“Like most open-source companies, MySQL’s sales, tied to support deals, never matched the astronomical number of downloads for its product, about 60,000 a day. In January 2008, the founders decided to sell the company for $1 billion to Sun Microsystems. And this year, Sun agreed to sell itself to Oracle, which makes database software aimed at larger companies and tougher jobs, for $7.4 billion.
Now, disagreement over the value of MySQL — both as a stand-alone entity and as part of a big company — lies at the heart of a bitter public battle between Oracle and the European Union over the Sun acquisition. The fight illuminates a larger truth about open-source companies: their societal and strategic importance far exceeds their financial value as operating businesses.” – Ashlee Vance, “Open Source as a Model for Business Is Elusive”
For four or five years now, those of us with experience running, analyzing or working with open source businesses both individually and at scale have been collectively debating the merits of open source in economic terms. Which is a testament to the strengths of open source, on some level: its strengths as a development model and distribution mechanism are more or less accepted as a given these days.
The difficulty that I have with much of the debate on the subject of open source economics is that it asks the wrong question: are open source and business concerns mutually exclusive, as the headline on Vance’s piece implies? This is the wrong question, in my opinion, because the evidence that open source as a model for business is anything but elusive is overwhelming.
If you want to explore whether open source is a reasonable foundation for a big business, on the other hand, that’s a better question. Still not the one I would ask, but better.
Me, in July of 2006: “At this point, however, I do not expect any of the major pure open source firms to challenge the billion dollar threshold any time soon.” Three and a half years later the largest open source pure play, Red Hat, is still three hundred plus million away from the billion dollar yardstick. And Red Hat is, in my view, a very well run company.
It is also, of course, a traditional software and services vendor – emphasis on the former. As are most of the other vendors mentioned in Vance’s piece: Citrix, Cloudera, Microsoft, MySQL, Oracle, Sun, VMware and so on. Mentioned only peripherally, both in this article and the broader debate, are those firms that make money with open source as opposed to from open source. Companies like Google, for whom the billion dollar threshold is a distant memory. But what if we didn’t artificially narrow our definition?
What if we weren’t just talking about those who sell and service open source software, but also those who’ve built businesses upon it? The 451 Group’s Matthew Aslett, an analyst colleague, quite efficiently articulates a number of open source models but omits the one that I personally consider most compelling: building other businesses on open source, businesses that may have nothing to do with selling software.
Where you come down on the open source and business question, then, may simply depend on what you consider an open source business. At least until open source vendors begin aggressively realizing their next, largely untapped revenue source: data. Once that happens, we’ll all have to reexamine the economics of open source models.
Data is the next great revenue frontier, in my view. And I’ve long argued that open source is intrinsically differentiated in its ability to generate data, given its distribution and adoption advantages. Some will undoubtedly argue that privacy concerns will prohibit this practice: I am not one of those people. First because open source projects are already collecting data (Debian, Eclipse, NetBeans, Ubuntu, etc), but more because the data has value – potentially immense value – to users.
Will data power the software and service vendors to billion dollar revenue streams? Who knows. But it’ll be worth a lot. Just ask Google.