Who needs money?

Not Richard Stallman. In an interview with RMS posted on the All About Linux blog, Richard makes a classic argument for why he's not the poster child for open source:

Q. There are a lot of misconceptions about free software. What kind of an economic model does an entrepreneur look at when he starts out with free software ?

RMS: I want to ask you why that question is worth asking. First of all there are many people who don't have to make money. [!?!?! Um, maybe, Richard, but I don't know them. Did you meet them at The Hamptons? Can you introduce me?] Importantly even if a person has to make a living, he doesn't have to make a living from everything he does. [Asay: True enough. Can you sense the punchline coming?]

Lots of people develop free software in their free time and there are people who have to make a living and they do make a living.

To jump from, this person is not rich and therefore has to work, to this person can't write free software because he is not paid to write it, is an error.

There are over a million contributors to free software, a substantial fraction is getting paid and a majority are volunteers.

Oh, well. He redeems himself in the end. But Richard, most of us don't have a MacArthur Grant to support us. Most of us do, in fact, have to work. And most people writing software get paid to write software. In the most widely used open source software out there, they are almost universally getting paid to write that software, even if they are working on a "community" project like Apache.

There really is no free lunch. Nor free software. Someone is paying for it. It doesn't just grow on trees. Like RMS says, my day job might subsidize my night passion for coding (OK, I'm lying). But most people can't afford to overindulge passions. They have to work. Stupid Proletariat commoners like me. :-)

Why all lawyers should attend OSBC

I came across this opinion piece by Paul Barton, an attorney at Field Fisher Waterhouse LLP today. I wish he would have attended the Open Source Business Conference before writing his piece. (OSBC includes, among other things, two full days of legal education on open source.) He could have saved himself the embarrassment of misinformation. (I won't call it malpractice. :-)

(Btw, I am an attorney. I don't play one on TV.) (Unfortunately.)

First off, Paul is clearly talking about "in the wild" open source, whereas most enterprise open source adoption is of commercial open source (Red Hat, MySQL, JBoss, etc. etc.). It's true that Red Hat doesn't own the code (or most of it, anyway) that it ships, but this is emphatically not true of virtually every other piece of commercial open source software. Alfresco has as much right to its software as Documentum does (to Documentum's software). JasperSoft has as much right to its software as Business Objects does (to Business Objects' software). MySQL has as much right to its software as Oracle does (to Oracle's software). Etc.

Any time you start talking about open source as "risky," you need to clearly define what you mean by "open source." This lack of definition leads Paul into trouble later, when he says

...[M]ost forms of OSS licences are structured in favour of the contributor rather than the licensee. There are usually no contractual commitments of quality or fitness for purpose. The licensee will have to bear the risk of any errors in the code, and since there are often many contributors at work, there are numerous opportunities for infringing code to be introduced. This may, in some cases, outweigh the time and cost advantages of using open source.

This is inaccurate on so many levels that I hardly know where to begin.

1. The licensee and the contributor are treated the same. One's rights so that the other's rights are protected. Regardless, in commercial open source, this is a non-issue. Because JBoss owns its code, it can license JBoss Portal, for example, to a user under any license that it wants to. Regardless, Paul should check out a comparison of the GPL to Microsoft's EULA. The GPL doesn't hold a candle to Microsoft's restrictions on end users ("licensees").
   
   
2. Contractual commitments...Has Paul seen an Oracle/SAP/Vendor-of-your-Choice EULA recently? I'm unaware of any that say anything other than "This software will explode at any minute. Look out!!!!" Microsoft's XP EULA at least gives you 90 days when it will "substantially perform" to expectations...I guess the viruses hit on the 91st day. :-)
   
   At least the open source licenses have a good reason for not providing a warranty: you're getting the bits for free. Why should the code author warrant software (and assume the costs of legal liability) without payment? As Paul would discover if he tried to buy the software, warranties and other protections are forthcoming the minute he pulls out his checkbook.
   
   
3. "Numerous opportunities for infringing code to be introduced." I'd love to see Paul try. Go ahead, Paul. Infect Linux today. Submit code. We'll see how long it takes you (try at least two years of patient, solid work on the Linux project to actually get code committed).
   
   In the case of commercial open source, Paul would fare no better, because all incoming code must be assigned to the company/project with a guarantee that it's his code (and the same rigorous legal analysis to screen infringing code that any Oracle or Microsoft would use - in fact, it's often better).

In short, Paul, you need to define what kind of open source you're talking about: the kind that most people use (commercial open source with all the protections you mistakenly say aren't there) or the random, rogue open source virus factory that no one uses. Yes, I'm exaggerating, but no, the "risk" of open source is no greater, and is generally far less, than the risk of using proprietary software.

I thought everyone already knew this.

Universal Music's lame attempt to open up

Not open source, but it's a related attempt by a Big Proprietary Company (BigPropCo) to open up. And failing.

In case you hadn't heard, Universal Music today announced that it is licensing "its catalog of recordings and music videos available for free on an ad-supported Web site launching later this year.

Sounds great, right? Free music without the KaZaA?

Well, here are the details:

• Users can download an unlimited number of songs or music videos if they register at the site. [Verdict: Good]
  
  
• The tracks cannot be burned to a CD [Verdict: Bad], but users will be able to transfer music to portable media players equipped with Microsoft Windows digital rights management software. [Verdict: Insane, because the punchline is that the songs will therefore not be available to 77.9% of the market (the iPod, of course, but it also won't work with Macs, though that's only bad news for we "enlightened few." :-)
  
  
• The service will require users to return to the site and renew registration at least once a month or the tracks cease to play. [Verdict: Disappointing. I understand that ad-supported sites require users to...look at the site, but this is obnoxious..]

So, all in all, Universal has taken a baby step, but not one that will get it running in the digital music era. Maybe next time.

Research: Software processes and open source success

I was reading a research paper [PDF] last night by Martin Michlmayr (University of Melbourne) entitled "Software Process Maturity and the Success of Free Software Projects." The paper addresses the question of "whether the maturity of particular software processes differs in successful and unsuccessful projects" (1).

While the paper offers little in the way of hard conclusions, it does make some interesting observations.

• Version Control Tools.

  Version control tools, such as CVS in the case of projects hosted on SourceForge, are used more widely in successful than in unsuccessful projects. Furthermore, a higher percentage of version control repositories are available publicly. In free software projects, CVS and similar tools play important roles related to coordination. Having a private version control repository limits the access of prospective contributors. On the other hand, a publicly available CVS repository allows contributors to monitor exactly what other people are working on. This allows multiple people to work together efficiently in a distributed way. In a similar way to defect tracking systems, public version control systems may attract more volunteers since users see what needs to be done and how they can get involved.

  
  
• Mailing lists. 80% of successful projects use mailing list archives, compared to 50% of unsuccessful projects.

  In both, version control tools and mailing lists, it is not clear from the present findings whether a successful project requires these types of infrastructure to flourish, or whether the implementation of the infrastructure has attracted more volunteers and so led to more success. Our assumption is that there is no clear causality and that both affect each other.

  Still, it would appear that mailing lists are important for lowering the "cost" of outside contributors getting involved with a project, as it serves as a form of documentation. (I've talked here about the importance of documentation.)
  
  
• Documentation. Interestingly, documentation wasn't found to definitively impact a project one way or another:

  it can be argued that user documentation is an important factor in free software projects. However, this factor alone does not determine success. Developer documentation, on the other hand, is not very common in free software projects. A reason for this might be that prospective developers find most answers to their questions from other sources, such as mailing list archives or the source code.

  Still, the author doesn't analyze code quality of the projects with/without extensive documentation, as well as other factors. My bet (based on experience) is still that documentation is outcome-determinative in open source projects.
  
  
• Systematic Testing.

  The analysis of processes involving testing shows that successful projects make more
  use of release candidates and defect tracking systems than unsuccessful projects. There is no difference in the presence of automated test suites. The availability of release candidates has been taken as an indication of a well defined release plan. While it would be revealing to qualitatively study and compare the release strategies of different projects, the present findings suggest that a clear release strategy coupled with testing contributes to the success of a project.

  Let the developers know where you're going, and when you'll get there. This makes it easier for them to find the time and inclination to help.

Not a lot of big conclusions in the paper, but it does point to one general theme: successful projects are permeable. They make it easy (or relatively so) to contribute and use the software. Less successful projects horde information and so require larger investments of time in order to use or contribute to the project.

So, if you're thinking of starting a project, or wanting to improve use of an existing project, try improving access to your CVS (or whatever you use), use of mailing lists, and follow a well-defined release plan. Oh, and document everything. It's boring work, but it's critical.

Marc Fleury returns...swinging a big bat

Marc Fleury is back from vacation (or wherever he was), and kicks off his return with a great (and long) post on his blog.

Here are a few of the more interesting points:

One of the nuances becoming increasingly clear to many insiders is that the power of the model rests in the extremely low cost of distribution and sales. We reach millions of folks with free distribution and then monetize this base. It is a very efficient way to acquire customers. The result is that we spend 30 cents for every dollar of maintenance revenue, while the competition, on average, spends $3 for every dollar that ultimately comes in as maintenance. The downside, compared to proprietary software, is that on average we only monetize 3% of our user base for JBoss and roughly 10% for Linux. This low cost of sales we achieve through mass distribution is what makes the model tick. The customer gets to make up his own mind as to whether the software is any good as opposed to having to go through the vendor's pricey and biased salesforce. This enables the OSS enterprise sales force to be very effective since they mostly are targeting highly pre-qualified potential customers.

What I find most intriguing in this section is the conversion rates he assigns to JBoss (3%) and to Linux/Red Hat (10%). Marc doesn't go into this, but it's certain that his conversion rate (and Red Hat's) has gone up over time, as I blogged before. Why? Momentum, brand, sales "push," etc.

What will be very interesting to see is whether JBoss' conversion rate jumps to 10% when it hits the market maturity point that Red Hat currently enjoys, and whether Red Hat's moves to, say, 20%. (Is there a natural ceiling to open source conversion rates? We just don't know yet. Watch Red Hat to find out.) I would imagine that Marc's conversion rate will continue to scale with JBoss' brand and market presence.

