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Venture Capitalists Think Open Source Again
prostoalex writes "Seattle PI notices a rise in venture capital investments into open-source companies. JBoss, SourceLabs, SugarCRM and OSDL all attracted venture capital investments this year, with SourceLabs receiving investments from former Senior VP of Microsoft. ""You could say that it is as disruptive as ... mainframes going to PCs or landlines going to cell phones. Software as it has been sold for years is about to be turned on its head completely," says Lucinda Stewart from OVP Venture Partners."
Volume.
"Software as it has been sold for years is about to be turned on its head completely," says Lucinda Stewart from OVP Venture Partners.""
And that will be a damn good thing. Perhaps things might get turned to a user license instead of a single user/mahcine licnse. How about resonable prices? How about companies standing behind their work because there is actual competetition in the market.
I'm all for open source software, to the point of administering a sourceforge project. But. But I cannot think open source is anything to get rich with. Can you run a bussiness ? Sure. Can you make money with it ? Sure. But can you make a lot of money with it ? Hardly.
I guess venture capitalist are using the flawed logic:
1. Microsoft, Oracle, SAP, are making gazillions of dollars from software.
2. It seems like Open Source software can replace or at least successfully compete with this behemoths.
3. Somehow, some part of the gazillions of dollars that the aforesaid firms are not going to make, will make it to the Open Source companies.
Point 3 is simply not going to happen. The money will quietly remain in the companies using OSS. They should refocus their strategy and perhaps invest in those companies (the ones heavily using OSS).
Rome taught me patience and assiduous application to detail. Virtues which temper the boldness of great, general views.
The simple truth is that copyrights are more like a government regulation that screws up commerce and business than some kind of free merket property right like MS would like you to believe. That's why the GPL which undoes much of the dammage done by copyrights in terms of controlling information flow is becomming such a force to be reconed with.
Like in most cases, freedoms and free markets are linked at the hip and the GPL is no exception. What's driving the rappid adoption of FOSS is pure old fasioned market forces and the service sector making the best use of technology at their disposal. Plane and simple.
It's really a great idea that little people realise in that a product itself relatively costs nothing and supporting it and/or releasing hardware for it is where all the bucks are. :-)
Secretary: "the vc are sick of b-to-b."
Pointy-Haired Boss: "The Viet Cong are sick of bed in breakfast?"
But I just can't read this post. There are 5, an odd number, of quotation marks. How are these supposed to line up?
... mainframes going to PCs or landlines going to cell phones. Software as it has been sold for years is about to be turned on its head completely," says Lucinda Stewart from OVP Venture Partners."
prostoalex writes "Seattle PI notices a rise in venture capital investments into open-source companies. JBoss, SourceLabs, SugarCRM and OSDL all attracted venture capital investments this year, with SourceLabs receiving investments from former Senior VP of Microsoft. " "You could say that it is as disruptive as
The programmer in me looks at this with parsing in mind and goes nuts.
I think either the second one is extra or the editor added a final article quote, but kept the text italics and addeed a final quotation mark for good measure.
Wheeeee
I've noticed an increased number of Open Source products in verticle market niches(i.e. specialized accounting packages). I can easily imagine that if some of the larger customers would band together and chance their purchasing practices we'd see dramatic change here rapidly. For example, i work with a large public school district. They've had closed source vendors that simply became unable to support their products any longer(basically the folks that understood the product refused to work with the closed source vendor management). Now, the bulk of money flowing into that closed source vendor was taxpayer money. If the school districts had insisted on Open Source up front, it might have cost a bit more money-but it would have saved a lot of hassle down the road.
One way this might be done is for large public agencies to pool their purchasing decisions. Basically they would agree to a large purchase from a vendor on condition the source be open.
With the advent of FOSS it is much easier to farm out big chunks of developments and take advantage of code already out there. The ability to tap into existing code is something that is much better done at the community level than handled by a few in-house programmers.
This in turn means that companies that are able to do the I/F has a chance of becoming very profitable as it is not easy to do. Notably for domain specific requirements.
Help fight continental drift.
lets hope that these venture capitolists,
...it doesn't pay the light bill
help the funding issues that bind many open source devlopers
because many of them do this in their spare time, only because they have a "real job"
and while coding open source software may be good for the world
-kingpunk
Something I realized awhile ago - and I have been doing very well since - is that open source technologies are not about the software development and software retailing and support processes at ALL. You can make money doing this, but as you mentioned, you won't make a LOT of money. The money isn't going to be in software companies - up until now, the 0 production cost of software after initial R&D is a lisence to print money.
