Slashdot Mirror
Open Source Forming a Dot Com Bubble?
sebFlyte writes "ZDNet is running an interesting look at the sudden upswing of investment in open source products and the ensuing debate as to whether the open source business model has given us a bubble (akin to the dot-com bubble) that is about to burst. The counter-argument is that the increase in investment is just the natural progression of a robust business model whose time has come. One point that few people, whatever their viewpoint, could disagree with is that the key to a financially successful open source project rests with the community, rather than just the technology."
Lets face it, if venture capitalists are investing money in companies because of buzz words (is open source a buzz word now?), then the problem isn't with the product, but with the investors. Linux, Apache, and countless other OSS didn't start with a big investment by venture capitalists. It was started by a person or group that recognized and need and thought they could fill it. OSS will live on, with or without VC.
Looks to me like an overreaction. Not everything that increases in value like this is necessarily a bubble. (though it does sound more exciting this way)
I think one of the arguments for an open source "burst" would be the reluctance of the open source mentality to accept things such as DRM. While I am very much with the typical slashdot mindset that thinks of DRM as bunch of BS, the corporate world is still heading in that direction. If the open source community can't come up with something acceptable on the DRM front, it's going to give the closed source vendors such as M$ a one-up where there otherwise may have been an open source trend.
One of the problems that I have been struggling to grasp in terms of its impact on my job is how important of a role DRM is really going to take in the coming years. As a pretty much Linux-exclusive shop, and as a media company, we could be in a very awkward position in the coming years since we don't really support anything in the way of DRM right now, and there doesn't appear to be a lot of headway from the OSS perspective, either.
A community-oriented lyrics site
The main question that you have to ask when determining whether a particular market is a bubble is "Are investors over-valuing it?"
I would argue that open-source, as it is today, is actually undervalued, and had a huge amount of economic potential that hasn't even begun to be tapped. This is not true of, say, the housing market, which many say is a bubble.
I think rather than an insubstantial bubble, what we're seeing is a whole bunch of investors realizing the very real value of open source business models all at once.
The key difference between OSS investment and any other investment is that there can never be a true "loss" in value. I'm probably not going to explain this very well but I'll try anyway.
What I am getting at is that every dollar invested in OSS which leads to publicly released code is a dollar whose benefit will last long beyond any potential demise of the original VC group and/or development team.
This is the ultimate difference between OSS and CSS...
Ajax , the biggest bubbles any detergent can produce :)
I'm really happy that these projects exists because being able to stand on their shoulders make me a much more productive and a better programmer.
But I have often wondered -- who are these people that pay (in money or time) to develop all this stuff? I'm really glad they do, but I hope all the "funding" doesn't all dry up someday. I'd have to do all that work myself!!
boxlight
The financial world has grown a lot from the days of the first bubble. That bubble was building over a five year period and was due in large part to ignorance. People were being paid with what amounted to an ignorance tax. The less a company knew about the technology, the more they were willing to pay for it. OSS has been slowly moving along and there are more people with a good understanding of what is happening with it in the larger tech sector. You don't have the mindset of "who cares what it costs or what it does, we need it!" Rather, you have "what is it that we have now that we can leverage more value from by going with OSS!"
What you say is certainly true... yet we keep hearing over and over about how opensource projects need to consalidate, opensource projects need more money, opensource projects need support from big players, and on and on.... That is all completely untrue and misses the whole point of opensource! So, messages such as yours need to be kept being said to combat the other wrong messages that keep being said.
Meh.
What a vacuous tautology!
The technology of open-source projects are the direct result of the efforts of its community.
This is like saying "the key to a successful private R&D firm rests with its researchers, rather than with its research!"
The question of a "bubble" is as relevant for open source as for science. Is there a bubble in science? Both open source and science are based on openness and peer review. It there is a bubble, long term it does not matter.
There may well be a bubble forming. That's business.
The difference is this: At the end of the dotcom bubble burst, there was a lot of proprietary code floating around, locked up in asset portfolios that would never see the light of day. At the end of an alleged OSS bubble, there will be a lot of open source code floating around *in the open*, where people can actually make use of it and build upon it, regardless of the solvency of the company that originally authored or contributed to it.
