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What will become of open-source companies when they grow up? Will there be an open-source dot bomb, or is the investment going into open source leading the way for a whole new kind of software company?
Although the jury is still out, it is evident open-source software has and will continue to impact the software industry and the business models of new and existing companies, as both start-ups and large entrenched players vie to keep ahead of open-source projects.
For instance, Marc Fleurys JBoss came out of the blocks as a poster child for the open-source movement.
Fleurys “professional open source” initiative quickly made its mark and began eating away at both BEA Systems Inc.s and IBMs low-end Java application server business to the point where JBoss became the app server market leader by some analysts measures.
Fleury often led his company through its quick rise with a brash tone and mocking demeanor, claiming BEA as his prime target and thumbing his nose at IBM.
However, he woke up to a shock last May when IBM announced its acquisition of Gluecode, an El Segundo, Calif., company founded and run by some JBoss castoffs, whose services model, built around the competing Geronimo application server, competed directly with JBoss.
Despite the fact that the Geronimo core technology is still being finalized, Fleury realized his time at the top suddenly faced a serious challenge as IBM set its sights on him.
Steve Mills, senior vice president and group executive of IBM Software Group, said open-source companies need to realize they will face opposition as they walk into battle with entrenched players.
“Some of these guys get way full of themselves and way out in front, and that creates a set of expectations that go unfulfilled,” Mills said.
In an interview at the LinuxWorld conference in San Francisco, Mills said open source is something IBM will leverage as it does many new technologies and business models.
He said the move to acquire Gluecode was not a defensive one.
“We dont generally think that defensive plays are all that satisfying, because they tend to be somewhat short-lived,” Mills said. “You get myopic when you decide you have to do something thats purely defensive in nature.”
Indeed, “Our perspective on Geronimo and Gluecode is that there were very legitimate buyer groups out there—some very centered around open source-based implementations, others just in market segments in places around the world that we could reach through having Gluecode as part of IBMs portfolio.”
But leading companies will face increasing pressure from open-source projects that tend to commoditize entire technologies and portions of companies business, such as application servers, Web servers, operating systems and databases.
The question for big companies becomes whether to open-source their own technologies to get out ahead of the curve and hold some influence on how things turn out, said Cliff Schmidt, vice president of legal strategy for the Apache Foundation and a consultant who advises large companies on how to interact with the open-source community.
IBMs move in acquiring Gluecode was “very Art of War-ish,” said Fleury, who also called himself “the P-Diddy of software” because of the way he came up through the ranks by his bootstraps, making his own hype, berated by competitors and driven by a Bad Boy-like mantra of “cant stop, wont stop.”
“I think this is a case where this company, when open source graduates from the state where everybody loves open source to the point where its a force in the market, they dont like it as much,” Fleury said.
“And were going through that maturation in the industry. And were fine. Were still in inertia. I didnt think it was going to come that fast and that brutal—everybody going open source and trying to copy our model. I know that copying is the sincerest form of flattery, but its kind of early.”
Early Inertia
Indeed it is. Customers agree.
Despite early inertia in the open-source world as big and small companies begin to fight it out, customers say the advent of open-source alternatives gives them choice.
Charles Brenner, senior vice president of the FCAT (Fidelity Center for Applied Technology), a unit of Fidelity Investments, said Fidelity began adopting open-source components a couple of years ago and will not turn back because of the savings the company has realized.
Although Fidelity went through some issues over who would support the open-source technologies, they created an Open Source Support Center, and later signed on with SpikeSource, an open-source start-up that delivers customized stacks of tested and proven open-source components.
“Weve concentrated on development tools and platforms,” Brenner said.
Despite any consolidation that might occur in the open-source space, just having the alternatives gives users choice, he said.
“The alternatives are going to be out there because the barriers to entry are so low.”
However, Bill Hilf, lead program manager of Platform Strategy at Microsoft, who is tasked with exploring open-source technologies and business models for the software giant, said he doubts many of the open-source start-ups will make it to become high flyers, particularly those with a services model.
“They move away from the software costs and they put the costs in a different part of the value chain in services and support,” Hilf said.
“The fundamental problem there is its human labor intensive, and its very difficult to scale a services-based model. So the question I pose is how many customers can you really have? All these guys, SpikeSource, etc. Theyre all just selling these certified stacks. Not just selling, theyre going to support them.
“So literally, unless youre an IBM with 7,000 or 10,000 people who can jump on this issue, how many customers can you really scale to without going out of business and trying to bill more people?”
However, John Roberts, CEO of SugarCRM, said he thinks his model is more of a sure thing. Roberts said SugarCRM can be the next SAP.
“There are different types of open-source business models,” Roberts said. “JBoss is based around services. They sell service and support. I think youre starting to see now different business models like ours, which is you take your engineering organization and everything about engineering work, you open-source license 75 percent of what they do, and you keep 25 percent of what they do. And those figures usually apply to large organizations. That business model is more sustainable.”
Meanwhile, Kim Polese, CEO of the aforementioned SpikeSource Inc., spelled out her companys strategy.
