonp@...
  • This is a tipping point?

    The idea is to create an open source company that is then bought out? That's a business model? Gee that smells like the Internet bubble...
    serpentmage
  • RE: Open source business model reaching tipping point

    An old joke about retail sales:

    We're crazy! We're losing money on every item!

    How do you do it?

    Volume!
    bobsterz69
  • Business Model

    I has taken a while for VARs and such to grasp the business model mentioned in the story. Sell support and maintenance (I would add here training). Consider the license fees paid by Microsoft shops. At $50 per hour for maintenance and support of "free" software, that is a lot of hours before those license fees are matched.
    Sagax-
  • RE: Open source business model reaching tipping point

    OpenERP is an Open Source enterprise management software.
    It covers and integrates most enterprise needs and processes: accounting, hr, sales, crm, purchase, stock, production, services management, project management, marketing campaign, management by affairs,
    http://openerp.com/product.html

    Michael Bohn
    michael_bohn@...
  • RE: Open source business model reaching tipping point

    OpenERP is an Open Source enterprise management software.
    (Former TinyERP)
    It covers and integrates most enterprise needs and processes: accounting, hr, sales, crm, purchase, stock, production, services management, project management, marketing campaign, management by affairs, ...
    http://openerp.com/product.html

    Michael Bohn
    michael_bohn@...