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What is an Open Source Company Really Worth?
CNet has an interesting profile of MySQL, JBoss, and Zimbra, exploring what an open source company is actually worth. "Given how slowly revenue accumulates in an open-source company--assuming it is recognizing subscriptions over 12 months--bookings is probably the valuation metric being used or at least strongly considered. It surely is the metric by which the start-up wishes to be measured. So while Savio suggests we open-source entrepreneurs may be "sleeping with dollar signs in (our) eyes," there's clearly a lot of work to do before most open-source companies are worth selling. It's not worth selling out for $100 million. Not for the venture-backed companies, anyway."
So I guess since no one reads TFA anyway the link wasn't included...
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I'd say they're worth many bags of Cheetos and cases of Mountain Dew, which is after all, the preferred open source currency.
http://blogs.cnet.com/8301-13505_1-9853461-16.html
Article
Slightly disreputable, albeit gregarious
How did this make it to the front page? Someone needs to know that links are better than just a summary. I'm honestly interested in reading for this, but instead of clicking on a link (hello, this is the web!) I have to Google around for it. Lame submission.
Tibbon
tibbon.com
$1 Billion
http://blogs.cnet.com/8301-13505_1-9853461-16.html?tag=nefd.only/
http://blogs.cnet.com/8301-13505_1-9853693-16.html
How do you value ANY company?
They own stuff (buildings), they have staff and they have current revenue.
It really shouldn't be that hard.
I wouldn't evaluate the worth of Oracle based on what I thought the
value of the Oracle RDBMS sourcecode was worth. I would look at what
they are selling to people.
With enterprise software, frontend licensing is just the tip of the iceberg.
MySql corp really isn't that much different than Sun, IBM or Oracle in this respect.
A Pirate and a Puritan look the same on a balance sheet.
A public company (think RedHat) trades for X times earnings. Buying RedHat would rationally need to have a return after debt service and 'thinning'. The software is free, but the services and integration and packaging that RedHat does is where the money is.
A private company like Digium, who does Asterisk, has a NIBT and may have additional potential for digital PBX widgets (look at their recent deal with 3Com for an example). They'd probably bring in 7 years run rate as a buy price.
Hyperic, while smaller, has great community development and might bring in more, because of a wider breadth of products touched. I'd value them at 10x annual run rate.
MySQL AB did a great job. Hurray for those guys; they deserve what they got. I hope that Sun can integrate MySQL well without butchering the company and product. Professional results can pay off.
---- Teach Peace. It's Cheaper Than War.
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This has it backwards. After a vendor such as JBoss has created a fully functionnal application server such as JBoss, what are properties such as WebSphere, WebLogic and JRun worth? How much would you pay once you realize you can get the same outcome for free? Sure, there are some old companies out there who still need the warm fuzzy that comes from paying $15,000 for WebSphere--but in the long run, what is that business worth? Not a lot. JBoss has already pulled a fast one anyway. What used to be free, circa JBoss 4.0.2, (embedding the app server in a shrink-wrapped application) is now for a fee. I used to work for a company that bet the farm on JBoss 4.0.2. And you know what they're doing now? PAYING JBoss. They have no choice.
When a program is "GPLv2 or later" and "Contributions are signed back to the company", if the OSS software is useful the GPL's patent poison pill actually makes it a more attractive buyout target.
You see, when Apple buys out CUPS, or Sun buys out MySQL, they can distribute the code under whatever liscence they want as copyright holders.
Which means, for THEM, its non GPL. But for everyone else, it is GPLv2 or later.
Thus you can still get community support with copyright transfer, but you have a competitive advantage in selling/using it commmercially.
I wonder if the FSF realized that this is a side consequence of GPLv3 and the "or later" clause?
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A company worth is based on how much money it will make. How much money it will make is dependent on how much it makes now, and how well you think it can guard and grow this revenue stream. Other databases are available, and other companies could support the MySQL database, and not just the MySQL company itself (Oracle comes to mind). So I'm not sure how they could guard it. Sun should file a 10-K or another SEC filing to show how they valued it. McNealy needs to pull a Jobs, good luck!
