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Tech's Bottom Line | Bill Snyder » Has open source sold out?

January 24, 2008 | Comments: (0)

Has open source sold out?

As open source goes mainstream, big commercial software companies reap as much revenue as scrappy independents
Has the open source software movement become a victim of its own success? A provocative new study by a longtime software analyst suggests that the giants of the commercial software world are cashing in on the popularity of open source and becoming the dominant force in what was once called the free software movement.

Perhaps the most startling statistic in the report is this: IBM's open source revenue in 2007 was equal to that of Red Hat, the largest and most influential open source company. Not only did IBM equal Red Hat's open source revenue, but the next largest revenue earners were Sun and Oracle, according to the study. What does that mean for the long run?

"The market will see a convergence of closed and open source software such that the terms will eventually become meaningless from a research perspective," says Dennis Byron, senior analyst for Research 2.0, who has followed the IT industry for more than 30 years. And that, says Byron, is just fine with IT buyers. "They just want good software that doesn't break often, but when it does, a substantial company is available to fix it."

The economics of attraction
Indeed, the interest in open source software has been so strong that instead of going public, open source startups are being snapped up by commercial vendors like Oreo cookies at a kindergarten snack break.

And that's not because the IPO market was weak, says Kevin Harvey, a general partner of venture capital firm Benchmark Capital and chairman of MySQL's board. "The large public software companies see even more value [in open source companies] than the public markets," he said during an interview.

Preceding Sun's buyout of MySQL were purchases of Zimbra by Yahoo and of Xensource by Citrix. None of the takeovers was particularly cheap; in fact, there was some feeling on Wall Street that Sun and Citrix overpaid.

The result, of course, means less of an "open" open source market, while the prospect of a big payday with none of the risks of an IPO could well push more open source entrepreneurs into the hands of "the enemy."

Open source by the numbers
The sea change in open source from pure-play provider to traditional vendor is not a symptom of discontent with the software itself. Far from it, as the numbers show.

Worldwide revenue from stand-alone open source software reached $1.8 billion in 2006, according to IDC, and will increase to $5.8 billion in 2011, representing an annual growth rate of 26 percent from 2006 to 2011. That's roughly three times the growth rate of commercial software. (To be fair, the volume of commercial software dollars dwarfs open source dollars by at least an order of magnitude.)

Research 2.0's Byron figures that the open source market probably grew by 40 percent to $2.5 billion in 2007, a not unreasonable figure for the first year of the five-year growth spurt.

According to its own financial reports, Red Hat's open source revenue for the 12 months ending on November 30 was $425 million. That's a big number, but it's no bigger than IBM's open source revenue -- including WebSphere Community Edition, Linux support revenue, and the value of Apache within WebSphere -- which was also $425 million.

In the second full year of converting much of its software to open source, Sun posted $200 million in software revenue, while Oracle's open source revenue reached $100 million, Byron said. That gives the major commercial vendors a market share of nearly 30 percent. That share will likely be higher this year, when Sun's purchase of MySQL, which probably had revenue of about $75 million in 2007, is factored in.

The freewheeling days are numbered
All of this is evidence that the days of the freewheeling open source movement are numbered.

Is this bad news for open source? Not at all. Open source software is more than good enough to stand on its own merits, no matter who owns it. And it's about time that the hardworking visionaries of the open source movement were rewarded with good jobs and high returns on their money and sweat.

I welcome your comments, tips, and suggestions. Reach me at bill_snyder@infoworld.com.

Posted by Bill Snyder on January 24, 2008 03:00 AM


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In Response To: All of this is evidence that the days of the freewheeling open source movement are numbered.

While Mr. Snyder has all these wonderful facts here about how companies are now ambivalent about using Open Source ("They just want good software that doesn't break often, but when it does, a substantial company is available to fix it."), he falls quite short in analyzing trends in open source.

Open source is not business. Repeat that to yourself. Open source is not anti-business. Open source software is business ambivalent. Open source software is quite beneficial to business, because it is generally free, gives as much control as you want, and has no risk of the vendor disappearing.

Certain companies which produce open source products are being bought up as they add value when integrated with what the company has already (e.g. Konfabulator was bought by Yahoo!). MySQL is a great tool to default integrate into Java.