Marc, true to form, then refuses to duck the Oracle/Linux rumors:

Let's assume Oracle wants to introduce a NEW distribution, what analysts call "Oracle/Linux." It would take time to assemble: you need Linux engineers, you need OS experience. You also need to build a support structure and you need to make it not suck. None of this says "“Larry can
t do it." It is just that it is all easier said than done. For more background reading on this, and why it's an uphill battle, read Trip Chowdhry of FTN Midwest Research's evaluation report on this scenario.

In fact, the recent rhetoric from the press has now been toned down to "Oracle wants to redistribute and support RHEL instead". From a distance it sounds like this is feasible as RHEL is GPL. However it is a bit more complicated than that, read Baird'’s Steve Ashley's note for excellent background reading on the topic. See, nowhere in the GPL is it said that we must distribute the software to you in the first place. Dion Cornett likes saying GPL != Public Domain. In fact, in the case of RHEL, RedHat doesn't distribute it to anybody, not for free that is.

If you want to have the software, you must subscribe to RedHat Network (RHN) and if you redistribute the patches or RHEL (which you can) you must pay us for every instance, if you don'’t, well, we are under no obligation to give you the future patches and upgrades, in other words, we cancel the RHN distribution to you and you are technically /forking/ RHEL.

Did you catch that? Most people don't. And that's why they fail to see the beauty of Red Hat's business model: people assume open source requires distribution of source code to anyone that asks. Not true. In Red Hat's case, you don't get access to their certified/tested/supported RHEL unless you pay. No $$$, no source code. Just because they write something doesn't mean they have to give it to you. That's not in the GPL I know.

As for Oracle and Linux, Oracle has a great deal of Linux experience. But at some point, you play your game and leave the rest to others. Linux is not Oracle's game. They provide excellent support for Linux, but they're not an operating system company, and couldn't become such simply by wishing it to be so. It's a different beast. It's not one that Oracle should bother trying to tame.

If they did, as Marc writes, and if everyone stopped whining about Red Hat's rising clout and actually acted on it, where would that leave us?

So, today, we are in an interesting situation. RHAT is being perceived as the new kid on the block in the big leagues. Some label us a new "Microsoft" - conveniently forgetting how, in open source as opposed to proprietary software, the inherent checks and balances limit the establishment of anything resembling a conventional monopoly. I, for one, believe that no one has an interest in moving against us here. The ecosystem of open source is a stable environment because of something akin to a Nash Equilibrium. If Oracle moves, what do you think IBM, HP or Microsoft would do? Short of a software industry equivalent of the Hitler/Stalin pact (and we all know how short a honeymoon that ultimately would be), it would really be unwise for Oracle to take that risk as it would only set up a replay of the Unix wars, but this time with Linux.

I believe the future of professional open source probably will be this large INDEPENDENT open source vendor. We are in the top 5 among the large infrastructure vendors, after IBM, Oracle, SUN and Microsoft. They may not like it, but if they move, the ensuing Linux wars will ultimately only benefit Microsoft and RHAT, just as, outside of Microsoft, Sun was the only beneficiary of the Unix Wars, which they used to consolidate their position. Why upset a situation that currently works to everyone's advantage?

Exactly. Great post, Marc. Glad to have you back. (And thanks to Matthew Aslett for reminding me.)

Treo going LInux?

Not in the near future, but hopefully soon. As this CNET article indicates, PalmSource (Access) is working hard to bring Linux to the Palm platform. I'm not sure what has taken it so long - it's been a year-and-a-half since PalmSource acquired China MobileSoft as an inroad to Linux.

I do know that at least some of the fault lies not with PalmSource, but with the carriers and handset manufacturers. People whine about the Palm platform being old, not realizing that its Garnet (or even Cobalt 6.1) are huge improvements over the existing Palm OS. They're available, but handset manufacturers aren't using them. Not sure why.

At any rate, here are some interesting bits from the CNET interview/article:

Q: Where do things stand right now with the Access Linux Platform?

[Didier] Diaz [VP, Access]: What we set out to do is start from Linux and create a complete, commercially great mobile platform. Linux is considered to be the third platform in the mobile industry. Companies such as Orange have said that moving forward they would support all the three main multitasking operating systems--Windows, Symbian and Linux.

When you try to build a mobile platform from Linux components, you find that you have to optimize some of them. Whether it would be for footprint or performance, you actually have to replace entire components sometimes or create components that do not exist at all. In addition, we are adding some key frameworks or subsystems that are not...in the open source area, so things such as telephony framework and messaging framework.

[Tomihisa] Kamada [CTO, Access]: Let's say only 20 percent of the system can be covered by open source. We develop all the remaining portions.

...

Why Linux? Why choose to go forward with Linux as the underpinning for this operating system?

Diaz: It's been quite a journey. When we announced Palm OS for Linux last year, I would say our goals were to a large extent self-serving. What we wanted was not to have to create our own kernel anymore. Why do this? The kernel doesn't differentiate you a great deal. Why spend our engineering resources on that?

Also from an industry perspective, at the time moving to Linux especially at the kernel level allowed us to leverage all these drivers that are written by the silicon vendors as they bring up their systems.

So to begin with, I would say it was a technical reason. What we found, though, as we said "Palm OS is going to be based on Linux" is that the market came to us saying, "Hey, if you are doing this, we would like to work with you."

Kamada: Mobile phone requirements, especially for 3G, are very complicated. So we do features, such as you can check e-mail, (browse) and (at the same time) receive the phone call. Multitasking is a very essential requirement today. There are not so many choices for multitasking operating systems today--Microsoft, Symbian and Linux. It doesn't make sense to develop a new operating system, a multitasking operating system, from scratch. So Linux is a very natural choice for us.

MySQL runs fastest

The results are in, and MySQL came out on top. C't just did a comparison of different databases and found that MySQL is the "fastest database application." The magazine's editors held the contest to evaluate database performance in real-world business use by creating a standard online inventory system.

From the announcement:

"The DVD shop created by MySQL is the hands-down winner of the performance crown. It clearly demonstrates the capabilities of a carefully configured MySQL/PHP application.”

The MySQL DVD online store was able to process 3,664 orders per minute (opm). If a second computer had been used, the figure would have gone up to 6,000 opm, indicating that MySQL is business ready. No more of this silly nonsense about it being a low-end utility database. Nothing could be farther from the truth.

(You can see the full results from the contest here.)

Apples gives us some open source manna

I guess I hadn't been paying enough attention, but Apple recently announced that it is open sourcing several key pieces of software. (Thanks to Tom, fellow InfoWorld blogger (the "Enterprise Mac" blog), for ending my ignorance. At least in this one small matter.)

The open sourcery includes:

• The Darwin Kernel. (Yes, the infinite beauty of the Mac operating system is starting to open itself to public view. Not sure how Jobs got this one past his secret Opus Dei network of operatives, but I'm glad it happened. :-).)
  
• iCal Server
  
• Launchd
  
• Bonjour

There are others, but these are the ones that caught my eye. You can track Apple's open source projects on its forge.

Zend gets $20M

Zend just pulled down more spending money. Here's the press release:

CUPERTINO, CA – August 28, 2006 – Zend Technologies, Inc., the PHP company, today announced that it has secured $20 million in series D funding. The funding round was led by Greylock Partners [Note: I love Greylock - this is a big win for Zend. I don't know Moshe, but if he has half the integrity and intelligence of Bill Kaiser, Zend scored big], which is making its first investment in the company. Zend’s existing investors – Azure Capital Partners, Index Ventures, Intel Capital, Platinum Venture Capital, SAP Ventures and Walden Israel Venture Capital – are also participating in the Series D round.

“The new funds will enable us to expand faster in emerging geographical markets, accelerate our product development and extend the services organization to meet the demands of our growing number of enterprise PHP customers,” said Andi Gutmans and Zeev Suraski, the co-founders of Zend Technologies. “It is great that a venture capital firm with the stature of Greylock Partners shares our vision for the PHP market and will help us realize Zend’s potential.”

The company further announced the election of Moshe Mor, a partner at Greylock, to its board of directors.

“The transition from traditional software development methods to web based and service oriented approaches is creating enormous opportunities for dynamic languages such as PHP,” says Moshe Mor of Greylock Partners. “Zend is uniquely positioned to lead this transition, and has the talent and depth to make it a reality. I am excited to become part of this team.”

Zend Technologies has gained broad recognition as one of the major commercial drivers behind the success of PHP, which has a profound impact on the way modern web applications are being created. It is the language of choice behind more than half of all Ajax-enabled, highly interactive Web 2.0 websites. It is also the language of choice for companies embracing service oriented architectures, creating and mixing webservices into a whole new generation of sophisticated commercial applications. More than 20 million dynamic websites worldwide are driven by PHP.

In addition to supporting key open source PHP initiatives, Zend offers commercial products and services for software developers and system operators who use PHP. Zend has more than 15,000 customers for its commercial products. In its recent “Magic Quadrant for Enterprise Application Servers,2Q06 Gartner positioned Zend in the Challengers Quadrant.


About Zend Technologies, Inc.

Zend Technologies, Inc., the PHP company, is the leading provider of products and services for developing, deploying and managing business-critical PHP applications. PHP is used by more than twenty-two million Web sites and has quickly become the most popular language for building dynamic web applications. Deployed at more than 15,000 companies worldwide, the Zend family of products is a comprehensive platform for supporting the entire lifecycle of PHP applications. Zend is headquartered in Cupertino, California. For more information, please visit www.zend.com , or call 1-408-253-8800.

Over $50 billion worth of open source

I'm reading an interesting research paper (to be blogged later) that mentions a fact that I find pretty compelling:

In 2001 Debian included more than 55,000,000 lines of code, with an estimated (COCOMO) value of $1.9 billion.

That's just Debian (and, as Wheeler notes, it grew to 230 million lines of code by 2005, putting its COCOMO price at $8 billion).

What number would we get to if we added MySQL (2M+ lines of code, I believe), JBoss, etc.? I can't even begin to come up with a rational number, but I'm guessing we're north of $50 billion. $50+ billion worth of free (as in cost and freedom) and open source software.

Priceless.

Which makes the most sense for investment: Linux or Windows?

