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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."
Support contracts
i use linux and windows oh god how can i have an opinion
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.
Actually, most likely, tech support. Think about it. If I, as a major corporation, give joe-schmo a copy of an open source app I made to, lets say, track finances, and he starts using it, its doing what he needs, and its tax time, and all of a sudden it stops working, and I don't provide free tech support and he NEEDS it to work, don't you think I'll make a little money (assuming joe-schmo doesn't read code)?
Video Production Support
http://finance.yahoo.com/q?s=RHAT&d=t
Market Cap: 2.13B
Agile Artisans
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.
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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 make money on tech support, but it probably doesn't scale as much as VC's want. What I mean, is that for each company you provide service for, you have to add people. On the other hand, with proprietary licensing fees, you have your sunk development costs, but from that point on, you could sell 1000, 10000, or millions of copies, and it's all profit. It's an exponential curve. Potentially at least... I don't know what the stats are like for the 'average' firm.
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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.
Or giving away the software and selling the hardware to go with it like Digium does with Asterisk. There are several reasonable ways to make money from Open Source software.
But the problem is that all of them basically devalue the software and the work put into developing it in the first place. And it basically makes it impossible to make money as a small software company - you are making money as a support company, or a hardware company, and just using the software as a hook to get people interested in buying. This is a problem because these small software companies have long been where the best jobs for real software developers have been. If everybody is using Open Source software, then the jobs move to being basically plumbing/IT jobs at larger companies, where you are treated like a cog, a commodity.
I do worry sometimes that the overzealousness to make everything Open Source hurts the very programmers who generously contribute their time.
I'm a big fan of Open Source software, and I think there are a lot of exceedingly common problems that ought to have solutions provided by the Open Source community for the benefit of all, and I'm glad they are there. But there is no reason to think that every niche in the software world should or will be filled by Open Source.
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!
A screwdriver is a simple tool. Even so, Craftsman gives a lifetime warranty.
Software can get really complex, and support doesn't just mean that it's broken and you need to pay someone to fix bugs. It can also mean training, or customization, or tool development, or implementation planning. Businesses quite often have no interest in mastering every detail of software, even if that software is critical to their business. They'd rather pay someone who already knows the software to just look at their needs and tell them what should be done, and then to do it.
It's not possible to dumb down all software to the point where nobody wants this anymore. I've been doing business software development for years, and universally, the folks paying for the software aren't interested in thinking about the details of how the thing will work. They just want to wave their hands and have a perfect solution materialize. It's a big chore (but very necessary to a successful project) to try and find ways of making it less painful for them to answer questions about how the system will work at a detailed level, since these decisions can have a big impact on how useful the system is, and since these decisions often must be made by a domain expert rather than a programmer or analyst.
When confronted with the necessary complexity of a system that has to follow rules instead of just doing the decision making for them on an ad-hoc basis, they either want training, or they want to hire a subordinate to get trained and deal with the system. It's important to try and make the system as logical and usable as possible, but a totally intuitive system that even a child could figure out in 5 minutes is just not an attainable goal when the problem domain is inherently complicated and there are issues of security and workflow and large sums of money and domain-specific terminology and regulatory compliance...
Nevertheless, people are foolish enough to think that they can skip all these steps and just jump right into typing in source code, and that this same broken non-process can be optimized by just having cheaper people do it in a faraway country.
Even if the coding and debugging are FREE and the license is FREE, there's still the matter of figuring out how to get it to work. Tar is free, but it doesn't come with a universal backup strategy AI that you invoke with the push of a single button. Somebody still has to THINK about it and WRITE DOWN WHAT THEY WANT. Quite often that person is a specialist who doesn't work for the company, and is lumped in as Support.