What I realized though was having all this technology around enables companies to apply all sorts of new, "free" technology to solve new problems. Many of the new "free" technologies help a lot of different companies; for example, an inexpensive real time OS is of benefit to many many people. As are machine control libraries, communications libraries, toolkits, etc etc. Do you have any idea how powerful libraries like FFTW are?
All of those pieces can be put together to make new companies possible and existing companies more productive. That's where the gold under the rainbow is for Open Source; commodity software that is in everyone's best interest can be jointly developed, saving thousands and thousands of man hours of duplicated effort.
The only way to compete with third world labour is to increase productivity - and open source technologies can really help here.
And -that- boys and girls is why some savvy venture capitalists are waking up. Finally.
..don't panic
You can't E&E Open Source, because you have to publish the source to all your extensions when you release the software using them.
JBoss, SourceLabs, SugarCRM and OSDL all attracted venture capital investments this year
.com era.
OSDL? This is worse than the
OSDL is a non-profit organisation with no intention of ever selling anything. Not even a pretend business plan. It exists for cooperation between those in the industry, like IBM, Red Hat and Novell. What could it possibly need venture capital investment for, and why would anyone even think about giving it any?
A lot of people here seem to think you can't make money developing open-source software. It is true developing software costs money and allowing your software to be spread freely is not going to make you a lot of money. However, a number of facts play to your advantage.
1. Open-source software has more value. The same program is worth more if you get the source with it. Being allowed to inspect, distribute, modify, and sell that source is a huge value add.
2. As an open-source developer, you can draw from a vast pool of existing code and adapt it to your needs. This advantage is often denied to closed-source developers (thanks to the GPL), or only available in some limited form (e.g. you can license some code for use in your product, but won't be allowed to modify it). Because of this, open-source software is cheaper to develop.
3. You can take advantage of open-source by having other people find and fix bugs and add new features, decreasing development and maintenance cost.
4. If you are developing custom software, your client will likely not be able to resell your software on a large scale, without putting in significant effort. Even if they do, you have a headstart, because you know how the software works (you wrote it) and they paid you for the development.
So, open-source software can be more than just a loss leader to sell services.
Please correct me if I got my facts wrong.
Implementation, integration, training, and support.
Well, that's just my point. I tried to say that venture capitalists usually seek big returns, in exchange for taking big risk (i.e. losing the investment). You can make a very decent living by giving consultancy to companies about OSS, or running helpdesks, but that cannot be a pot of gold. Reason is obvious, you can charge a fat buck for an hour of consulting, but you have to deliver the hour, and days have only 25 hours, give or take one. You can have a company filled with people that will give you a share of their fat hourly fees, but then you have to provide infrastructure for all that people. So it's a slow bussiness. It's simply not the same economy of scale as doing a nice program once, and figuratively sleep forever while copies are sold and money is printed.
:o).
In fact, I guess what venture capitalists don't realize (and it's a proof of my pride that I don't even blink when I counsel people with are probably much smarter than myself), is that Microsoft and Red Hat, although seemingly both are software things, in fact are in completely different sectors. Red Hat is in the league of the Arthur Andersens of this world. Microsoft (and Oracle, etc) is really in entertainment. Entertainment is risky but when you strike gold it pays wonderfully. Microsoft produced a blockbuster some time ago, and now everybody has to pay every time they want to see it again. It will make money till the tastes of the people change. You can invest in similar companies with the same closed source model and expect a similar success that makes you rich and compensate the losses of the other investments. But in OSS there is simply no such big bucks waiting. But who am I to argue. Perhaps they (the venture capitalists) are well aware of the fact. Certainly they have more money than I do, so probaly are not complete morons
Rome taught me patience and assiduous application to detail. Virtues which temper the boldness of great, general views.
I think the issue here is the difference between business and consumer software. Business software has an opportunity for revenues (and some profits) from customization, support, application service provider, and management services. I don't see much money in the consumer side of the equation -- most consumers won't pay the $50 it takes to keep a qualified tech support person employed. Moreover, well-designed consumer software needs no support, customization, etc. And since much of the open source community is NOT joe-six-pack consumer-oriented, the move to business open source is sensible.
a intenance will grow. Those OSS companies that establish a lead in providing competent business software support will pay back those VC dollars.
