Open source 2.0: New kids on the block

Remember a year or so ago when you could probably name most of the open-source companies in the market? Try doing that now when the number of startups has skyrocketed to several hundred. While this massive growth appears reminiscent of the dot-com boom before the bubble burst, experts in the field stress that the second wave of the open-source revolution, Open Source 2.0 if you like, is unlikely to play out in quite the same way. However, that's not to say there won't be some upsets along the way.

"There are absolutely too many [open-source] companies," Jo Tango, a general partner at VC Highland Capital Partners, wrote in an e-mail response to questions. "I predict a venture capital backlash against open source. There are simply too many companies right now raising money with the approach: 'We'll give it away for free and make it up in the back end with high volume services/support revenue.'" For example, with three open-source database companies emerging this summer, there just isn't room in the market for a fourth, he added.

The organizers of the Open Source Business Conference (OSBC) East taking place in Newton, Massachusetts, next week have also had first-hand experience of the huge uptick in the number of open-source companies over the past 18 months. When they were planning the first OSBC in San Francisco in March 2004, the organizers found it hard going to come up with enough companies for a showcase of 15 to 20 open-source startups, according to Matt Asay, the conference director and director of open-source strategy at Novell. "It was a lot of work just to find the companies, they were all over the map," he said. "It was slim pickings."

Fast forward to the preparation for OSBC West in April this year in San Francisco, and again in the run-up to the upcoming OSBC East, and Asay and his colleagues were looking at over 150 companies for the showcase for each event. "We're getting really good quality and not just quantity," Asay said.

Bryce Roberts of venture capital company O'Reilly AlphaTech Ventures LLC has worked on whittling down the 150-plus companies to the 16 that will be exhibiting at OSBC East in the conference's Emerging Elite Showcase, according to Asay.

They include service-oriented architecture (SOA) integrator Active Endpoints, enterprise content management firm Alfresco Software, software-compliance assessment service provider Black Duck Software, Linux server management firm Centeris, database vendor EnterpriseDB, mobile application server company Funambol, customer relationship management vendor SugarCRM and enterprise collaboration software firm Zimbra.

"There's a real flowering of open source emerging at the application level," Asay said, pointing to the likes of Alfresco and SugarCRM.

"I've watched the seeds of the transition happen over the last two years," he said. "I met with SugarCRM six months before they'd written a line of code. I thought they were full of it and high on something." However, with the favorable reception the company went on to receive and SugarCRM's recent raising of over $18 million in Series C funding, open-source companies started to feel like a very real career option to Asay, he said. In fact, as Asay opens OSBC East on Nov. 1, it will be in his new role as vice president of business development at Alfresco.