This may well actually give the supposed "bubble" more floating power, since one company that might not be able to properly handle an open source project might have their fumbles recovered by another company that can. This could happen immediately, rather than waiting for the former company's death march to complete, drying up the VC and selling off the company's copyrights to the code.
ZDNet's comment would actually change the perception and make some investors out there doubt the decision of investing in open source. Kind of like a measurement of a quantum system would change the system, so perhaps an article in a popular tech news commenting on the investment situation in the tech industry would end up somehow changing the overall open source investment trends eventually...
Open source may be garnerning more investment than it merits, but it's still a very small fraction of the software development market, much less the overall enterprise IT sales and service markets. So if OSS investment overheats, it will just lead to VC's being wary of investing in OSS companies for a while. Given that OSS is more a process than a particular sector or a business model, this will have limited effect on the overall march of open source, and especially open standards. In concrete terms, it would suck for JasperSoft to lose funding because hype around OSS' profit potential turns out to be overrated, but it wouldn't really stop people like Sun or IBM from moving towards open source, nor will it stop the commoditization of a variety of products by open source equivalents.
So what if its a bubble. Bubbles take a long time to burst. Alan Greenspan noticed there was "Irrational Exuberance" in the stock market in 1996 - but the bubble didn't pop until 2001. The real estate bubble is supossed to pop in the US any day now.... but it hasn't yet. While I have no doubt it will pop one day - probably soon - its a fools game to try and time the thing. The thing about economic bubbles is that they last a lot longer than anyone expects they will.
So, open source is a bubble.... fine. But to say its "about to burst" is a reach. If its like other bubbles of late, now that its been declared a bubble, it won't burst for a few years yet. My advice, then, is get on that train and make some money while the getting is good.
SpyDock: Scientific Python in a Docker container
To quote from the article:
Until the end of September this year, the amount of venture money that went to companies with "open source" in their business description was $144m (£81.8m). That's more than double the total for the whole of last year, according to research from the National Venture Capital Association, PriceWaterhouseCoopers and Thomson Venture Economics.
In addition, a conservative estimate is that there have been at least 18 open source companies funded in the first three quarters of 2005, compared with 12 last year, a NVCA representative said. Among this year's top investment recipients were XenSource, which landed $23m, and SugarCRM, which got third-round funding of $18.7m last month.
What's the size of the "bubble" we're talking about here? $144M? That's like a spit bubble, heh. I bet if you take MS, Oracle, and Dell's yearly complimentary food, drink, and party budgets, they'd be more than that. Ok well, that's probably not true, but I mean, $144M as far as business investments go is a peanuts. Whether or not this is bad for the OSS/FS community, I don't know. How much OSS/FS software is developed by employees of IBM and other friendly companies versus how much software is developed by some little startup on VC funding? That to me, would be a larger indicator on how "volatile" this is becoming.
Ever since 2000, everytime anybody invests any significant amount into anything at all, people start proclaiming "Bubble!!!"
it's kinda like
day 1 - u'll become sick
day 2 - u'll become sick
.
.
day 1000 - u'll become sick
.
.
one fine day you become sick and ur friend goes - "i told ya"
sarchasm
The key difference between open source and everything else is that everyone gets equal access. This means a product can never fail while there is interest in keeping it alive. Even if the party producing it quits, the product continues to be available (through the right to redistribute), maintainable (through the right to read and modify the source), and even improvable (nothing stops you from making a new, better version).
Whether businesses that try to make money off open source can fail is another matter. I see it this way: open source exerts a downward pressure on software prices. This means that it tends to make businesses that try making money by selling software fail, but it provides businesses using software (and what business isn't?) with financial benefits. This, and the properties mentioned in the previous paragraph, is where the business benefit of open source is.
TFA seems to be asking whether venture capitalists can expect to see returns on the money they invest in open source startups, or that it's a bubble that will burst. That depends on how you see it. If they want these businesses to generate money that flows back to them, it's probably a bubble, because these businesses are trying to make money exactly in the way that is likely to fail (see previous paragraph). However, the open source software these companies make will be around, no matter if the company persists. So the invested capital is never really lost, as it would be if the company had been making closed source software (and failed to pass on the rights before closing down, as too often happens).