As more businesses look to open source, the market for consulting/implementation/customization/support/m
Two wrongs don't make a right, but three lefts do.
While I think it is great that open source projects are getting a nice infusion of cash, I just can't help remembering what happened between 1997 and 2000.
The problem with the dot-com boom was venture capitalists pushed companies to grow too quickly and burn out. I saw a lot of stupid ideas get millions of dollars only to die a horrible death.
Its like making a deal with the devil!
I look at this, and question what open source companys OVP has baught into, and take the statement with a grain of salt.
If you baught into something, and wanted it to succeed, wouldnt you take the more positive and earth shattering (in a good way) side of the issue? Not saying that her statement may not be true, but what stake does that company hold in seeing the statement become true.
We don't need an "overrated" so much as we need a "you completely missed the parent's point, dumbass..."
The Caucho license is even more restrictive than the old no-commercial-use licenses. I don't see how it's an improvement over things like the Kermit license... which predates most of the open source licenses including the GPL, allows more freedom than the Caucho license, and has been funding full-time development of Kermit for almost 20 years.
Whats CSDS - Collaborative Software Development System. The most significat Open Source project out there is probably Collabnet although many don't know what it is, many have used it. If you downloaded netbeans, Open Office or checked out subversion (tigris.org), you've used it.
:]
Their product is built on the premis of combining Open Source applications and building an all encompasing sandbox to house all the sub systems in such a way that the whole is one seamless system to the user. Their web based interface is simply put, elegant. Although, with dhtml they could see significant improvements in performance, the underlying applications are sweet.
This is the type of project model that proves the effectiveness of Open Source. The Company has an awesome product that is built on components that anybody can download and interrogate the source.
The only thing that sucks with CN is, like other Enterprise SCM systems, its damned expensive. But any reasonable sized programming firm that builds on their platform have to work hard to screw things up.
BTW - who owns Collabnet?... Just the Tim O'Reilly, Founder and President, O'Reilly & Associates. And Brian Behlendorf, co-founder of the Apache Software Foundation. Honorary super hackers in my eyes.
I'm just waiting to see an open source project emulating what collabnet is doing. Anybody interested in building an open source CN offering. I'd be there in a flash!
JsD
The only way to compete with third world labour is to increase productivity - and open source technologies can really help here.
And -that- boys and girls is why some savvy venture capitalists are waking up. Finally.
Er, open source technologies help the "third world" as much as they help the "first world".Open Source offloads the cost of developing software onto the users. As in any project you must do the background and develop a basic functioning program first to attract contributors to your project. Then your development costs start to go down as the popularity of your project increases. Now you have a community that depends on your software so start providing them with whatever value added products you can think of. Maybe a plugin architecture and sell subscriptions to your best work. Use your imagination, that's how Open Source will thrive.
Er, open source technologies help the "third world" as much as they help the "first world".
The big advantages of the "first world" - a well educated workforce, an open advanced education framework, stable government, good supply and distribution networks, and easily obtained capital investment are extremely powerful when combined with open source. While open source helps the third world, there are MANY other factors involved.
Unless you want to live like your average joe IN the third world, productivity must increase per worker by large factor.
..don't panic
of course it could also go terribly wrong too, but I hope it works out.
You could say that it is as disruptive as ... mainframes going to PCs or landlines going to cell phones. Software as it has been sold for years is about to be turned on its head completely," says Lucinda Stewart from OVP Venture Partners."
Thank god none of my venture funds are with OVP Venture Partners. That statement is so ridiculous it's unbelievable. It shows you how disconnected and uninformed most VC's are. If this guy actually used any open source software he would immediately shut down all open source funding.
... that is until someone decries your "capitalistic" intentions of making money from "other peoples" hard work, forks your project, and basically screws you.
... then and only then would you have any real basis to criticize these comments. Until then, try your own medicine.
Open source is great for platforms, for standards. It is terrible for a small company who needs to make money to survive, and cannot sell "support contracts".
I am amazed at the number of times I hear that. Folks, this is the life I and my company live, and I can assure you, without a doubt, that companies are really really not interested in paying to support something that is "free" (as in beer). The companies like free. Not as in libre.
