Augustin's 8 Simple Rules for Open-Source Business Strategy

By Chris Preimesberger  |  Posted 2004-03-25

Augustin's 8 Simple Rules for Open-Source Business Strategy

SAN FRANCISCO-Dr. Larry Augustin was present at a moment in history of sorts-the genesis of the term "open source" in Mountain View, Calif., on Feb. 3, 1998. That was when a small group of Silicon Valley software folks (which also included Eric Raymond and Christine Peterson) sat down to decide that there needed to be an actual name for what this new and uncharted genre represented.

So he owns a deep perspective on open source. He shared some of that perspective March 25 at the first Open Source Business Conference here by outlining his eight simple rules for open-source business strategy.

Augustin, who founded VA Research in 1993 and VA Linux Systems in 1998 (now VA Software, parent of the OSDN), developed the first Linux-loaded desktop computer; raised more than $30 million in capital from backers such as Sequoia Capital, Intel Corp. and SGI; and made a mint when the company went public. VA Linux begat SourceForge in 1999 and posted the Web site based on the platform later that same year. was (and is) an overwhelming success as a central clearinghouse for open-source projects. Augustin remains chairman of the board of VA Software but spends most of his time using his deep perspective on the business to identify promising IT companies as a principal with Azure Capital Partners in the Bay area.

In his OSBC address to a standing-room-only audience titled "Living with Open Source: The New Rules for IT Vendors and Consumers," Augustin offered the following eight rules:

Rule 1: Open source is a business tool, just like any other. "You can use it to reduce costs-mostly in coding and testing-which, in turn, lowers the cost of the overall solution for the customer," Augustin said. "That's a major advantage. Open source, in the form of products such as JBoss and Apache, also makes technology pervasive, and it creates a clear customer feedback loop that is valuable."

Augustin said that when startup software companies first determine their business goals, they should always add an open-source strategy as a central part of that goal set. Because virtually all of the major enterprise software companies already have an open-source strategy of some kind, "you'll have greater product alignment with enterprise needs and increased responsiveness to changing requirements. Open source also brings improved visibility into core product abilities and weaknesses," he said.

Rule 2: Don't let traditional measures of software usage mislead you about open-source adoption. Augustin said revenue income isn't the only indicator of success with a particular product. Building a community of users and customers is just as important. "Don't just look at revenue measures; look at adoption rates," he said, pointing out that JBoss now is being used in 51 percent of enterprise systems worldwide.

About 86 percent of the Fortune 1000 companies now are either deploying or testing key open-source products, and 35 percent of them are deploying more than 20 percent of their systems in open source, Augustin said. Eleven percent of Fortune 1000 companies report that more than 20 percent of their applications are open source. So the adoption rates are getting very substantial.

Next page: As infrastructure costs decline, more functionality is delivered.

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Rule 3: Know your value and focus on that alone. "Customers don't really care what's underneath; they just want good functionality. Some companies still design and build their own application servers instead of substituting an open-source one that will work just fine. I say: Go and build something the customer needs! Build something that will help your own business do its job. Same thing with databases; you don't need to be in the database business to build these things. Focus on where you get paid for value," Augustin said.

Rule 4: Lower costs mean a bigger market. "Learn a lesson from Microsoft here: It lowered the cost of the PC by lowering the cost of the operating system," he said. "Open-source operating systems are growing the software market, expanding the market for all of us. Open source is the world's largest QA lab; there are far fewer defects found per KLoC [thousand lines of code]."

Rule 5: Quality matters. "In the open-source world, you know exactly who wrote the code. There is a lot of pride in authorship out there. Your name atop a piece of code means more than a corporate copyright," Augustin said. "On the other side, who knows who wrote the primary Windows code base? Ultimately, we do not know."

Rule 6: Engineers have value. "Companies need to understand the power of developers, and their connection to the code they build. Once the code leaves the developers hands, things can change. In the traditional software cycle [in a proprietary company], developers are eventually disintermediated. In open source, the developer and customer are in it together and always in the loop," he said.

Rule 7: Remove the middleman. "Direct is almost always the best way to go. Why pay extra overhead for software you can obtain for free or for low cost, that will work just fine?"

Rule 8: Know your business and its IT needs. "Is the software you're building core to your business? If you're a bank, for example, and you're building software with particular algorithms for stocks, then yes, you're writing code for your core competence. If you're a bank and you're building app servers, then, no-you'd better revisit your overall goals."

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