I'm reading a research paper [PDF] by Nicholas Economides (NYU) and Evangelos Katsamakas (Fordham) called "Linux vs. Windows: A comparison of application and platform innovation incentives for open source and proprietary software platforms." Long title, but the conclusion of the paper is relatively brief:

In our model, firms and developers invest to improve the quality of the platform or the application and expand the demand by users of these software products. When the operating system is proprietary, the platform provider and the application provider invest only in their own product to maximize their profit. When the operating system is open source, there is no platform provider firm, but the users invest in the platform to maximize their user surplus and their development reputation, which depends on the success of the platform measured by its adoption. (2)

Follow that? Well, I had to read it a few times through (academia tries so hard to keep its findings secret with obtuse language. So don't feel bad. (Or maybe I'm just dense.)

Here's the gist. When a platform (like Windows) is proprietary, only the vendor can/will invest in its innovation. No one else will derive financial benefit (or reputational benefit) from doing so. So, the product is as good (or bad) as the proprietary vendor makes it.

With an open source platform, the users of the system may have strong reputational incentives to develop it, potentially leading to much higher levels of involvement and innovation than any one company can generate. But, as the authors suggest, this finding is ambiguous, because the platform may not offer the reputational benefits (See page 15).

What is less ambiguous is the application providers' incentive to help develop the platform, just as IBM, Oracle, Novell, Red Hat, HP, etc. have done with Linux:

The application provider for the open source operating system invests more than the application provider for the proprietary operating system, because the first has a larger marginal profit for all levels of investment. This is because the open source operating system is adopted by users for free, enabling the application provider to set a larger price and capture a larger profit than the application provider for the proprietary operating system.

Put bluntly, the price for Oracle/IBM/SugarCRM is much more attractive to end-users if it's running on an open source platform, which gives these companies ample incentive to co-invest in its development.

This would just be idle academia if it hadn't been shown to work in many instances, with the number (and importance) of these instances growing all the time. Linux. Apache. Eclipse. Xen. MySQL (SAP's investment of money and resources, among others'). Etc. Open source gives third parties the means and the incentives to innovate on others' platforms, be it an operating system, database, content management system, or whatever.

No proprietary platform can match that.

rPath wants to put RHAT and NOVL out of business

Well, sort of. Billy Marshall, Erik Troan, and the Rpath crew are hell-bent on changing the way the industry thinks about operating systems, as Dan Lyons reports in Forbes. The fact that this involves an Oedipal drive to kill off its father (Red Hat) may just be icing on the cake:

Software maker Red Hat is used to playing the underdog to Microsoft, pushing its distribution of the low-cost Linux operating system as an alternative to Windows. But now the disrupter is being disrupted, as a pack of its top engineers--guys who got in early and made a fortune on Red Hat stock -- have left and formed a company whose mission is to kill off operating systems altogether....

Rpath's big idea is this: Instead of worrying about which applications run on which operating systems, wouldn't it be better if each application came with its own operating system already attached? That way you just plug it in and it runs. Today those software makers have to create multiple versions of every application they sell so that they can run on as many operating systems as possible. This wasteful effort gobbles up 50% of R&D dollars at some software shops, Marshall claims.

So Rpath has created a specialized version of Linux that application developers can attach to their programs instead.

A cool idea, and I like Rpath, but I don't think this spells the death knell for Red Hat or the traditional operating system vendor. There is strong value in having an operating system that supports a wide range of applications, which Microsoft first proved to the world. Red Hat's initial brilliance (well, after its licensing model) was to aggressively push certification of third-party software on RHEL. That, more than anything else, is what drove Red Hat's dominance over SUSE/Novell.

I don't see this changing anytime soon.

Still, there's a lot of value in tightly integrating an operating system to an application, so that you take one vendor/moving part out of the support equation. It will be interesting to see how Rpath plays out....

The 451 Group calls for a change to the stack provider model

The 451 Group is calling for change in the business models of the so-called "stack providers." (OpenLogic, Spikesource, Sourcelabs, etc.) Dave and I have seen this coming for some time, and the vendors, themselves, have, too, as each has been tweaking its model over time.

(Dave has never been a big believer in Spikesource (here is his first assessment), though I've been more sanguine, and I've also skewed pro OpenLogic and BitRock.)

Says Raven Zachary of The 451:

Open source stack providers hoping to win business by providing a single point of software integration and support need to rethink their longterm business plans, according to The 451 Group. A new study shows enterprise users will increasingly look to their application providers or operating system vendors for the assurance of support. The analysts also predict a natural rise in enterprise acquisition of open source talent and ownership of the support process.

This is perfectly in line with what I've seen on the application side, and it's consistent with what I saw before when with an operating system vendor. People are looking for an application, and expect the underlying stack to "just work." Or they're looking for an operating system and expect that ancillary infrastructure (LAMP, for example) to "just work." In neither case are they looking to a third party to make the pieces fit together. They're looking to Red Hat, SugarCRM, MySQL, or whomever.

Raven Zachary of The 451 confirms this:

451 analysts found that it is becoming increasingly common for operating systems to include multiple open source components as part of the installation process. At the same time, application vendors are increasingly looking to deliver a complete package to their customers by bundling required third-party components in with their offerings. Consequently, The 451 Group believes the market for pure-play open source stack providers looking to support enterprise customers directly is limited.

Again, this has been my experience, and I've seen it echoed at other companies with whom I'm familiar.

For this reason, it's not surprising that Spike is becoming more of a "meta-SI." OpenLogic has stayed pretty true to its original focus, which is to provide a certified library of open source components and facilitate integrating and then running them. I'm actually not sure what Sourcelabs and Bitrock are doing (though I do know Bitrock does a great job with creating installers for other open source companies - they're an Alfresco partner).

Enterprises don't buy "open source." They buy Application X, or Operating System Y. They are increasingly happy if X or Y is open source, but they want something that solves a particular business problem, not a vague cloud of possibilities to a vague cloud of problems.

That's going to be the biggest challenge these companies face. They need to come up with direct solutions to direct customer problems, and those solutions have to be best solved by them, not by Red Hat, Oracle. I have confidence that they can, but as The 451 says, it's going to require some change.

Guy Kawasaki's interview with Marten Mickos (MySQL)

Guy Kawasaki has an interesting interview over on his blog with Marten Mickos, CEO of MySQL.

Here are a few gems, with my commentary:

In response to the question, "How do you make money with an Open Source product?":

We start by not making money at all - but by making users. The vast community of MySQL users and developers is what drives our business.

Then we sell an enterprise offering to those who need to scale and cannot afford to fail. The enterprise offering consists of certified binaries, updates and upgrades, automated DBA services, 7x24 error resolution, etc. You pay by service level and the number of servers. No nonsense, no special math. Enterprise software buyers are tired of complex pricing models (per core, per cpu, per power unit, per user, per whatever the vendor feels like that day) - models that are still in use by the incumbents.

At MySQL we LOVE users who never pay us money. They are our evangelists. No marketing could do for us what a passionate MySQL user does when he tells his friends and colleagues about MySQL. Our success is based on having millions of evangelists around the world. Of course, they also help us develop the product and fix bugs.

Sorry, Marten, but I'm not (fully) buying that. You might like (or even LIKE or possibly love) them, but LOVE? Nah. The fact is, most MySQL (or name the open source project of your choice) users do not contribute code, cash, feedback, or anything of tangible value to you. And they probably don't even talk about MySQL to their kids or spouses. The only thing positive they do is not use a rival database, and that does have some value to you.

Of course there is value in having tens of millions of evangelists, but I'd be willing to bet you'd trade 69 million of MySQL's reported 70 million downloads for paying customers (leaving you one million to evangelize - how many evangelists does one need, anyway? :-).

Having said this, Marten later riffs on this idea in a compelling way:

Think about the market-leading DBMS company [Oracle]. They have 50,000 paid employees who are working hard to keep their product competitive. We have 50,000 product downloads per day. This means that 50,000 human beings who tinker with our product every day. These people have ideas, suggestions, praises, complaints and although not all of them send us emails every day, the good stuff tends to find its way to the core MySQL team.

That's a great correlation. For every Oracle employee, MySQL gets a download each day. Even if I'm right and most of these MySQL "employees" don't contribute anything back, arguably at least as many MySQL pseudo-employees do as the Oracle employees who aren't coding because they're too busy contributing code or resumes to MySQL. (Just joking, Mr. Ellison! :-)

Moving along....In answer to Guy's question, "Do you compete head to head with Oracle or do you have different customers?", Marten responds:

Most new companies and new projects within existing companies are choosing open source infrastructure such as the LAMP stack. We don't see competition there.

We focus on the new applications and services that are being built for the online world: Web2.0, SaaS, and SOA but also new forms of datawarehouses and business apps. Our customers look for reliability, performance, scalability, and ease of deployment. They don't look for overly complex products that take days or weeks to get going and cost thereafter.

That's why YouTube, Craigslist, Flickr, Habbo Hotel, LiveJournal, Technorati, Second Life, Trulia, FeedBurner, and Right Now are our customers and not Oracle's. We believe the market we have chosen is the fastest growing part of the DBMS market.

I've talked about this before, but MySQL continues to underscore the point over and over again. As Marten notes later in the interview, Omniture is running over 250 billion transactions per quarter on MySQL, Google uses it for AdSense and AdWords, and even the Oracle FAQ runs on MySQL. It is EVERYWHERE, and it's running the most mission-critical application of all time: the Internet.

Marten has other great information in his answers, and I'd encourage you to read the interview.

If open source is winning, who is losing?

I went through elementary school in the 1980s. As such, I was taught that there are winners and losers. My kids learn that "We are all SPECIAL!!!" but I quickly disabuse them of that notion at home. Kill or be killed. Eat that hamburger or your wily 15-month old sister will. The Asay house is quintessentially Hobbesian as we live out our nasty, brutish, and short lives. :-)

I'm kidding, but my 80s mentality has me wondering: with all the open source momentum (and it is real), who is losing? See, it's not possible for everyone to win together all the time. It's not exactly zero sum, but in a relatively finite market, my success may well correlate to your failure.

So who is losing?

Apparently not Oracle. Not yet, anyway. Jason Maynard of CSFB has ORCL at an "Outperform" rating, writing this morning:

For Q1, we are estimating $3.47B in total revenue ($741M license, $2.0B maintenance, $735M consulting) with EPS of $0.16. Our forecast is at the low end of the license revenue guidance range. While pipelines are strong, the August quarter is always a tough one, especially considering the strong close to the May period....We continue to hear positive feedback from customers around the Siebel integration, and we expect solid maintenance renewals. For Q1, the company indicated that total non-GAAP revenue is expected to be between $3.43-3.49B with license revenue of $740-785M.