It's worth whatever someone is willing to pay. As is anything else in this world. Make something valuable to someone with lots of money and they'll pay lots of money for it. It really is that simple.
The extremely poorly articulated point of the posting and article is that open source companies are often criticized because they face a serious issue other software companies do not. That issue is the re-use of their source code by other companies.
What is to keep another company, say NySQL Inc. from taking the source code to MySQL, compiling their own product, and then reselling it? Nothing. You might say "It's illegal!", but that's ONLY in the USA. I'd bet there are at least 3 companies in China reselling MySQL right now. Since they keep their source code release up to date, this means NySQL's product will always be up to date. And since NySQL has a bigger presence in China, Chinese customers will always go to them first.
A better summary of TFA: The three most recent high-profile Open-Source acquisitions were massively overvalued (20x+ annual revenue). If you're not being offered at least an order of magnitude more than what your company is actually worth, you aren't trying hard enough.
;-)
Of course, if $100mil is the best offer, I'd still take it
-- If you try to fail and succeed, which have you done? - Uli's moose
Of course not! It's nothing! It's peanuts! What an insult! What do you take me for, some kind of fool? One day you'll all look up from the gutter, you will, and see King Zoidberg caressing your fancy box!
I recently sat next the Digiums VP of sales on a flight. Personally, I feel Digium is on the cusp of a revolution in telephony, but the company needs some good leadership to capitalize on it. I also just spent two days reinstalling freaking TrixBox which had trouble dealing with the crummy TDM400 card I bought from Digium. The VP of sales seems to think their future is in proprietary software sales, like the deal with 3Com. He also is hyped about some acquisition of some proprietary software front-end to Asterisk, but the whole worlds seems to use TrixBox, and I don't see anyone lining up to switch to a non-free alternative from Digium.
Understanding open-source company strategies is a bit mind-bending, and unfortunately, I don't think Digium's current leadership gets it. They may be missing the real opportunity. Instead of making the software great and easy to use, which would lead to virtually universal adoption, they're doing the opposite, to help sell their services and proprietary solutions. If they were able to understand the value of being the provider of virtually all new telephony systems as an open-source platform, I think they'd bag their current strategy.
Problem is, most people think of open-source ventures as having 0 assets, and being worth 0.
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Their current management fits their profile and run-rate. Attracting and incentivizing management takes time, as well as the ability to structure the organization for rapid growth. One more PBX company will need to battle with seventy+ PBX/keyswitch companies already in the marketplace. They're distracted by their hardware revenues, as this makes up a disproportionate amount of their current revenues. I'm hoping it's a phase they're going through or things might go badly for them despite the current quality (very good) of their stable branch of code. Their community relations people have a bit to learn, but herding cats isn't easy. Overall, we would agree.
---- Teach Peace. It's Cheaper Than War.
It's curious that the number of big BSD-licensed software (and I'll attach the "BSD-like in spirit" licenses like the Apache license to the bunch) owned by big successful companies is disproportionally small. The OSes (Free|Net|Open)BSD, PostgreSQL and Apache are examples of successful software that's not being supported by a single company - they're practically totally consumer-supported. The only counter-example I know of is PHP, but despite that it's more widespread than both MySQL and PostgreSQL together (and probably as wide-spread as Apache), it's rarely a buzzword of the day. (of course, then there are Microsoft's open source projects released under BSDL but that's a completely different thing).
It looks like while GPLed software can be viral and dangerous to other companies, this very property protects GPL software in a way that's beneficial to the company that developed it. A BigCompany can't realistically fork a GPL software and make it into a separate product, but it doesn't need to when it can simply buy the company that developed it.
-- Sig down
It is working as intended.
Well, apart from the whole "commercial entity duping people who were sharing their code under GPL into allowing arbitrary commercial, closed-source uses" part, anyway.
I don't understand why anyone who has chosen to use the GPL after considering what it implies (rather than just because of hype or fashion) would ever sign away their copyright to some commercial entity like this. If you're OK with anyone using your code however they like, just release it to the public domain or pick some BSD-style licence. If you want those distributing work built on it to have to allow others to do likewise, giving your copyright to another group whose primary interest might become the opposite is silly. (I'm not sure how likely it would be to stand up in court, either; a contract generally requires consideration on both sides, so what did you get in return for the other guys getting your copyright?)