The "heyday" of the "freewheeling" open source movement is still alive and well. Sure, some companies are making open source products. And who says google or yahoo are enemies? Both *thrive* off the "freeweb" that was largely caused by cheap and free servers and other software that is out there. Both contribute oodles in time and people to contribute to projects.

Most open source projects are *not* owned by a company, but by a loose association of programmers who've released some of their rights via a perpetual license that allows their code to be used by those who come across it. Most aren't even vaguely controlled by a business body.

When that changes, you can start talk about the end if the freewheeling.

Posted by: Michael Langford at January 24, 2008 08:51 AM

In response to Bill's article, I think we may have to wait to hear from the folks who previously worked on open source projects to find out if being bought by a commercial entity is all it's cracked up to be.

Of course, everyone who works on these projects deserves the rewards of "good jobs and high returns on their money and sweat" ... no question there. What I want to know, and it probably can't be answered yet, is whether the individuals who now work for big commercial enterprises still have control over the open source project. Specifically, do they still get to respond to their customer/user base with changes in the product with the same level of speed and accuracy, or are they now bound by rules and processes imposed on them by their new employers?

Michael's response indicates that most open source projects are not owned by the company or even controlled by the business, but still ... I wonder if these types of transactions will eventually suck the life out of the open source movement?

I think it remains to be seen and each situation will probably be unique. Time will tell.

Posted by: Virginia at January 24, 2008 10:53 AM

It's a good thing, of course. Customers can get real support. Plus, don't forget, even a weakened Sun, not to mention a resurgent Oracle, can put a LOT more research into their open source projects than Red Hat or any individual.

-OT

Posted by: Oliver Taco at January 24, 2008 02:35 PM

What you putting in your Tacos, Taco? Perhaps you missed the 4 consecutive Red Hat wins of the CIO insight SW vendor value survey (http://www.redhat.com/about/news/prarchive/2007/CIO_Insight_Study.html). I agree that more open source is better, and I think Sun in particular is doing some good things in this regard, but can we *please* put this red herring of Open Source = Bad Support to rest?

Posted by: Greg Wallace at January 24, 2008 03:43 PM

Hi All,

I'm a really a small kind of guy, do my own Web Sites / Forums / Blogs. I post in a lot of Forums as "Adler".

Outside of US "Enterprise" computing the paradigm is shifting.

I've been at Linux, running it, and all those cool open source solutions for about 5-years.

It is certainly a fragmented group of users, but I do what I want to do.

Nice article!

Posted by: JJMacey at January 24, 2008 06:19 PM

as a non programmer, but interested bystander... OSS implies the use of GPL (2 or 3), and therefore that the source must be freely available? no?

if that's the case, then so long as there is interest in the project, I would think that regardless of how bureaucratic internal operations might get for whichever company "owns" an OSS project, the community would still be readily available to support itself, and in doing so, give the company a bad image for lagging support.... so it seems reasonable that any company either testing the water or jumping off the deep end into OSS would want to make sure they keep the project as quick and nimble as it was in the "freewheeling " days.

just my 2 cents.

Posted by: Matt Lee at January 24, 2008 06:22 PM

>are cashing in on the popularity of open source >and becoming the dominant force in what was once >called the free software movement

Can someone hit this guy with a clue stick?

When you start with an inane comment like that at the beginning, you set people up with the thought "This guy is effing clueless."

Go back to remedial class and learn the diffence between open source and free software.

>All of this is evidence that the days of the >freewheeling open source movement are numbered.

Again, clue stick.
You are referring to a fraction of open source projects that exist. Out of the thousands of open source projects out there, only a handful are profitable or even interesting to large corporations.
That's like saying that pirating affects all artists. Bull. It affects only a minute fraction of all musicians in the world, so it is neither dramatic nor true.

I work on the VLC media player and the chances that it will be controlled or bought out are zero.
Out of the dozen projects I participate in, only 2 are used in commercial applications. About 3 of them are so obscure that even techies arent sure what theyre about. Fat chance those will ever cash in.

Commercial open source projects are a small fraction, so I dont see the 'movement' being affected. Large projects with heavy investment from industry leaders is a different thing. Again, Britney Spear and Justin Timberlake are not reprensentative of the music scene as a whole.

I cant even get mad since this doesnt seem to be intentional, just another writer trying to be cute with terms he doesnt quite grasp.