Jason is a smart guy, and I trust his analysis. Oracle is clearly still doing well. As is Microsoft. From Jason's report:

From a competitive standpoint, MicrosoftÂ’s server business unit has grown 15% compounded from 2001 to 2005 with SQL server growing significantly faster than the segment average. Microsoft recently launched SQL Server 2005 and should experience a healthy uptake in the new product.

I mentioned this yesterday, as well, in reporting on Sun. Sun had a strong quarter - Microsoft has had a few decades of them.

But as I've reported, MySQL, JasperSoft, SugarCRM, Alfresco, JBoss, and other open source companies are also doing exceptionally well. Most are growing at 100%, quarter-over-quarter. Why is this not eating into the BigCo's of the world?

I think there are a few reasons:

1. Most obviously, when you start at $0 in revenues, it takes a while for even 100% or even 1000% growth to make a dent in the BigCo's. Give SugarCRM another year, for example, and it will be taking a painful bite out of Salesforce.com. For now, the big CRM vendors can pretend it tickles.
   
   
2. In some cases, open source monetizes a different part of the market. As I've noted before, one of the reasons Oracle isn't feeling a huge amount of MySQL pain is that MySQL is creating and owning a market - the Web 2.0 market - that Oracle doesn't compete in.
   
   
3. Related to #2 above, open source is as much about creating new markets as commoditizing old markets. The average SME is never going to spend $1M on Documentum, but $10K for Alfresco (for equivalent or better functionality, and much better performance) is an easy investment. Open source, in many product categories, is bringing enterprise-grade technology to an audience (SMEs or underserved departments of large organizations) that has never been able to afford it. Heavy market traction in markets that didn't exist in the shadow of the bloated, expensive proprietary products.
   
   
4. Finally, a great deal of open source momentum remains embryonic. There are millions of downloads sitting out there waiting to be monetized. MySQL is reported to have some 70M downloads. It is MySQL's business to lose. They have millions of pre-qualified buyers just waiting for them to figure out the right trigger to induce a purchase. It is largely the same for many other open source companies.

In sum, we still have a few years of "peaceful" coexistence with proprietary software.

Eventually, I believe the industry will carve itself up into Microsoft, open source, and 1-2 other massive conglomerates. The conglomerates will compete based on suites, but customers will eventually see through the "suite" to discover that they tend to be loosely cobbled together bits that hardly talk to each other, much less products from outside the company. Microsoft will find an audience amongst those who foolishly buy into its all-encompassing ecosystem (which only works well, and then not often, with its own technology). They will relinquish IT control to their vendor, and they will deserve the IT they buy.

Open source, for its part, will continue to trod the open source and open standards road, and will provide maximum choice, performance, and cost advantage. Products will naturally integrate well with each other because that is the logos of open source. Customers who buy into this ecosystem will truly be buying into a bazaar - a free market - and will get the best of breed, and will retain control over their IT in the process.

Long term, you can see whom I think will win. It's open source, and by a landslide.

News: Sun resurgence?

For those who may have missed it, Sun appears to be on the rebound. IDC just announced server market share (and a tepid industry growth rate of .6% to $12.3B total), and Sun wonn big. Sun's revenue increased 15.5% year over year, with its market share growing from 11.2% in the second quarter of last year to 12.9% this year. That puts it back in the top three, edging Dell down to fourth place. (This hasn't been a good year for Dell.) (Graphic at right from today's WSJ.)

Impressive growth. Especially in light of Red Hat's continued growth. I remember a Red Hat executive cautioning me not to count Sun out - looks like he was right to do so.

As for Windows, it also continued to grow, with 3.1% growth in revenues, and 11% growth in shipments year over year. That puts it at 34.2% of the server market, with Unix at 35% (which showed a 1.6% decline in revenues and 1.8% drop in unit shipments).

Still, despite Sun's growth, it's happening in a faltering Unix market. The future is Linux and Windows. At some point they'll collide, but there's a lot of Unix market left to carve up before that will happen.

Open source location redux

I've come out pretty hard in the past about the location question in open source. I've said that open source companies need not relocate to the Valley in order to be successful. Indeed, the vast majority of the most successful open source companies come from outside the Valley, and have thrived outside the Valley.

Putting the Valley aside for a moment, however, I never gave a satisfactory answer to whether open source companies should be in the United States, given that most open source sales activity is happening in North America. I'm unaware of a single open source company that is an exception to this rule.

Here's a schematic I put together showing a rough composite of which geos are paying the most for open source software. I'm actually being generous to Europe here: I'd probably put Europe at 30% (or less) of open source sales. But I made this graphic back when I was trying to prove a different point. :-)



Why does Europe tend to equate open source software with "free as in beer" when it rallies to the "free as in freedom" banner?

I suspect that this is a momentary glitch. There was a time when North America expected open source to be free (gratis), and we've largely moved past this mistaken belief. I assume Europe will follow suit. But when? Two years from now? Five?

The longer the time horizon for Europe to start paying out the Euros, the less a company should invest its sales and marketing infrastructure in the land of good food and better football.

(Having said that, Alfresco has realized an immediate gain from adding sales/business development people in Germany and France. Suddenly, many downloads that had been inclined toward a free beer discovered the value of paying for freedom. So maybe the real solution to the "problem" is to invest more sales infrastructure in Europe, rather than less? Not sure....)

A new way to price open source software?

Much is made of how open source boosts software value. I've promoted that concept here.

So, while difficult to price in the real world, why not try something like what management consulting firm Trium does? Namely, let customers pay for the perceived value they get from a product.

As the Wall Street Journal reports today [Reg req'd], Trium has bucked the trend of traditional consulting firms by allowing clients to pay based on their "gut" perception of how much value Trium delivered.

Since it opened in 1998, [Trium] has offered clients a different kind of pricing structure. It states a figure and takes on a project if the sum is acceptable. After the project is done, dissatisfied clients can pay as little as half the quoted amount. Happy customers pay up to 35% more than the quote.

...[J]ust 5% of [traditional] consulting projects are priced based on performance -- and those that are...have only small fluctuations in the fee, typically 5%.

Further setting Trium apart from the rest of the pack are its ground rules: While the fee differential at firms offering variable rates is usually determined by objective, quantifiable results, such as reducing costs or inventory, Trium lets clients pay based on their gut reaction. The bonus or penalty can amount to tens of thousands of dollars on projects where quoted prices typically range from $150,000 to $400,000.

Frightening for the vendor? Yes, but also a little for the client, which is why

...[M]ost Trium clients opt from the start to pay a fixed fee, to assure budget certainty. Among those who choose variable pricing, Trium says 76% wind up paying more than the quoted price. Only one client in eight years has paid less than the quote.

I would assume that it would be no different in the software world. Most customers would opt to pay a fixed rate. Those that did not, and opted for variable pricing, would almost certainly end up paying more than the baseline amount for the better projects/products - the value of the software is highly disproportionate to the price of the software. There's a lot of room in there to reward open source vendors while simultaneously saving money that would have been wasted on proprietary software licenses.

Anyone care to give the model a spin?

Measuring the value (and components) of open source software

Leon Gommans (of the Holland Open Source Conference) sent me a link to a great site today: Ohloh. Ohloh estimates the value of open source software (measured in terms of lines of code and the cost it would take to pay someone to write that code - so, not the value one derives from it, but rather how much it would cost you to write it from scratch), highlights licenses used in a given project, and tracks developer and project activity over time.

It's not a perfect tool, but it's quite interesting. (I think Ohloh used a decent way to measure software value, but often it can be more expensive to pare down your code base than it is to "ramble" in your code. But I don't have a better suggestion of how to do it.)

Here are a few sample projects I pulled:

• Mambo
  
• JBoss Portal
  
• SugarCRM
  
• Alfresco
  
• Liferay Portal
  
• Struts (The factoids on this one are interesting)

This is a great service and, as Leon noted to me, reiterates the fact that open source projects can't lie. An open source project can claim something (the language it's written in, the strength of its community, the number of outside developers, or whatever), but the code doesn't lie. It's all there, and Ohloh captures much of it.

Thanks for sharing, Leon!

24 Hours of Unstoppable Freshness!

That was the promise my Ban deodorant made to me today. It lied.

Consumer products often lie to us, or stretch the truth (also known as lying). We buy this toothbrush because it will give us "brighter, whiter teeth," drink this drink because it will give us energy, or whatever.

One of the things I love about open source software is that it is lie-proof. I can say what I want about the product, hyping its benefits and obscuring its failings to convince you to use it. But at the end of the day, you can download it and immediately know if I'm lying.

To be frank, this can be frustrating. With proprietary software, you buy before you try. You write the check based on media, references, and a salesperson's word that her product is as close to divinity as you'll get on this earth. You rarely get to actually use the software in any meaningful way. It therefore matters a great deal how persuasive the salesperson is, and not nearly as much how good the software is.

Which is why the industry is rife with stories of enterprises buying software and then paying multiples over the purchase price to actually make the software work.

For open source companies, the software really does sell itself...to a point. That's not to say that good salespeople aren't important. They are. But they fill a different role in open source. They're more about helping to demonstrate how to maximize value with the software, and less about how to maximize their commission from a bloated license price.

To the extent, then, that an open source salesperson exaggerates the benefits of her software, she hurts her company because open source companies only get paid for delivering constant value/service. If the customer never manages to get the exaggerated promise to materialize, their support contract will last the first year and then the customer will invest in other software. No lock-in beyond customer service.

Open source is a more honest way of doing business. It keeps you honest and customers happy. They get what they pay for, not empty hype. When you're selling it, you sometimes wish they'd shorten the sales cycle even further by buying a little hype upfront, but I'm happy to trade a little instant person gratification for long-term customer satisfaction.

Fedora: What it is, isn't

Slashdot has an excellent interview with Fedora Project Lead Max Spevack. It's great on a number of different levels, talking through the technical aspects of Fedora and what-not, but is particularly interesting when it hones in on the Fedora vs. RHEL question. Spevack responds to the contention that Fedora is simply beta-ware for RHEL, as follows:

I'm really glad this question was asked, because it gives me a chance to try to bust the NUMBER ONE MYTH about Fedora -- that Fedora is "just a beta for RHEL" or that "Fedora only exists to make Red Hat money" or "Red Hat doesn't care about Fedora, it's just a dumping ground for half-tested code". I hear all of those things from time to time, and *none* of them are true.

