Judgement Day for Commercial Open Source ... How Did I Miss It?

In a recent Business Week online article, Peter Yared, founder and CEO of San Francisco startup Transpond, describes "The Failure of Commercial Open Source Software". While Yared makes a case that the commercial open source software business hasn't lived up to the hype that it will "change the world," he reaches too far in declaring its failure. A more appropriate conclusion would be to recognize that commercial open source only recently reached broad acceptance as a business strategy and is on a strong growth trajectory. We must measure its success in that context.

Yared's arguments are diverse, but they fail to account for important indicators of open source success:

1. Minimal number of liquidity events for open source businesses. As identified by one of the commenters, several prominent examples of open source liquidation events are missing from Yared's list, including Zimbra, Trolltech and Sleepycat. In addition, the article uses 2003 as a benchmark year, allowing only 6 years to measure exit success. According to a September 2008 MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, the average seed-financing to exit life cycle of a venture-backed company is 8.6 years. As a result, any conclusions about the success or failure of open source businesses, many of which were started within the last 6 years, are premature at best.

2. Continued success of proprietary vendors. Not only is this irrelevant to measurement of open source success, but it fails to acknowledge the growing role of open source in proprietary companies. Companies like IBM, Microsoft, Adobe and Oracle, are milking revenue from their established proprietary business models while they also distribute open source software to generate revenue, influence development communities and drive broader adoption. In addition, measuring open source displacement of proprietary software misses the point, particularly in the short 6 year time frame here. Open source targets adoption opportunities through grass roots growth, which takes longer (but is less expensive) than the hard-hitting direct sales approach of proprietary companies.

3. Success is limited to commodity businesses; Enterprises are not likely to add open source businesses to their lists of approved vendors. These assertions fail to take into account the growing reach of open source throughout the software industry. While it is true that many of the more successful open source companies to date have been in the infrastructure and commodity business, we are beginning to see significant adoption of enterprise and end user open source applications (such as Alfresco, SugarCRM and others). Matt Asay further amplifies the limitations of Yared's assertion by identifying SpringSource as an example of an open source company that innovates and targets enterprise-friendly software development, which is outside the category of traditional commodity software.

4. Cost savings of open source are overstated. This contradicts the conventional wisdom that cost savings is one of the primary reasons companies adopt open source. In an April 2009 Forrester report, 75% of survey respondents said "Reduced IT costs" are critical or very important in their decision to use open source software. In addition, a panel of venture capitalists at OSCON proposed that open source companies can typically save up to 30% in sales and marketing costs as compared to proprietary companies, which leads to quicker profitability, quicker exits and happier investors. Even so, the article is likely correct with respect to mature open source businesses. In two March 2009 Open Sources blog posts, Savio Rodrigues compares the income statement of Red Hat to those of Microsoft and Tibco. In both cases, he concludes it is unlikely that mature open source vendors will be more capital efficient than commercial vendors.

5. SaaS will overtake open source. The general trend away from installed software applications to SaaS and cloud systems is undeniable. As Matt Asay explained on his Open Road blog in May, cloud computing is the natural conclusion of open source, because cloud computing is the ultimate expression of the open source principle that services, rather than the software supported by such services, are the most valuable component of a product offering. But SaaS and cloud business models are having significant growing pains of their own. Customers are concerned about the portability of data, freedom from vendor lock-in, security and standardization and other matters that must be resolved before achieving broader commercial acceptance. (It's a bit ironic that open source software might actually be the best way to address these concerns.) SaaS and cloud businesses appear to be subject to at least the same level of skepticism as open source. As a result, it seems unlikely that SaaS and cloud business models will replace the open source software business in the near future.

6. Open source benefits do not lead to monetary gain. Yared observes that his company uses open source but typically does not pay for it other than contributing code back to projects. This is a common practice and it implies an impending failure of commercial open source. Yared concludes that these factors do "not mean every successful open source project can sustain a commercial company, especially when they are delivering complicated applications rather than simple plumbing." No doubt this is true, but it is also true of proprietary business models and does not lead to the conclusion that commercial open source has failed.

It is fair to question when open source will become as reliable an investment as other technology businesses. In this regard, Yared's article raises some important points for discussion. However, rumors of the failure of open source business models are greatly exaggerated, and any pronouncement on the success or failure of open source is premature.

Silicon Valley Cocktail Party Small Talk

Whether you scan the newspaper headlines once in a while as you pass the newsstand, or multitask with NPR in your headphones, New York Times RSS feeds to your laptop and CNN Headline News ported to your mobile phone via Slingbox, it's important to have a few interesting tidbits of recent information readily at hand if you happen to attend a cocktail party or other social gathering.