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
Link to article: http://blogs.cnet.com/8301-13505_1-9853461-16.html?part=rss&subj=news&tag=2547-1_3-0-20
They do a great service to the community by contributing code and projects, but their openness isn't that big compared to other much smaller companies. Not only all their major applications (search algorithms, google earth, etc.) are closed like hell, but they wrote here they contributed well over 1 million lines of code and 100 projects. True, and thanks for all the fish, but still the linux kernel alone is over 6 million lines of code. And the rest of the GNU utilities that make the complete system are open too.
Don't take this as bashing or trolling: helping or contributing to FOSS is one thing, being identified as the Open Source company is a very different story.
Let's start with something simpler. How do you define "open source company" or "closed source company"?
For example, what's Sun?
"I don't see anyone lining up to switch to a non-free alternative from Digium"
Don't underestimate the power of the one-stop-shop. Most people really don't care whether their solution is or not proprietary - they only care how much it costs and how well it works.
I don't know TrixBox, but if the proprietary solution they are considering costs significantly less to maintain than the alternatives, I see their users flocking to it.
One of the key selling points of FOSS is the misinterpretation of the "free" part.
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The value of any company is based on the kind of revenue it can generate. The measurements for an OSS company have to be different because they not only can generate revenue directly, i.e. through support contracts, but also they can generate a great deal of money indirectly - through community influence.
There is also the issue of operating costs and how predictable they are.
One must also take into account intellectual property, but relatively few open source projects maintain intellectual property of their own.
For instance, take MySQL. MySQL has one of the largest install bases for a server side application. Taking advantage of the installed base to influence the kinds of functionality people are implementing could be very powerful. There is a very loose connection between MySQL and their installed base, however, so marketing directly to existing customers would not predictably yield a high percentage of success. There's no magic formula for most OSS companies. I think the value must truly be discerned by the way the purchaser intends to utilize the project and it's community.
The more obvious the potential revenue streams, the more potential suitors a project has, and therefore a higher value will need to be placed on it. Also, the predictability of the revenue streams is important. The easier it is to predict how much can be gained through the purchase, the more comfortable businesses will be in making the decision to swallow the project.
With many projects there is also the issue of competition, and how the purchase would influence a market niche. Urchin wasn't OSS, but Google's purchase of Urchin gave their technology mass marketshare nearly overnight and changed the dynamic of the web stats niche dramatically. The value in Urchin wasn't their sales - Google understood the value of influence and information and that particular purchase was very key to their overall strategy and in maintaining the search engine market share that they enjoy.
All of the valuations can be reduced to value. The product/code may have high value, but integration also has value. So does research into device compatibility, features, inherent reliability/stability, as well as use by civilians. The code is free. The implementation beyond that may come at a price.
But this is about the companies, and the added value they provide in a public/private context, too. MySQL has traction as one of the most popular open source projects going. It's strong but not unique in its profile; it's well supported and thoughtfully applied into a myriad of productive applications. The 'staff' is behind it. Sun will use it on many integration projects in a competitive stance with their perceived competitor, IBM, Oracle, and others. Oracle has purchased BEA for a lot of money. Oracle's going after applications, and with vigor. This pays off for them. More power to them.
If we're valuing open source 'companies' and organizations, then it's long term value that's for sale and purchase. The code will improve if the community and others stay with it. Valuations are necessarily a function of this long term return on investment.
---- Teach Peace. It's Cheaper Than War.
There are 2 sides to any transaction. To value a company requires one to know what that company is worth to the buyer. An open source company that makes negative profits could be worth much more than another one that turns a profit if the former one can give the buyer a competitive advantage. Jboss for instance is very valuable for a linux platform (red hat and possibly novell) but of much less value to IBM being that websphere is a competing product and has a large mkt share in the mkt. For open source companies where revenues tend to be softer, than their commercial counterparts the value is tied up in intangibles that matter only when considering the buyer.
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Open Source companies can make $ by having support contracts with companies. Other companies can provide software customizations to businesses. In other words treat software as a service, not as a product.
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