Let's back up for a moment -- the Red Hat Linux/Fedora Core split took place in 2003. And while I wasn't at Red Hat during that time, I think it's fair to state that there were some unfortunate choices made internally about how Fedora was positioned [Asay: Well, Max, that all depends on whether you want Red Hat to have $300M+ in revenues this year or what it was likely to do without such a split...], and because those statements were made with a Red Hat voice, it helped to create a very strong perception that Red Hat abandoned the community, and that Fedora wasn't "good" for anything, or was a rejected part of Red Hat....

I think there were some people within Red Hat who were afraid that the "admission" that Fedora was production-quality, or that Fedora was anything more than beta-quality, would cause difficulty for the people trying to sell RHEL....

The real story of Fedora, of course, is entirely opposite from the "beta code only, not production worthy" stance.

Our mission statement is clear, and is one that I think any open-source developer would appreciate.

Fedora is about the rapid progress of Free and Open Source software.

That's it. We strive to produce a quality distribution of free software that is cutting-edge, pushes the envelope of new open source technology, and is also robust enough that it can be relied on for server or desktop use. One of the terms that I really like, and that I think we're doing better and better of making a reality is that of Fedora as an "open development lab". As a user, if your priorities are cutting-edge technology (without the nicks and cuts of a blade) and freedom, Fedora is a great disto to use....

Anyone (Red Hat or non-Red Hat) who tells you that Fedora isn't suitable for a production server is wrong. If someone tells you that Fedora is "just a beta for RHEL", they too are wrong.

I think Max is being earnest and forthright on this. I also think he's overlooking the point that the only reason he can make the points that he's making is that, three years later, RHEL is strong enough to survive on its own precisely because it has three years of being the enterprise option for Red Hat customers. Red Hat would not be where it is today - the de facto choice for enterprise Linux - without its wise segmentation of Fedora from RHEL. Period.

So, while I'm glad that Fedora can stand on its own today (with "nicks and cuts" as Max points out, which is precisely what enterprises don't want), there's no sane business reason that Red Hat could have allowed that perception to persist back in 2003 when it was trying to get its business flying.

In an open source company, there must be segmentation. SugarCRM does it with its "on ramp" model. JBoss did it with its Network offering. MySQL is increasingly doing the same (finding that the commercial license isn't quite enough to take it to the next level of revenues) with its own Network product. Those companies that segment best will win. Those that can't effectively separate their free products from their paid-for products will be cannibalized by their free products.

The only exceptions will come from those that find ways to make money around their service (like Google with AdWords), rather than directly from the bits and support thereof. Guess what? There aren't many (any?) enterprise software products that can or will be ad-supported. That means segmentation of the bits and the support that backs them.

IBM moving beyond Linux

And about time. At Linuxworld today, Scott Handy said that IBM will begin to invest more heavily in open source client-side middleware, development tools, Web application servers, data servers, systems management, open hardware architecture, grid computing and technology services businesses. That about covers it all, doesn't it? :-)

Scott also said:

"We plan a major expansion beyond Linux into open source....It's poised to be a more disruptive force in the industry in the next three years than Linux has been in the last 15 years. With open source beyond Linux, we'll be as aggressive and leapfrog right to the injection stage."

I would have thought IBM would have become more widely involved in open source some time ago, but better late than never. It was the catalyst for Linux. Its involvement in the wider open source community should also be helpful, though we are no longer in need of IBM's validation.

The ECM market in full consolidation mode

John Newton is back from vacation, and is back on his blog. Thank goodness. It's good to see a considered perspective on the various ECM mergers from the man who created the industry in the first place (when he co-founded Documentum in 1991). Seth Gottlieb also weighs in on ECM consolidation, but I can't agree with him that Red Hat will be buying Alfresco any time soon. We're not for sale, for one thing but, more pertinently, I can't see Red Hat getting into the applications market anytime soon. (Yes, ECM is arguably infrastructure, but still....)

Anyway, John calls out the consolidation trend, but points to a problem that consolidation doesn't solve: non-standard and proliferating repositories:

What do these acquisitions mean for the ECM industry? It means that consolidation is truly on its way, regardless of what happens to Hummingbird. FileNet was the leader in imaging, which is the area where IBM got started in ECM. IBM is now the undisputed leader in ECM and by far the dominant force in imaging and records management. OpenText potential merger with fellow Canadians Hummingbird brings a similar dominance to document management. Supposedly according to Gartner Dataquest, OpenText is the leader in ECM with a 13.2% market share. If so, they have a very poor market cap to prove it. The merger, however, should help to sustain them toward that market position.

From a practical perspective for the companies themselves, this exacerbates an on-going problem that all the ECM companies have had -- too many repositories that don’t interoperate. OpenText already have a problem with their existing iXOS repositories and will have a bigger problem with the more overlapping capabilities of Hummingbird as well as Hummingbird’s Red Dot acquisition. OpenText’s announcement that it will incorporate Oracle’s repository can only increase the complexity. IBM also has multiple repositories, especially if you count Notes and Domino. Oracle too has said that they need to rationalize their various content repositories. EMC also has issues of multiple repositories, although they seem to be collapsing them all into the Documentum repository.

Clearly, the reason for these mergers is not for technology, but for market share and customer base. With the level of overlapping technology in these systems, the problems inherent in consolidating the repositories must be outweighed by the desire to consolidate customers. This is very similar to what happened in the late 80s and early 90s in the relational database industry when Oracle took on DEC’s RdB products and IBM purchased Informix.

One would think that consolidation would trend toward fewer repositories, but that has yet to evidence itself. Instead, we get fewer companies with the same volume of confusion.

Consequently, we find composites of formerly separate companies internally struggling with what was formerly just te customer's problem. Vignette is juggling with its v7 repository and its old v6 repository. Documentum has several. Hummingbird and OpenText will have to duke it out over which one wins out (with the likely answer being "neither").

This is why it's so important to adhere to industry standards like JSR-170 (which none of the companies above do). Only Alfresco, Day (Apache Jackrabbit), and some few others do. So, if you're an enterprise that doesn't want to have its content locked up and owned by a vendor, why would you ever entrust your content to a proprietary repository? It's foolish. And it's by no means necessary.

Money and happiness

Jonathan Clements, who writes the "Getting Going" (Personal Finance) column in the WSJ, is one of my favorite columnists. Today is no different, as he records the results of a survey I encountered a few months ago, but didn't have time to blog. The survey/research analyzes personal incomes and how they relate to happiness.

The verdict? Money can't buy you love (thus spake the Beatles), nor can it buy you happiness.

Darn.

As the article notes:

...[H]igh-income earners often express greater satisfaction with their lives. In a 2004 survey, 43% of those with family incomes of $90,000 or more reported being "very happy," versus 22% for those with incomes below $20,000.

But the truth, it seems, is messier than such surveys suggest. Yes, if you live in poverty, more money can bolster your happiness.

"But once you're safe and warm and fed, it makes surprisingly little difference," says David Schkade, professor of management at the University of California at San Diego. "Once you get to the lower-middle class, then it takes a lot of income to make a difference. Income does matter, just not as much as people think."

So if the affluent are so happy, what's their secret? What is it that they do all day that guarantees them bliss? Several professors in a June 30 article in Science have an answer:

The five professors analyzed data for 374 workers who were asked every 25 minutes during the workday about the intensity of various feelings. Those with higher incomes didn't report being any happier, but they were more likely to say they were anxious or angry.

The five professors also studied government data detailing how folks divvy up their waking hours. They found that people with higher incomes tend to spend more time working, commuting and engaging in obligatory nonwork activities, such as maintaining their homes. All of these are associated with lower happiness.

In fact, as the study goes on to note, the Bureau of Labor has statistics on how people of varying incomes spend their time. Men making more than $100,000 per year spend 19.9% of their time on passive leisure, compared to 34.7% for men making less than $20,000. Women making more than $100,000 spend 19.6% of their time on passive leisure, compared with 33.5% of those making less than $20,000.

Maybe that "passive leisure" sounds better on paper than it does in real life, but while I'm not rich by any stretch of the imagination, I could do with a great deal more "passive leisure" at Arsenal matches with my family, watching Arsenal on TV with my family, or pretending to be Cesc Fabregas with my kids.

All of which is why, as News@Princeton quotes the professors' conclusion,

"The belief that high income is associated with good mood is widespread but mostly illusory," the researchers wrote. "People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities."

So, what can we do to be happier, we open sourcerors of the world? Jonathan Clements has some good ideas:

• Keep your commute short. While we often adjust amazingly well to life's hardships, commuting is an exception. "You can't adapt to commuting, because it's entirely unpredictable," says Daniel Gilbert, author of "Stumbling on Happiness" and a psychology professor at Harvard University. "Driving in traffic is a different kind of hell every day."
  
  
• Choose time over money. Cutting back the hours you work will likely leave you happier, even if it means less pay.
  
  
• Think carefully about how you spend your dollars. While a new car may not boost your happiness for long, maybe a trip to Europe would....The car might seem like the better purchase, because it has lasting value. But, in fact, it sits in the driveway, slowly deteriorating. "Experiences don't hang around long enough to disappoint you," Prof. Gilbert says. "What you have left are wonderful memories."
  
  
• Use your leisure time wisely. Surveys show that leisure is better for your happiness than work. But much also depends on how you spend your leisure time.
  
  Passive activities like watching television usually don't make folks as happy as eating. [Unless you're watching Arsenal spank Juventus.] A good meal, in turn, doesn't rank quite as highly as active leisure activities, such as socializing with friends.
  
  "Going to a dinner at a nice restaurant, where you're going to see friends and eat good food, is one of the best combinations," Prof. Schkade says. "The French know what they're doing, when it comes to how to enjoy a good meal."

There you have it. The secret of happiness, and all you had to do was read this blog for five minutes to find it.

FON - the social WiFi phenomenon

I just came across FON today, and think it's one of the coolest ideas I've seen in some time. Basically, FON enables your WiFi router/access point to securely share your connection with other FON users. They share, you share. This means that you give up a little bandwidth on your box, but gain a world (literally) of free access points.

You can choose to pay cut-rate prices and share nothing (making you an "Alien"). Or you can rent out space on your router (a "Bill"). Or you can go "GPL" and give and take for free (i.e., you become a "Linus"). Ingenious, really, and highly useful. Whenever I'm on the bus in London, I "wardrive" for open connections (hoping for the bus to stop at the light long enough for me to snag a few emails). Next time, I'm going as a FONero, and using these open access points.

