Open source: It's all about the value add

BusinessWeek declares the open source model is broken. Or did Stuart Cohen miss out on the fact that companies are already making and saving money with open source?

I read the latest open source story over at BusinessWeek, "Open Source: The Model Is Broken," with some skepticism. Dramatic headline aside, author Stuart Cohen makes the case that open source businesses based on selling support are not going to be viable. Why? Because open source software is plenty good on its own and selling support is a low-margin business. No kidding. I think this has been obvious for several years. Cohen goes on to make the case that Red Hat has figured out a business model that adds value beyond support with its Red Hat Enterprise subscription.

But there's more than one way to skin a cat, and there are many other companies who have their own variations on how to make money with open source. And as I described in an earlier blog posting, Sun offers an Enterprise subscription to MySQL that goes beyond support to provide Enterprise Monitoring and Query Analysis tools. The model works like this:

  • Sun provides high quality open source software used by millions of developers around the world (for those who want to save money)
  • Sun sells software add-ons along with support via subscription to provide additional capabilities to make it easier to scale (for those with business critical applications)
  • Sun sell systems (servers and storage) that run open source extremely well (for those who want the best scalability and performance)

It's unfortunate that Cohen missed the opportunity to point out how companies like SugarCRM, Alfresco, MuleSource, Pentaho, JasperSoft, Hyperic, and MySQL (and Sun) make money from open source. Since most of these companies are private, information on their revenue streams is not readily available, but I would speculate that there is about $200 million in annual revenue across just these products alone. That may not be enough to create a software giant on the order of Oracle or SAP, but it's still good business.

More importantly, as is reported in a companion article "Open Source: A Silver Lining in the Economic Slump" in BusinessWeek, open source companies are growing more rapidly than their closed source counterparts and are likely to do even better in a recession because customers can save 90 percent or more compared to closed source products.

So if anything, I think it's the traditional closed source business model that is broken at this point. That may not be obvious yet, but you just need to look around to see what software is being adopted by startups and new projects inside large companies. Hint: It's the one that costs less. As long as open source companies add value, they will do fine.


Copyright © 2008 IDG Communications, Inc.

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