The zealots seem to miss this point.
I support, use, deploy, and contribute to open source. I sell our software (not open source) for lots of money to pay for our programmer and support time and (heaven forbid) make some more money so that we can support our efforts (open and closed source).
This is not a matter of philosophy, it is a matter of survival. IBM doesn't build linux, they make it better, and derive lots of money from selling (closed development platform) products based upon it. Sun gives lip service at best externally to Linux, who knows what they say and think internally. They derive lots of revenue from it regardless. It pays them back to make Linux better, and make specific OSS better. It does not pay to OSS everything.
OSS is strategic, and small companies cannot afford these strategies in many cases. Works great for the big folks though.
When you have to stare a programmer in the face and tell them that they will not have a paycheck next week because no one wants to buy support for your OSS app, even though you have over 10000 downloads in the past month
As indicated, my company is living this right now. We are not getting richer. And yes, lots of companies are happily using our software for free. Redistributing for free. Bundling it in their products for free (even though our license forbids this).
No, our software does not suck (yet another refrain often heard from the zealots). On the contrary, we are praised for our quality and reliability of our implementations.
Nope, there is something else going on here. Something very simple, something zealots don't want to hear (and they happily cover their ears and say "la-la-la" until we stop talking).
A market is a conversation. A sale is a confirmation of value. A gift is an indication of no value. Economies are based upon value exchange. Efficient economies are competitive, such that similar products command similar exchange rates. Exchange rates of zero indicate that the product has no value.
Whoops.
Doesn't help a small company.
VC's don't like cash burn rates with no hope of revenue (exchange of capital for product).
The VC's who invested in pure OSS companies are what are called in the VC community, "dumb money". That is lost capital. A write-down.
We think there is an opportunity to make a very significant business in open source software, and also to fundamentally disrupt the cozy status quo of proprietary software. Customers of all shapes and sizes are fed up with being locked-in to proprietary API that force them to ransom their applications back from aggressive sales people year after year. Licenses for infrastructure software (databases, middleware etc.) were worth more than $14 Billion last year. The companies riding that gravy train are not going to cede that revenue without a fight. To win this battle, the open source community is going to have to do things differently, and that doesn't mean adopting the Windows playbook or locking the customer into a cradle-to-grave services embrace. We think a new approach is required, and while we're just getting started, you can read more about our plans at http://www.sourcelabs.com/plan.htm. In a nutshell, we don't think customers should have to submit to being locked-in to software vendors' business models to get the dependability, convenience and support they need to run their software. And we think that a lot of customers will pay to set themselves free. Yeah, I work for SourceLabs. Maybe you can too http://www.sourcelabs.com/jobs.htm
Men, think in herds; it will be seen that they go mad in herds...
well, you should try sex with a human being, at least once. Yes, i'm aware of the fact that you are only going to get it by paying for it, but still.
But maybe this can be avoided. Vulture Capitalists have notoriusly a short attention span, and if we find something to distract them ...
Ciao
----
FB
Rather than selling everyone multimillion dollar web pages to give away their services, now they advise companies to give their software away for free. These people are like cockroaches- they will always survive, and there is nothing anybody can do about it.
Oh, here's a tip, Mr. "Support Contract"- if a company didnt pay jack shit for your software, they wont pay jack shit for your support, because free = worthless, and a smart company isnt going to spend money on something worthless.
Like I said two years ago, right here- Open Source is the new braindead management buzz word. Rejoice! This was what you guys asked for.
OSS is strategic, and small companies cannot afford these strategies in many cases. Works great for the big folks though.
Yes, that was generally my point. Some companies have found successful niche strategies built around Open Source, like TrollTech, which can do their dual GPL/commercial licensing model only because their product is a runtime library for use in other software (and one which is apparently hard to implement). And then there are Red Hat and other smaller companies that do successfully sell support. I wish I had more examples of companies doing well from this approach, but I don't.
But you're precisely correct, for the vast majority of small software companies, Open Source is not a viable model, at least as the primary value proposition of the company.
People do it every day, its called : "subscription based servicing" Let the user have access to your software via a web browser and charge a fee for use rahter than having the user "buy" a copy of the service. All the code resides in one locaiton controlled by one owner, updates are easy and instant. This is not news, it has been coveered many a time on /.