Check it out. And become a FONero.

(Btw, if you haven't guessed, it was Danny Rimer who funded FON. Danny has the most interesting portfolio of any VC I've seen. And successful, too.)

IDC's new service: open source strategy

I met with Matt Lawton of IDC this morning. Matt is heading up a new group at IDC that will cover software strategy, specifically related to open soruce business strategy. Finally, an analyst group that aligns well with the Open Source Business Conference. The group will be working on strategies for successfully monetizing open source.

The service isn't fully live yet, but if you're interested, give Matt a call.

VOIP: It stinks, but it's cheap

The WSJ's Lee Gomes today talks about VOIP and its sound quality relative to the normal phone systems (POTS). Verdict? VOIP stinks.

I've had that verdict off and on over the past three years that I've been using Vonage. For the first year, it was dismal. The second year it was perfect. Now it's terrible again. Why? Gomes' interview with Brix's CTO (Brix runs the TestYourVOIP site) gives an indication:

A million people have tested the quality of their VOIP service by using your site. What are the results?

In a traditional telephone system, the "acceptable call quality" is around 99.99%, meaning that percent of calls sounds OK to the user. But we found that in a VOIP environment, the ACQ was around 80%. We also found that ACQ is actually dropping over time. And that is fairly disturbing news for VOIP.

Why the decline?

With the emergence of sites like YouTube, and music downloads and emails with large attachments, there is just more traffic on the Internet."

So, for all the "Net Neutrality" people who believe that free grazing on others' pipes is the way to go, I can't help but wonder what will happen as more and more people crowd bandwidth-intensive applications onto the 'Net. Someone pays for the quality degradation that these create on the Internet. Google et al. argue that it shouldn't be them. But whom, then?

As for me, I know just one thing: my Vonage connection stinks. Period. Would I pay extra so that I could get Quality of Service (QOS) levels that approach POTS? Yes.

And for those of you who recognize the early arguments of the open source movement in VOIP (Yes, it's not very good, but it's free), you're not alone. My guess is that, just as in open source, VOIP providers will increasingly distinguish themselves by the quality of the products they deliver, and not on the price.

The "Honest Public License"

Fabrizio is tired of people taking GPL'd (or other open source) code, using it for online ("Web 2.0") services, and giving nothing back. No cash. No code. No credit. Nothing.

So he has come up with the "HPL" - the Honest Public License. Keep in mind that the "honesty" dig is not at the GPL, but rather the way Fabrizio feels people are misusing it.

I've been on the "dishonest" side of this fence before. However, I've always been a fan of Ralph Waldo Emerson, and concur with his feelings in "Self Reliance": "A foolish consistency is the hobgoblin of little minds." So, with that peremptory about-face, I'm now on Fabrizio's side, as should have been evident from my complaint a few weeks ago about Yahoo! and Google (re their stinginess in giving back to the open source world that helped to make them).

I'd prefer, of course, that the Free Software Foundation would expedite GPLv3 (and maybe soften it in the way Fabrizio describes - I, too, prefer persuasion over force). But that may take some time, so I like the HPL as an interim stop-gap.

France Telecom cuts jobs by funding entrepreneurs

Some of you may know that I lived a few years in France, and love the country/people/food. I can't help but shake my head, however, when I read things like this from today's WSJ:

France Telecom has funded about a thousand [business plans of current employees]. The company is an extreme example of the struggle by many European businesses to stay competitive amid restrictive labor laws. Formerly a 100% state-owned phone monopoly, France Telecom is trying to convert itself into a pan-European Internet and mobile-phone company. But it must navigate a technology revolution with a work force that is almost impossible to reduce by layoffs. Two-thirds of France Telecom workers have civil-servant status that guarantees them a job for life, and the rest are protected by strict French labor laws.

To encourage voluntary departures, France Telecom has subsidized a magician, backed the opening of a scuba-diving shop in Martinique and sent a promising baritone to opera school. It also persuaded public-sector employers such as schools and fire departments to take thousands of its workers.

If the business ventures fail in the first three years, the budding entrepreneurs can return to the company. "You would not believe the number of pizzerias and other little businesses France Telecom gave birth to last year," says Olivier Barberot, senior vice president for human resources.

The experiment has proved successful so far. Only one in six projects has failed since it began three years ago, according to the company, and it hopes to expand the program. Other French companies, including oil giant Total SA, the drug company Sanofi-Aventis SA and Electricite de France SA, are also trying the approach.

The efforts are hardly a panacea for France's employment woes. Unemployment has been stuck in the neighborhood of 10% for a decade. The rules that protect employees from being fired make private-sector employers wary of hiring. The public sector employs nearly a quarter of the work force. Earlier this year, the French government proposed to loosen some rules on firing but was forced to abandon the idea after huge street protests.

I've said this before, but it bears repeating: there is no reward without risk, and France is stultifying reward in its efforts to stamp out risk. I'm glad to see France Telecom investing in entrepreneurs, but it would be useful if the government and culture didn't frown upon entrepreneurs, as BusinessWeek reports.

All of which makes me think of Mr. Micawberg from Charles Dickens' David Copperfield, which I'm in the process of re-reading. Mr. Micawber is a man of "genius" according to his wife, yet never able to get or keep a job. Who is to blame? Mrs. Micawber, the ever-devout wife, suggests:

we can not live without something widely different from existing circumstances shortly turning up. Now I am convinced, myself, and this I have pointed out to Mr. Micawber several times of late, that things cannot be expected to turn up of themselves. We must, in a measure, assist to turn them up. I may be wrong, but I have formed that opinion.' ... [So far, so good.]

'Very well,' said Mrs. Micawber. 'Then what do I recommend?...

'...[H]ere is Mr. Micawber without any suitable position or employment. Where does that responsibility rest? Clearly on
society. Then I would make a fact so disgraceful known, and boldly challenge society to set it right. It appears to me, my dear Mr. Copperfield,' said Mrs. Micawber, forcibly, 'that what Mr. Micawber has to do, is to throw down the gauntlet to society, and say, in effect, "Show me who will take that up. Let the party immediately step forward."' (387)

Good start, bad end. If my company doesn't make money, it does no good to blame the market, or society, or whatever. It is my fault. The best businesses are those that take responsibility for outcomes, and not merely intentions. We make our destiny.

I'm not suggesting that the 'American Dream' is equally available to all. It's not. But it's more available than we sometimes allow ourselves to believe. As technology companies, we certainly have every reason to succeed, rather than excuses to fail.

Mobilize your website (One Click)

Mark Watson from Volantis and I were IM'ing earlier today, and he mentioned a cool new application they've created. It's called "Mobilizer" (well, that's what I'm calling it, because that's what the site says and because I have all the marketing prowess of sheet metal so I can't come up with anything else - Lilliputrify? Nope). It's in public beta now, and works well.

What does it do? Well, you point it at your website (or anyone's, I suppose) and it transforms the site so that it will show up well on mobile devices. It takes a minute or two to transform the HTML into mobile-friendly code, then gives you the ability to see how it will show up on high-quality mobiles (Treo), medium-quality (The old Blackberries), and low-quality (whatever my mom has).

It's super slick, costs nothing, and gives you a mobile site in under 5 minutes. You should use it.

P.S. Yes, I have a history with Volantis. Fantastic company. Kicking tail. Customer list everyone would want. Just doing it without me. :-)

Hiring well

Will Price has a great discussion on hiring quality people. (Hmm...Will, I wonder what prompted that post? :-) Will's post relates to how a startup should hire, but it applies equally well to a large company.

As Will sets up the scenario, an early-stage startup has received funding and is looking for new hires to take on the increasing workload and help take the company to the next level. Two options arise:

• A proven performer with deep domain expertise and a track record of achievement in the given function versus
  
  
• A high-caliber athlete with incredible drive and passion that can be shaped into a high-achiever but without the defacto track record and resume.

Whom to hire - the proven performer or the eager, malleable beaver?

You take the domain expertise nine times out of 10, right? Well, that depends on whether they're a bozo or not. Or, in Jack Welch's way of thinking (quoted by Will):

• Proven performers who are lousy fits = type A
  
  
• Unproven performers who are lousy fits = type B
  
  
• Proven performers who are great fits = type C
  
  
• Unproven performers who are great fits = type D

Who do you take? Obviously, you scrap the "B" players. We'd all love to hire "C" players, but they're going to be the exception, not the rule. So, the question, as Will poses it, is do you go with a "D" player or an "A" player?

Will's answer, and Welch's, is that "type D trumps type A all day long." Why? Because no one wants to work with a bozo. Shapeless talent can be sculpted. Bozos are always bozos.

I remember that Matt Harris hired me at Lineo based on the "this lump of talent can be made into something." Based on the trust he put in me, I invest the same trust in the people I hire. I have a strict no jerks policy. I don't care how talented someone is if I can't bear being around them. The good news is that there's lots of talent in the world - no need to dip into the jerk pool.

Great post, Will!

News: IBM to buy Filenet for $1.6B

A few years ago, EMC bought Documentum, then (and now) the #1 market share ECM vendor. Today, IBM followed suit, buying FileNet.

FileNet has struggled to grow over the past few years, but has a solid base of customers in the insurance and financial services verticals. My guess, then, is that IBM's interest in FileNet isn't to capture FileNet's revenue (what's a few hundred million to a multi-multi-billion dollar company?), but rather the opportunity to sell consulting services to FileNet's somewhat stagnant customer base. (Or maybe its because the company is so cheap: its stock has barely moved in the last two years:



FileNet's strength - workflow for the finance and insurance industries - is perfectly suited to IBM's services. I assume IBM will make this acquisition pay.

But for all those FileNet customers who would prefer to pay for direct value to them, rather than licenses and new services, you should check out the range of open source ECM projects and vendors, starting with Alfresco. Some of you already have. That's why you're smiling and your wallets are full.

If you're a FileNet employee looking for a job, we're growing revenues strongly and hiring conservatively. We already have the core development teams from Documentum and Interwoven and top sales engineers from Vignette. We could use some FileNet blood, too. Ping me at first.last at alfresco.com.

