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."

Comments

How do you make money on free software?

[Anonymous Coward]

Volume.

Re:How do you make money on free software?

[nadadogg]

Support contracts

Re:How do you make money on free software?

[tonsofpcs]

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)?

Re:How do you make money on free software?

[jarich]

Ask RedHat!

http://finance.yahoo.com/q?s=RHAT&d=t

Market Cap: 2.13B

Re:How do you make money on free software?

[UniverseIsADoughnut]

no, he's going to say screw you and find something else, maybe from someone else giving the software out for free.

Basing things on support is horrible. A good peice of software won't need support. If someone has to call you to figure out how to work it, then the software has a problem.

There is probably some forms of support that work, maybe you give the app away for free, but you charge for plugin that add features, or there is some prescription for an aspect of it, like you pay to have the program get feed info all the time (like a tivo like app, or a weather program would need).

But in the end support fails on these ones to, because someone else won't have any intention of being a business, they will just be making something and giving every aspect of it away, and doesn't need support. At that point no free software business model will work.

Pay software will survive though. For one there is less diversity, thus more people using the same app which makes person to person (friends) support work better, and just nice to know that a big chunk of the world is using the same as you, so you get things like "oh hey, my bank lets me download my statements in the format my app uses". Also when something goes wrong with it, there is someone to hold responsible.

People want to buy stuff from solid companies that they know of, and can feel certain that company will be around. Free software doesn't give that. Redhat is probably the most solid company out there for this, and few outside the linux world have ever heard of them, and even then no one looks at them as a company they know for certain will be around even 3 years from now.

Re:How do you make money on free software?

[Fnkmaster]

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.

Luck to them

[OpenSourced]

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).

Re:Luck to them

[paretooptimum]

That' funny... I've made some real money on open source investing. I bought SCO when it blew up on slashdot, followed it up, sold just over the peak and shorted it down. So there is money to be made on open source - shorting the stocks of the losers. My current investment tips (courtesy slashdot): short Sun.

It's cause copyrights are and should be dead

[argoff]

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.

Verticle Market Products

[randall_burns]

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.

80% rule could make a difference

[bstadil]

I think you have overlooked the fact that +-80% of all software expenses and development is done inside companies.

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.

Missing the point.. Open Source is not about that

[xtal]

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.