Is open source the stock flavor of the month?

Is open source the stock flavor of the month?

Summary: Lost amidst the hype of CEO Jonathan Schwartz's blog post is the inescapable fact that Wall Street, for now, thinks open source is cool. Why else would SugarCRM hint at an IPO after getting right by the OSI definition?

TOPICS: Open Source, Oracle

Java orange box from Jonathan SchwartzÂ’ blogIn a bid to boost its stock price, Sun Microsystems changed its ticker symbol Monday to JAVA.

The market's reaction? That's fine, kid, here's a quarter. From the time of the announcement on Thursday through its Tuesday peak shares gained about 25 cents. That may not sound like much, but with 3.66 billion shares outstanding it's about $900 million.

John Ogg of 24/7 called the move a stunt. Blogging Stocks made sure to mention Sun's $3 billion stock buy-back. TechIQ said they got a bigger hit with a mention on Jim Cramer's blog. Will the company's actual name become Java?

Lost amidst the hype of CEO Jonathan Schwartz's blog post is the inescapable fact that Wall Street, for now, thinks open source is cool. Why else would SugarCRM hint at an IPO after getting right by the OSI definition?

I happen to be among those who consider Sun's course change both correct and sincere. As Schwartz noted in his post, far more people are now touched by Open Office and Java than by Sun servers. Sun's open source products, and the contributions others make to it, are having a serious market impact.

But skeptics, including Sun insiders, will continue to wonder how Sun spins this straw into gold. Partnerships and investments are fine, but show us the money. The possible loss of a federal contract means far more to the bottom line than all the free downloads in the world. (The picture, by the way, was downloaded from Schwartz' blog.)

So, can Sun make it work, or will this move in the end taste like just another bad cup of coffee?[poll id=49]

Topics: Open Source, Oracle

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  • Sun needs a management change

    The board had a chance to really shake things up with the departure of Scott McNealy. Too bad they played it safe and appointed Jonathan instead of replacing the leadership team.

    McNealy and company were simply in the right place at the right time to profit from the dot com boom. But once the bubble burst, they were hurting and all realized that the "emperor has no clothes".

    Too bad, while Jonathan blabs on about "openness" or some other buzz word, a lot of good people lost their jobs.
    • What strategy would work better?

      What would you recommend?
      • Fair question, no easy answer

        Im an engineer, not a businessman so I am not familiar with business strategy. Nor am I familiar with their open source licensing commitments. For example, do they get some revenue for each cell phone running Java? If not, they are losing out big time.

        I just dont see how the "open" strategy makes SUN profitable. Jonathan doesnt explain it well, do you have a better explanation? Maybe I am all turned around on the subject due to lack of knowledge.

        They have some great hardware and some great software. How do you get a return on your investment?

        At my work, we use Java and Solaris. As the SUN hardware became more expensive, we replaced SUN with cheaper servers running Linux. The mission critical stuff still runs Solaris on Sun but this is small compared to all the workhorse servers running Linux (and Windows).

        So you've got me Dana, I have no easy answer.
        • See Dan Farbers blog for an example

          Jonathan says:
          ?There are two sides to our business, like the carriers and Google,? Schwartz said. ?Google gives search away for free and monetizes through advertisers. Our business is identical. Financial institutions give free checking and make money on services down the road. We define the technology, brand and standards to bring as many people on line in the most affordable way.?

          So I ask you, what stategy is this? I understnad how Google makes money but how does SUN make money from this strategy?
  • Sun is a hardware company

    If they think that open-source is the correct solution to their revenue/profit issues then they are mistaken. Open-source may increase their visibility through a higher proliferation rate, but at the cost of revenues/profit. If they link their open-source products to their hardware then they might increase revenues a little in the short term, but as ports of their software occur this will quickly reduce revenue/profits.

    If they think that they will make money from support contracts they are wrong, others will be ready to take over that opportunity.

    Here's an idea, sell the software, and give away the hardware. Basically it's the same idea as're basically trading your time for helping someone else. I mean if you add in the time for developing patches, updates, new features, etc. then that is like /purchasing raw components and building the hardware for free distribution.

    Why are so many other hardware makers pushing open-source...because it gives them leverage against the proprietary companies and allows the hardware companies to increase their profit margins (due to lower licensing fees, or no licensing fees). It's not that they want to encourage open-source as a potential source of revenue, they want to increase margins. The problem is that in doing so they will erode their profit margins and get distro wars with other hardware manufacturers. When this happens I would sell stock the hardware companies as their customer base will become more confused as to their OS choices based on hardware maker, service contracts, available applications, etc...then the hardware manufacturers will assume the role of a vertically integrated company...without cool ads. Now take a bite out of that!
    • Hardware is tangible/rivalrous with a non-zero marginal cost

      You said, "Here's an idea, sell the software, and give away the hardware.", further suggesting that this was "like" Open Source in some way.

      This ignores the nature of software vs hardware.

      Hardware is tangible, rivalrous, and no matter how efficient manufacturing processes become will always have a non-zero marginal cost.

      Software, like other knowledge, is intangible, non-rivalrous, and no matter what inefficient business models are used has a zero marginal cost to the producer. The question is always whether a business model is chosen that harnesses the nature of software that are different than hardware, and allows the marginal pricing to be equal to the marginal cost in a free market.

      Attempts to make analogies between hardware and software business models will always fail as there is extremely little in common.

      As to Sun's Open Source play, there always needs to be value-add in any busienss. With FLOSS businesses the value-add isn't the software, but something else: hardware, support/consulting and other value-add services, etc.

      For Sun you really have to ask what that 'something else' is that makes them unique/interesting in the marketplace. I'm not saying that they don't have value-add, I just don't really know what it is.