Zack Urlocker on how to build a strategy

Zack has two posts on how to kill good ideas and how to come up with good ideas. Cynic that I am, I like a few of Zack's ideas on killing good ideas most:

2. Manage by consensus
If you've got radical ideas it's pretty much guaranteed that you won't get consensus. Heck, if it doesn't get someone's dander up, it probably isn't radical enough. If you try to get everyone to agree, you'll probably compromise so much that the value of the idea is lost. Forget consensus. Be brave and be prepared that there will be detractors. There will be people who object to new ideas for lots of reasons. Maybe it threatens their power structure, or they are jealous that they didn't think of it. People can get very complacent with the status quo and change makes people nervous. But don't try to manage towards consensus or you'll find inertia holds you back.

3. We've done it before and it didn't work
While it's good to learn from the past, it's easy to become a prisoner of it. Whenever someone complains that something has been tried before, try to think if there's something different today. Maybe there can be a variation of an old idea, or perhaps a different execution plan. Or perhaps the market has changed. But instead of criticizing an idea as being old, figure out a way to strengthen the idea.

4. No one has been successful doing it before
This is the opposite of item 3 above. If no one has done it, it doesn't mean that it won't work. Maybe no one has been bold enough. Or maybe no one thought of it yet. If you want to get out on the bleeding edge, then you need to try things out before it's common knowledge. How many people do you think told the founders of SugarCRM that no one has been successful with open source applications? The truly successful companies, like Google, Yahoo, Microsoft, IBM, Apple, Intel have all broken new ground many times. It's when they stop breaking new ground that you need to be concerned.

Thanks for sharing these, Zack. Good advice from a leader in a great company.

Matrix funds Digium (Asterisk)

I actually thought Digium would never take venture funding. The company doesn't need it ($10M+ in sales and profitable), but apparently David Skok of Matrix Partners gave Mark Spencer (founder and CEO of Digium) an offer he couldn't refuse:

Make that $13.8 million of them.

Matrix is one of my very favorite venture firms: great people to work with (David Skok and Bob Lisbonne both count as two of the first three to five people I'd talk to if I were to start a company) and very intelligent about what they invest in. They're choosy.

Why Digium? Well, David puts it best:

"This company has an incredible power to disrupt the dynamics of what has been a very staid and closed industry," he said. Even with its free software base, he said, Digium is "one of the most profitable businesses I've come across anywhere in the venture world."

That's saying something. And it cuts against the arguments Dan Farber was raising in his latest post on open source businesses. (He has a nice response to mine here.)

This is a great investment - one that should pay off even better than JBoss did for Matrix, if only because JBoss has set the stage for many profitable exits to come.

Btw, here's a picture of David and Mark Spencer at OSCON. Anyone watching the two at the conference knew that an investment was afoot:




Good luck to Mark as he continues to build a killer business!

Apple announces its next round of innovations

Oh, my. Apple has got to be the coolest company on Planet Earth. I'm watching the opening keynote from Apple's Worldwide Developers Conference, and I'm blown away by Time Machine (demo), among other things. Time Machine lets me go back to a previous state of my Mac to take a look at a file, folder, or whatever. So, if I inadvertently deleted a file three days ago, I can just rewind the appropriate folder by four days, and voila! There's the file. Very cool.

Apple is a hugely innovative company. Jobs compared Apple's paradigm-changing innovations to Microsoft's me-too desktop (as did several of his executives). One had a funny vignette showing how Vista is trying to clone OS X.

That said, some things Apple showed smacked of its own bit of cloning work. Apple's new Spaces feature, for example, seems like only a slight innovation on the desktops feature inherent in Linux.

Still, I'll forgive Apple a little game of catch-up here and there because of all the other innovations it's cranking out. Leopard (the next version of OS X) looks amazing. Can't wait to buy it. (How often do you say that about software?)

Open source: How little we know ye

Dan Farber has collected a range of commentary on two important open source business questions: namely, will open source pummel proprietary software vendors and does it have a long-term future? I guess I find these questions a bit old-fashioned because I do open source software, and watch open source beat proprietary software every single day. I sell into an increasing number and range of enterprises who view open source as a viable, competitive reality. I see it knocking down the doors of every major enterprise on this planet (and several more on Mars). And, importantly, I see it making a lot of money for those selling it.

I'll tackle a few of the misguided criticisms of open source dominance in order that Dan quotes them. From Jason Wood:

Application Servers: LAMP is certainly massively popular, but since when have Java server vendors started reeling? Oracle's J2EE app server has become a $1 billion business in just two years, and last time I checked Oracle was still printing money with 40% operating margins. Meanwhile BEA continues to chug along thanks to a refined marketing message around SOA. Ironically, JBoss, the flag bearer for enterprise class open source app servers, is the one struggling. Red Hat (which acquired JBoss recently) just guided to a $0.04 per share negative impact from JBoss in FY07.

In response to Jason, the application server vendors are reeling, starting with the weakest of the bunch. This will always be the case: the leading incumbents will continue to add market share even as open source chomps away at the weak sheep in the fold. This is precisely what is happening in the server operating system market today. Windows continues to gain as Red Hat and Novell eat away at the weakened Unix vendors. At some point, Red Hat and Microsoft will go head to head. I think Red Hat/Linux will win. TBD....

So, again, we are seeing the application server vendors start to struggle against JBoss. But keep in mind that it will still be several years before JBoss will be crowned king, just as it took IBM and BEA years to create and own the market. Enterprise markets move slowly. Just look at JBoss' momentum, though, and you'll see the writing on the wall.

As for JBoss being the one hurting, I'm not sure where Jason possibly got that, because the data point Jason notes is not indicative of JBoss' financial health. I know their financials. The company is knocking the ball out of the park. While it's true that the company hasn't been profitable in the last two years (though it used to be), this is a result of aggressive growth, and is normal and healthy. He's describing a universal reality for all software startups: top-line growth with good management eventually leads to bottom-line growth. But not immediately.

Dan then quotes Niel Robertson of Newmerix, who slaps at the "service-based" business models allegedly used by open source vendors:

The problem with this model is that in the long run this makes open source companies look like professional services companies. If their margins start to reflect services companies (10-25% type of thing) then their valuations will go the same direction. This will cause a huge problem for the open source market

I am actually going to predict that this will happen. I think the market is still infatuated with the growth rate and potential of open source companies from a revenue side but is not considering the profit side (very few are even marginally profitable). Thus service-oriented open source companies are getting valuations that look more like software companies than services companies....

As the market looses [sic] interest in top line growth and rationalizes valuation against the bottom line, the service-based open source companies will either need to find a more classic enterprise software business model which gets them higher margins or accept their services-related fate and the low revenue-multiple valuations that come with it.

I couldn't agree more, Niels, except that I don't know which open source software market you're talking about. Who, exactly, still uses the model you describe? I can't think of any of the leading 20+ vendors who use a services-based model (including JBoss). So, you waste a fair amount of ink on a strawman open source company that doesn't exist.

What is Red Hat selling? Software. What is the guarantee behind that software? Service. But the company's margins (and valuation) reflect the fact that it is a software company. (It's still shocking to me how poorly understood Red Hat's beautiful business model is.)My own company, Alfresco, has 80%+ margins and is doubling revenues quarter-over-quarter. Yet we're 100% open source. SugarCRM is inking deals with six zeroes behind them at 80%+ margins. They're an open source software company, too.

The problem I have with all of this commentary is that it's just that: commentary. Those of us actually doing open source software companies know that the services model went out several years ago, and that there are handsome profits (yes, profits) to be made today while simultaneously improving value for customers and saving them money. As I presented at OSCON and wrote recently, open source provides a low-cost launchpad to take on incumbent vendors and beat them on its own terms.

I won't go on with Dan's blog, because the more interesting question (one not asked or answered there) is, "What will be the primary bases for competition once everything is more (or less) open source?" Today, I heartily enjoy competing against my slow-learning proprietary opponents. There isn't a thing (besides incumbency, and that does go a long way, though not forever) going in their favor. They have the wrong business model (for customers, who are wising up), the wrong licensing model, the wrong everything. All they have is incumbency, and I'll take pieces out of that quarter after quarter, year after year, until we move into their offices at a lower cost of sale, lower cost of development, and significantly better value for the customer.

It's not about price. It's about value, as Michael Tiemann said at OSCON. Jeff Nolan might be right about proprietary vendors with big warchests being able to win a price war. What they can't win is a value war, because they are structurally incapable of competing well on that ground. I'll take my proprietary competition every single day on value. Already am, in fact.

Now can we go back to more pressing questions like, will Arsenal win today? Let's hope so. That, at least, is in doubt. The software war is not. Open source is already winning. I can't see anything to stem its rising tide.

My Port 25 Microsoft interview

I always wonder someone doesn't put a gag in me. Case in point, this interview on Microsoft's Port 25. Bill Hilf has become a friend, and threw me some softball questions. But I'm sure I said a few things in the course of the interview that someone will be happy to take out of context. Have at it. :-)

Actually, there are some interesting things that come out. Bill astutely points out that business models for infrastructure with low conversion rates (but high volume) won't work in the business application space. I agree wholeheartedly, and talk in detail about various models that get us out of the 1% conversion rate conundrum.

Btw, you can find other interviews from the same series (with Tim O'Reilly, initially, though I believe others will be uploaded) here.

Yahoo! fights back

Jeremy Zawodny earned his stripes today with a great riposte to my original complaint that Yahoo! and Google are architecturally prevented from opening up more code.

Jeremy's reply is intelligent and measured (despite his thinking that he was being negative - hey, I blog with Dave Rosenberg - Jeremy has never even approached that level of negativity ;-). But aside from a "we're doing better!" closing line, he doesn't do much except underline my core argument: open source is hard; it may be particularly hard for Yahoo! and Google; but this is not a satisfactory answer. I wasn't accusing Yahoo! of writing poor code (as you well know, Jeremy, and wasted pixels writing that), but of contributions disproportionate to what you have received from open source. That's all.

You write:

...[L]et's suppose that we decided to release "what we can" into the open source world. Of course, there'd be a lot of legal vetting first. Code licensing is a real mine field, but let's suppose that we cleared that hurdle. It would look as if Yahoo was doing exactly what businesses looking to get into open source are told NOT to do: throwing some half-baked code "over the wall" and slapping a license on it.