“Our whole focus as a company is on testing and certifying open-source software and proprietary as well—solving the problem of interoperability by providing a trusted, certified stack,” Polese said.
“And we see this market at the very beginning of what we expect will be incredible acceleration and growth over the next few years… We see ourselves becoming sort of an Underwriters Labs for open-source interoperability.
“The business model here is subscription; its an ongoing service—software as a service delivered in the form of these configurations with ongoing updates. And thats a very scalable model. Its a software business, not a traditional services business.”
Mike Milinkovich, executive director of the Eclipse Foundation, which oversees development of the Eclipse open-source development platform, said he expects to see more established companies move into the space now filled by companies such as SpikeSource.
“The barriers to entry are not that high, so I can imagine lots of big companies getting in that space if these venture-funded startups prove that that space is viable,” Milinkovich said.
“So for example, if the SpikeSource and SourceLabs of the world show there is money to be made doing this, I wouldnt be surprised to see HP or IBM or another company like that getting involved in the mix.”
Moreover, other open-source players said that as the field of open-source software vendors expands, the market will flourish as new vendors catch on and create their own ecosystems.
Zack Urlocker, vice president of marketing at MySQL AB, said building an ecosystem is critical to survival of any company, particularly an open-source company.
“We have tried to build an ecosystem of companies who use or support MySQL and the whole LAMP [Linux/Apache/MySQL/PHP, Perl, Python] stack,” Urlocker said.
“This new crop of companies, like Zimbra, SugarCRM, ActiveGrid, Emic, they will help open source continue to grow into new areas and expand.” All of those companies leverage MySQL and are part of its ecosystem, Urlocker said.
And although MySQL is “still a small company,” it is out of the start-up phase, Urlocker said.
“We now have 200 employees in 21 countries, and we are growing steadily with over 6 million active installations and over 6,000 customers,” he said.
“We have a good business model based on selling both to corporate enterprise end users and to software ISVs and hardware companies who embed MySQL.”
Moreover, Urlocker noted: “The key thing, though, is for companies to thrive, and for open source ultimately to be successful, they need to have viable business models and large communities behind them. In open source both or those elements are necessary.
“Without a large and active community, its hard to ever get traction. And you cant create a community over night.”
Next Page: Investing in open source.
Investing in Open Source
Meanwhile, open source is drawing a lot of attention from venture capitalists.
Earlier this year, Brad Silverberg, a founder of Ignition Partners and former Microsoft executive, said his firm is more likely to invest in open source than in .Net-based startups.
Danny Rimer, a partner at Index Ventures, agreed.
“I have a very similar view to Brads,” Rimer said. “Basically, any company we look at has to have a very good explanation as to why the cheapest, most scalable alternative, namely the LAMP stack, is not what theyre building their application on.”
And at TheServerSide Java Symposium in Las Vegas earlier this year, Peter Fenton, a partner with Accel Partners, said, “In middleware, if youre not open source, youd have to come up with a good reason youre not.”
Fenton urged Accel to invest in JBoss, he said.
Yet, as JBoss faces perhaps its stiffest test to date, many say the task of taking it on is daunting.
“JBoss has done a phenomenal job of quilting together the J2EE [Java 2 Enterprise Edition] stack,” said Larry Augustin, CEO of MedSphere, an open-source health care solution vendor, JBoss board member and founder of VA Software.
“They have a great set of features and great support. Im not sure another open-source project could make a difference. There is no benefit to moving to Geronimo,” the open-source application server Gluecode supports.
Fleury says the same. “How the hell are they going to encroach on us?” he asks. “With what? With free?… Why would somebody change from free to free?”
SugarCRMs Roberts said: “JBoss still has a lot of clout, and thats not going away overnight, provided they keep writing innovative software and they keep empowering that community and people agree with the product direction, itll be very difficult to unseat them. Well see.”
Andy Astor, CEO of EnterpriseDB, said he believes there are lots of ways to be successful as an open-source company, including going public and merging with a larger company, “but our goal is to be a major open-source company.”
Mark Tolliver, CEO of Palamida, said he doesnt see a lot of difference between the opportunities open-source start-ups have and those of traditional software start-ups.
“Its not that different from other venture-funded companies,” he said.
Scott Dietzen, CTO of open-source Zimbra, agreed.
“Just because youre open source doesnt mean you play by any different set of rules.”
However, for its part, IBMs onslaught in the low-end application server space caused Fleury to wake up.
“All of a sudden IBM woke me up, and now Im going back to sleep,” he said.
But at the initial news of the Gluecode acquisition, Fleury said he called a “summer freeze” to allow all of his developers to take a breath from the “confusion,” he said.
“Thats when I said, Stop it, everybody,” Fleury said. “Everybody take 48 hours, a four-day weekend. Im French; I understand taking Thursday and Friday and Saturday and Sunday, and I called it a summer freeze.
“I told people to stop freaking about it, were not going to do anything. I put a veto on reaction. We dont react. I said my call to action is inaction. I said, Everybody chill, everybody go on a holiday, and in September it will be a new war.”
Its now October, and the war rages on.
JBoss last week announced an interoperability partnership with Microsoft to make its middleware run better on Windows.