Big companies are cashing in on open source projects? Good. As long as they respect my work and the terms of the GPL, I got no problems with that. What does worry me is the subtle pushing that the big money men do in big projects. But making money is not a problem. Heck, not even the FSF is against making money.

Making money on open source means we are winning.
That's a good thing.

@matt lee:
>OSS implies the use of GPL (2 or 3),
No. It doesnt. There are tons of open source licenses like the Mozilla license, Apache and so on. Hell, even Microsoft managed to get their license approved even though it is so restrictive that its useless...
Yes, the GPL is big one and the one which we usually think of when thinking about open source licenses but open source DOES NOT imply GPL.

Posted by: Robuka Kenderle at January 24, 2008 07:31 PM

"Open Source" refers to the ability of the end user to posses the source code of a binary when distributed. The disturbing trend is 'web services' or 'cloud computing' where the end user never get to binary and therefore never sees the code. So these large companies can buy a project, develop it and never contribute if they offer only web based access.

Posted by: Episkipos at January 25, 2008 04:35 AM

I am rather concerned as the "use" (taking) of OSS and then the modification are not released back since it is "web access" / "cloud computing" DO these companies even offer the binaries? if they do are they crippled (lacking their contribution / modifications) or reduced capabilities? some I think are good one good company is xTuple that I know of personally; IBM has done very good things, Oracle is questionable and I am concerned with SUN. MS assault directly and through proxy (Citrix) is cause for concern as well...

Just my concerned 2 cents

Posted by: nanotech at January 25, 2008 05:13 AM

We're all still waiting for the Open Source movement to provide an easy-to-install replacement for Windows and MS Office. Anything else Open Source people do is beside the point. Support is not the issue. The issue is ease of installation and configuration. When they finally solve that problem, there will be enough business for everyone to get a big piece of it. What's the delay?

Posted by: rich97 at January 25, 2008 10:38 AM

rich97, what the heck are you talking about? Ubuntu is free, easier to install than Windows at thisd point, and includes OpenOffice by default. What more do you want?

Posted by: Michael R. Bernstein at January 25, 2008 10:55 AM

It's nice to see the coherent responses to this article because Mr. Snyder does not grasp the fundamentals nor the significance of open source. Firstly, open source is a development model governed by a succinct number of licenses. This development model is taking advantage of the internet infrastructure in ways commercial proprietary code cannot keep pace. As mentioned in the comments, the vast majority of open source projects will never be commercialized but are being utilized by a growing worldwide software development community. That community includes large IT developers, students, consultants, VARs, system integrators, hardware manufacturers, scientists, commercial software vendors and, yes, hackers.

The emerging business model being championed by new open source software companies is disrupting established commercial software businesses. This explains the actions of many software companies.

Open Source is not slowing down. The intrinsic advantages of the development model and the disruptive nature of the business model will proliferate.

Oh, and silly reports like this generate a great deal of internet traffic so media companies can sell ads.

Posted by: Pete Kronowitt at January 25, 2008 02:40 PM

Has open source sold old? I don't think you have grasp on what open source is, or what the FOSS community is all about. You make it sound that there is something wrong with making a profit off of FOSS. You make it sound as if the community should be outraged about that. It has always been okay, to make money off of Open Source software. In fact, many of us like it when IBM makes a profit, since they've been a good supporter of our movement. Open Source is all about a kinder capitalism. It is a charity to the world in the form of code. There is no way someone can hijack an open source code base. The author either gives it away (BSD License) or puts in the license that anyone who modifies said code contributes back their changes to the community (GPL). So the BSD people are Happy and the GPL people are happy. If IBM modifiers something under the GPL, and it is not all their code, then legally they have to give their changes back. If it is all their code, then they are free to do with it as they please. Most FOSS people want FOSS companies to make billions.

Posted by: Gangsta^s at January 26, 2008 02:00 PM

I don't think it's a bad thing at all. I suppose the headline "Has Open Source Sold Out" may have given that impression, but its purpose was to get your attention -- which it did. Overall, it's wasn't my intent to say good or bad. although I suspect it will be a positive in the long run. I'm merely pointing out a trend and a set of facts well explained by Dennis Byron, the author of the study, and supported by other events, such as the buyouts of MySQL et al. Thanks for the comment. In fact, thanks to everyone for making this a lively discussion.

Posted by: Bill Snyder at January 26, 2008 02:19 PM

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