While the subject of open source software might not be the key to climbing the social ladder in many places, it would be a clear hit in Silicon Valley Extended (e.g., beyond the San Francisco Bay Area to include the Raleigh-Durham Research Triangle, Bangalore, India and other places that live and breath technology). With that in mind, here is a list of 5 important issues in open source that will likely continue to heat up over the coming months (in no particular order) and that are worthy of discussion with your tech colleagues:

1. Security of Open Source Software. When Fortify Software released its report on security in the open source software industry, it created an immediate reaction. Fortify noted that typical community open source development models and projects often do not incorporate the types of security safeguards that enterprises like to see. It was a critique of process more than security features of the software itself. While the underlying message was sound, it created an immediate reaction from (a) the open source development community, which took issue with the implication that open source software is not secure (in fact, a pillar of open source adoption has always been that it is more secure precisely because it is open and subject to constant testing), and (b) anyone else who wanted to spread fear, uncertainty and doubt ("FUD") about the open source industry. Commentators like Dana Blankenhorn recognized the overreaction by the media and others in their blog posts. Bottom line: While open source software processes are not always at the level of security typically employed by enterprises, the software itself is largely secure, and likely more secure than its proprietary counterparts.

2. Cloud Computing. Cloud computing is the availability and use of computing resources over a network when the actual machines used for processing tasks are not specifically identified ahead of time and are reassigned frequently. One fear for users of cloud computing (like Amazon's EC2 offering) is that the cloud will break and the one vendor that controls it will not be able to fix it. Even worse, user data will be stuck in the cloud. Classic vendor lock-in. As noted by the 451 Group, many believe that an open source cloud platform would reduce these risks and a number of alternatives to Amazon and the other big name cloud vendors. Bottom line: As in all other segments of the software industry, cloud computing vendors need to be aware of the disruptive capabilities of open source.

3. Mobile Infrastructure. Apple has been getting virutally all the buzz in the mobile market because of its release of iPhone 3G. While the closed nature of the iPhone's architecture has drawn heated criticism from the Free Software Foundation, it has gotten at least a temporary pass from the type of widespread critical commentary you might expect from others in the open source community. In parallel, the open source community is looking forward to LiMo and Android as the first true open source alternatives. Out of nowhere, Nokia's recent acquisition of the outstanding stake in the Symbian mobile operating system added even more strength to the mobile open source movement. In addition to the platform, we also have companies like Funambol, which has already brought a level of freedom to the mobile market that was previously unheard of. Bottom line: Open source will see rapid adoption in mobile, and they are just now getting their ducks in a row.

4. Virtualization. The recent emergence of virtualization technology presents a significant challenge to open source licensing. Virtualization enables the creation of software appliances, which combine software components into a finely tuned package. According to rPath, a one of the thought leaders in software appliances, virtualization can be used to combine operating systems, open source software and proprietary software into a single package without violating open source license obligations or subjecting proprietary code to copyleft. While the legal analysis is too new to have been well tested, it is easy to foresee scenarios in which virtualization is used to avoid they types of product interaction that would have been deemed a modification or derivative work of an open source work, and be subject to copyleft. Bottom line: The industry is just now starting to apply deeper levels of creativity in how virtualization is used, and the impact on all types of software license models, including open source, needs to be carefully considered on a case by case basis.

5. Standing to Sue in Open Source. From the open source perspective, one of the biggest limitations on enforcement of copyleft open source licenses is that the entire responsibility of enforcement falls on the copyright holder. If the copyright holder either doesn't want to pursue a license violation, or doesn't have the resources to do so, no one else can undertake that responsibility on behalf of the community. An enforcement mechanism that enables community members who lose access to source code that otherwise would have been available would solve this problem, but this would likely require a change to the copyright statutes themselves. Another option would be for the open source community to use its collective influence to urge copyright holders to either enforce their rights, or assign them for others to enforce. Bottom line: Nothing is likely to change any time soon on the legislative front, but a community body might be able to find alternative means of enforcement.

BONUS

6. Software/Platform as a Service. GPLv2 and v3 are extremely effective in applying copyleft to software distributed in the standard ways (through online download or on physical media). These licenses, however, have no effect on software used solely over a network connection without any distribution. The Affero GPL was created specifically to address SaaS and PaaS models by applying copyleft to software accessed over a network. The Affero GPL has seen modest adoption (125 projects, according to Palamida ), and Funambol CEO, Fabrizio Capobianco has been a fantastic advocate for the license including by adopting it for Funambol open source projects. Bottom line: With the growth of SaaS/PaaS, coupled with the growth of open source, more service providers will take a serious look at AGPL, which will likely increase adoption.

Please share your thoughts on the key trends in the technology industry that will impact the open source world.