Please correct me if I got my facts wrong.
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Three very simple rules will help you:
1. Invest in companies that know how to make money by being paid by a customer to perform a service.
2. There are usually minimal or no barriers to entry in the open source universe.
3. Check community involvement. A small community or lack of one indicates a lack of mastery of the open source model.
BTW: coming out with a closed source derivative product can be risky: sometimes you get forked and out developed.
-- $G
FOSS is not a business model. It is way of licensing code that protects the user's ability to user and modify the software. It can also be seen as a vast body of resuable code for projects with compatible licenses. In the case of GNU/Linux it is also a software stack with $0 licensing fees, so conceivably it only costs as much as it takes to get it installed, maintain it, and extend it for a given business's purposes.
;-)
Paid support and customization of software IS a business model. It's called "software contracting."
That business model is well understood. It can be profitable, and can sustain most salaried engineers at a rate ABOVE their current salary, but not usually as profitable on a large scale as a software product company can be, because as part of the bargain we choose not to leverage the amazing power of government-granted monopoly profits.
However, given the success of the FOSS development model I wouldn't give mass-market proprietary software more than another 20 years unless the government(s) intervene to stop it, or consumers buy into locked-down platforms that will only run signed code.
From the programmer point of view it doesn't really matter. We seem to get paid the same whether our customer can make billions off of the bits we create, or only gets to charge a markup on our rate. Weird, huh?
-- John.
A business model can be based upon selling items/services/etc related to systems developed via the Open Source model, but they are not the same.Given that Linux advanced to it's current state almost 100% via the "hobbyist" and "tinkerers", is that a bad thing?
More funding is always nice. It allows people to devote more time to it. But it won't make or break a project. The community is what decides that.Again, if that happens, it is because of a failure of the business model, not the Open Source development model.
History is littered with failed software companies that used closed source. Why should Open Source guarantee success? It's all about the business model.And here is what I say
Look at the business plan. That is what will make or break the business.
Considering the impact of free software on the industry, $144 million is pretty small stuff. If a bubble that size bursts, will anyone notice? People will notice if Google goes under with their $15 billion dollar valuation based on a free service, or if the "network" television companies go under as a result of the Internet. Calling $144 million a bubble of significance is just headline hunting.
Free software is maturing and growing still. In ten years....
Hans
Bubbles happen when people oversell something. The key thing everyone needs to realize is that Open Source isn't a 'magic bullet' or a 'plentacia'. Work, time, and money, in short capital, needs to be spent to use Open Source right along with every other closed source solution. I believe in the long run for various problems Open Source is easily better investment. There are other problems where Open Source will have a hard time showing return on investment. In either event, one should never oversell the technology.
So here is the queston: Is any other vendor out there creating a Dot Com bubble? Or could they have created the previous Dot Com bubble?? Yes I'm thinking about Microsoft: Did MS oversell its technology in the 90s which allowed people to believe they could build anything cheaply, securely, etc?
Are hysterical investors acting like there is some Open Source land-grab going on like they did when the WWW was picking up? Are they again willng to burn through billions of $$$ to try to gain some sort of elusive Open Source market share? Is the Dow Jones shooting up 150 points a day with commentators pointing out that Open Source tech stocks are behind the rallying? Are the idiots-that-be talking about gambling the non-existent U.S. Medicare "lockbox" funds on the stock market again due to the strengths of Open Source companies? Nope, I don't think there is a bubble going on.
Ideologies don't matter. Business models don't matter. There is only one rule. Buy low; sell high. People that pay more for something than they should because of a particular ideology are what the rest of us call fools. Don't get me wrong. I think Novell is going to surprise everybody. But I'm not going to buy Novell stock because of Suse. I'm going to buy it because Suse is going to make them a ton of money.
They wouldn't do a .bomb twice, would they? They had to have learned the first time!
Oh, yeah... G.W.Bush. Never mind.
-- I have a private email server in my basement.