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CAMBRIDGE, Mass.—The emergence of stacks of open-source infrastructure software will spawn new opportunities for companies to enter and succeed in the open-source space, according to a panel of experts at a recent conference.
At the Harvard Business Schools annual Cyberposium here on Saturday, David Skok, a general partner with Matrix Partners, of Waltham, Mass., said, “We see the emergence of the open-source stack as a new phenomenon that will allow new companies to break into the enterprise. And with that stack, quality will come into the equation.”
Companies such as SourceLabs Inc. and SpikeSource Inc., have entered the market with just this model in mind, offering an open-source software stack and providing services around it. The stack typically includes Linux, Apache, MySQL and PHP/Perl/Python components, otherwise known as LAMP.
“A lot of enterprise companies are scared of dealing with small companies so theyll look for big brands,” Skok said. “And companies like JBoss [Inc.] will bring in lots and lots of smaller [open-source] projects and fold them into their brand.”
Marten Mickos, CEO of MySQL AB, of Uppsala, Sweden, said the reason he got into the open-source business “is to produce profits in the long run. For us it is reducing marketing costs and reducing product development costs. We go out to Google and type in MySQL sucks, and we find out all the things that are wrong with our product and then we go and fix them.”
Mickos said altruism is not a driver behind open-source development. He said people who write open-source code do so because “they want to learn something, they want to show something, they want something fixed—then after they do it they may want to become altruistic.”
Meanwhile, Skok said that as a venture capitalist looking at the open-source businesses, he marvels at how “theyre really amazing businesses. We put $10 million into JBoss and they never touched the money.
“However, to start an open-source business, you have to have a very, very vibrant community and then you can create a business around that,” Skok said.
Skok said Matrix got onto open-source software “when we started to notice something important in that our companies didnt want to pay royalties to Oracle [Corp.] and BEA [Systems Inc.]—they went to MySQL and JBoss. That was the trend and we were surprised by the quality of the software. That showed us this could take off in the enterprise.”
Mickos agreed on the community issue but said that “community is not just the invention of open source. Borland [Software Corp.] had a great community and Microsoft [Corp.] has a very vibrant community and ecosystem of developers.”
Brian Stevens, vice president of operating systems development at Red Hat Inc., of Raleigh, N.C., said to succeed as an open-source company, “you need to provide more value, youve got to be smart, and youve got to be lean. I compare it to the Southwest [Airlines] and Peoples Express model.”
Mickos added: “I like to say I work nine to three. I work to take the database business from $9 billion to $3 billion.”
Next page: Open-source business models.
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Skok said there are a few basic business models for open-source software. One is the dual-license model, where companies offer their ware for free under the GNU GPL (General Public License) and then charge a fee to customers who want a commercial license. Another model is the support model, where companies provide the software for free but charge for support. A third model is to offer a basic version of the software for free and then charge for an upgrade.
Red Hats Stevens said the open-source model “works for us because the complexity of the technology is really high” and there is a need for support. He said the more complex the software, the better the chance for a company to build a business on open source.
“But even harder than making money on open source is making money on proprietary software that competes with open source,” Stevens said.
Skok pointed to IBM as a major company that has harnessed open source to great benefit. “Theyve managed to capitalize on Linux. Their major competitor on hardware used to be Sun [Microsystems Inc.], but since Linux, IBM has been able to thrive and sell a bunch of services and hardware.”
Stevens agreed. “Its a fantastic move by IBM,” he said. “Its only good to donate IP if youre going to become the benefactor. So they have emerged as the most aggressive proprietary vendor with Linux.”
Sun is a different story, Skok said. “I think Suns in trouble. They have a very serious problem of a business model that can change, but when it does change itll be hard for their shareholders. Its Intel economics. Sun has to become an Intel seller; they not only have to lose the Solaris and Sun hardware edge, but they have to compete with Dell [Inc.].”
Commenting on Suns move to open up Solaris, Stevens said, “Sun said it released some 1,600 of its patents, but you have to read the fine print.”
Moreover, “the challenge Sun is going to have is they lost their top two markets: financial services and telecommunications,” Stevens said. He said already 20 percent of the financial services sector is running Linux. Stevens then spoke of recent meetings he had with financial services companies who said they used to have a combined $2 billion budget for Sun products, but this year that budget is only $500,000. “So they can bring in Dell, IBM and [Hewlett-Packard Co.], all on Linux.”
Stevens lauded Suns moves to come back with its recent foray, “but its not causing a reverse,” he said. “Instead of really joining the community like IBM has, Sun is trying to create its own developer community.”
Meanwhile, Skok said he is keeping an eye on SugarCRM Inc., an open-source CRM (customer relationship management) software provider. “Im watching them very closely to see if theres a similar community to help spread the word about open-source CRM.
Skok founded SilverStream Software Inc., one of the early application server vendors. “So I have invested in a paid-for app server and then I moved to invest in one that they give away for nothing,” he said, referring to JBoss.