No, it really wouldn't. I helped to manage Novell's inflow and outflow of open source for two years, and the community response is rarely what you describe. Yes, there are obnoxious loudmouths (in which class you'd probably place me :-) who are never satisfied you've done enough. But most people aren't like that. Intent matters a great deal in open source.

As for how much code I've personally published, zero. I'm not a programmer. You wouldn't want my code - really. Not because it's secret and not useful to this or that person without a massive infrastructure (your (very valid) argument for defending Yahoo!), but because it would be absolute drivel.

But my entire career has been spent working for companies who do nothing but compete by releasing free software. So I have some experience about how hard it is, and how rewarding it can be. You should download my latest project. It's called Alfresco, and is the best content repository on the planet, open or proprietary. I'd be happy to set Yahoo! up with a sweetheart of a deal.... :-)

Open source in government: more and faster

Gary Edwards (Open Document Foundation) and I were talking yesterday, and he mentioned the NASCIO (National Association of State CIOs) Conference coming up. I checked out last year's conference and found an interesting set of slides from an open source session they held.

From the slides, some useful data on why state governments are buying into open source. (Note: The survey was to CIO-level IT people within state governments. Pretty credible data, especially since NASCIO gets 350-450 senior government IT folks out to its annual conference, and restricts the survey (unless I'm reading the site wrong) to the most senior IT officials).

Anyway, why are state CIOs buying into open source? Well, for one thing, because it costs less. But also because it works better:



As for where they're currently at in adoption the answer is hugely positive: not very far. Why is this positive? Because I'd rather be at 25% and growing than 99% and shrinking.



What's holding it back? Again, the news is good, because it reveals, in the first place, a lack of understanding about how much the open source market has matured (support) and, in the second instance, a need for more capable IT staff. This will happen organically as the youth are being raised on open source. In 10 years, it will be Windows/SQL Server/etc. expertise that will be lacking, not Linux / MySQL / JBoss / SugarCRM / JasperSoft / Alfresco / Digium / etc. expertise. Microsoft will be the Buick driven by my grandmother (bless her!), and open source will be the Honda or Toyota that everyone drives because it's cheaper, works better, never breaks, etc.



Why am I so optimistic on this open source future? Because the customer satisfaction it brings:



Time to call your state government and vote open source. Sounds like they'll be happy to get that call.

More on the "billions" question (Marten Mickos)

Marten Mickos was kind enough to ping me about my post on whether open source companies can exceed the $1 billion speed limit our (alleged) business models impose. With his permission, I've posted in some of his thoughts below, which are cogent and a bit more thoughtful than my off-the-cuff tirade. :-)

(Stephen O'Grady, btw, now has a great response to my (and others') critique of his original premise (that we're not going to see an open source company hit the $1 billion in sales mark any time soon). You should read it.)

Marten writes:

If you read "Blueprint to a Billion," they state that it takes anything from 2-10 years to reach the inflexion point, and thereafter typically 4, 6 or 12 years to reach a billion in revenues. Open source is reaching the inflexion point in these years.

Asay: This is important to note, because one of the things that every open source company now has going for it is huge industry momentum. So, it's not accurate to look back at past growth rates to say, "Well, they've only grown an average of X percent of the past 10 years." What we should be looking at is growth over the past 2-3, and watch to see if these numbers are accelerating. Stephen in his follow-up notes that Red Hat's growth last year was ~40% over the previous year, compared to a 5-year average of 28%. I suspect growth will continue to accelerate.

Red Hat aside, JBoss' revenues grew 350% from 2005 to 2006 (and 150% the year before). MySQL will double its ~$40M number this year. JasperSoft, SugarCRM, Alfresco (and probably others) are roughly doubling revenues quarter over quarter, or better. There has never been a better time to be an open source company.

Here are some thoughts by me on why there will have to be $1 billion open source companies in the future:

• Red Hat is already heading in that direction. Linux is still only 20-something percent of all corporate servers, so there is plenty of room for the Linux business to grow its market share. As that continues to happen, Red Hat and/or others will have enormous growth.
  
  
• The DBMS market is some $15 billion annually. I don't see any reason why an open source database wouldn't rise to a significant market share over time, i.e. being among the top 4 vendors. Even if the market would shrink (which I don't think it will, but let's just assume), all of the top 4 vendors should reasonably be over $1 billion.
  
  
• Today there are 1 billion people accessing the internet worldwide. This number is growing. And of the 2 billion people who have a mobile phone, a small but rapidly growing number is accessing the internet from their phone.
  So the number of internet users will soon be 2 billion. Many people agree that open source is the fabric of the internet. And the internet needs to be maintained and further developed to run well. If these statements are true, why wouldn't there be a number of billion-dollar business opportunities for open source? [ASAY note: And why wouldn't MySQL benefit disproportionately from this, in my view, to the tune of $1 billion? Its network product and improved licensing model should pay big dividends in terms of margin and conversion rates (and the value of those conversions). This is a billion-dollar company.]
  
  
• The software industry as we know it today (MSFT, ORCL, IBM, SAP and a few more) was predominantly developed by white males of a certain age group in the Western world. But what will happen when the other territories and other age groups and the other gender truly get going? I.e. when they don't just apply for a job in Redmond, but set up their
  own innovative new business anywhere in the world. That will be a huge revolution for software because so many more people will be developoing software (and not just for "ERP" or other traditional areas, but for many new ones). And, as it happens, most of those people are growing up on open source because that's all they have access to. So why wouldn't
  this lead to enormous open source business opportunities, including some of the magnitude of $1b?

I couldn't agree more. There has never been a better time to be in open source. Yes, it takes time to build a billion-dollar business, whether you're in open source or proprietary software - just look at how long it took Business Objects, Novell, and other companies to reach that mark.

But it will happen. And in Red Hat's case, in the next five years.

Paying for production, not development

One of the most intriguing things about open source is that while supposedly a developer phenomenon, it actually lowers development dollar investments to zero (or nearly so). In this way, it takes profit out of the development part of the total sales equatioin. Simon Phipps calls this paying at the point of value, but the easy way to describe it is by saying that open source makes evaluation and development free (of charge), requiring payment when you go into production.

For the enterprise IT people reading this, you'll recognize what a huge benefit this is. In the traditional proprietary model, enterprises buy on faith and then pay through the nose to give substance to that faith. You buy a product based on a demo, an analyst report, or whatever, but you have no real involvement with it until you actually buy it. Once you've "invested" in the product, you're stuck. I've written here before that one of my current competitors sold a system to a company I know well for nearly $1M...and two years later it's still sitting on the shelf because no one can get it to work. This could not happen in open source. You would know whether the product would work for you or not before you had to put hard dollars on the table.

Are there costs associated with evaluation of open source software? Sure. It takes IT cycles to evaluate open source products (just as it takes cycles to evaluate proprietary products). The difference is the amount of money and the point in time when you start paying.

Can open source crack the "B" barrier?

Stephen O'Grady apparently spent last week at the wrong conference. He came away from OSCON wondering if open source companies can ever reach the $1 billion mark in sales. He writes:

As stated at OSCON, I believe both that open source has reached and in fact passed the tipping point and is here to stay, and that it has a bright future. 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. The numbers - those that are available, at least - simply don't support such a conclusion. But neither do I consider that a metric for success.

What's interesting to me is that the very same numbers - at least, I assume we have access to the same data - tell me a very different story. Red Hat will hit the $1B mark in 3-5 years, and will likely do so without seriously tapping into the gold mine that is Windows territory. Other companies - JBoss ($60M this year) and MySQL ($80M) - are also on track. Heck, I'd even put SugarCRM and Alfresco up there as being on rocket ship trajectories to the $1B mark, though we're a few years behind.

Stephen is a smart guy. But he's wrong on this one. He's right on the customer benefits of open source ("[I]t does benefit customers by lowering pricing and increasing choice"), but I think he's wrong about focusing on volume over conversion rates:

The history of software, however, whether we're talking Microsoft or Linux, would seem to indicate that the best approach to wealth creation lies in volume rather than margin. So in that at least, the open source approach is sound. Were I an open source business then, and I suppose in a way we are, I'd focus on growing volume, community, and mindshare rather than the rather abstract dollar metric.

Yes, by all means focus on volume, but it is precisely that focus - with a corresponding lack of focus on improving conversion rates - that arguably does match Stephen's bleak picture for open source stuck in "M-mode" (i.e., millions mode).

To get the full story on where open source business is going, you have to look at the new business strategies the rising vendors are employing. My own company, Alfresco, is aggressively "pushing the pull," as I term it (and as I presented at OSCON). We're not taking rising download volume for granted - take a look at the JBoss download numbers in the link above, and you quickly see that the downloads for any project will largely plateau, forcing you to find ways to boost "second sales" (renewal rates) and to improve conversion rates (and conversion value - i.e., the size of the resultant deal) by raising brand awareness and product quality. So, we get involved early into the process and now have an enviable conversion rate that exceeds the numbers Stephen cites (which conversion rates we're bumping further with some added product enhancements that we learned from JBoss, Red Hat, and SugarCRM). Speaking of SugarCRM, they have also found some clever ways to turn downloads into dollars.

The point is that we should not look backward and say, "Well, I don't see any billion-dollar open source businesses in the past, ergo, I think there won't likely be any in the future." Stephen wasn't exactly saying this, but I do think he was relying on outdated data and business models. (I'm not sure how he doesn't look at Red Hat and its remarkable business model, and clearly see the $1B mark, but I'll have that conversation with him at the next conference.)

My only disappointment in all this is that I won't be the first to hit $1B. That has long been my goal: build the first $1B open source software company. But I'm happy to see the success of others', and am grateful for how much easier companies like Red Hat and MySQL have made it for new companies like mine to achieve that same level of financial success. (Having said that, ever counted the number of $1B+ proprietary software companies? There aren't many.)

Even more than the cash, however, I appreciate how they're doing it. Anyone else notice that pureplay open source seems to mint more money than the hybrid models? There's a good reason that Red Hat is banking hundreds of millions of dollars in Linux sales each year, and Novell is not. Part of that is the headstart Red Hat had, but much has to do with the message: 100% open source sells. All Red Hat had to do (and it was a stroke of absolute brilliance) was figure out how to give customers their cake (100% open source) while also providing a trigger to convince them to buy (and buy again when renewal time came around).

So, Stephen, $1B is the easy part. Doing it without becoming like the other billion-dollar players is the hard part. For that, I look to you to help keep the industry honest.