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Why No Billion-Dollar Open Source Companies?
Glyn Moody writes "If open source is such a success, why aren't there any billion-dollar turnover open source companies? A recent briefing by Red Hat's CEO, Jim Whitehurst, to a group of journalists may provide an answer. Asked why Red Hat wasn't yet a $5 billion company, as he suggested it would be one day, he said getting Red Hat to $5 billion meant 'replacing $50 billion of revenue' currently enjoyed by traditional computer companies. If, as is likely, that's generally true for open source companies, it means they will need to displace around $10 billion of proprietary business in order to achieve a billion-dollar turnover. Few are likely to do that. Perhaps it's time for managers of open source startups to stop chasing the billion-dollar dream. If they don't, they will set unrealistic ambitions for themselves, disappoint their investors, and allow opponents of free software to paint one of its defining successes — saving money — as a failure."
A quick search on the Internet revealed that a lot of them get bought out.
http://royal.pingdom.com/2008/02/06/the-seven-largest-open-source-deals/
Sun buys MySQL, $1 billion, 2008
Sun now has their hands on the world’s most widely used open source database.
Red Hat buys Cygnus Solutions, $675 million, 1999
Red Hat started the open source acquisition race early when they bought Cygnus Solutions, providers of open source software support.
Citrix buys XenSource, $500 million, 2007
Considering how hot virtualization is right now, we can see why Citrix bought XenSource, the company behind the Xen virtualization software.
Yahoo buys Zimbra, $350 million, 2007
Yahoo already have their own email services, and with Zimbra they got an integrated email, messaging and collaboration software.
Red Hat buys JBoss, $350 million, 2006
Red Hat strengthened their SOA offerings by buying the JBoss Java application server.
Novell buys SUSE, $210 million, 2003
Novell got their own Linux distribution by buying SUSE.
Nokia buys Trolltech, $153 million, 2008
Trolltech is the company behind the Qt GUI framework which is used by the popular Linux desktop environment KDE.
Very large companies need to have a disaster recovery plan in place, and contacts to call when downtime is costing money. Especially outsourcing or service providers. If you run linux in this environment, "my team knows linux" is not going to cut it. You want to be able to place the blame on the "vendor" as opposed to being responsible yourself. So you don't modify the code, and you buy the support package.
Red Hat should be very profitable, given that, except Microsoft makes sweetheart deals with the big companies to keep them using microsoft tools. I have a full MSDN subscription, which would cost me piles of money but most likely costs my employer very little per head. I can download and use and develop with anything I want, for free. It only costs money because the production servers have to be fully licensed and legit.
Microsoft is everywhere, so they can afford to give away freebies, charge for just the production installs, and still make boatloads of cash. If you take a look at the revenue compared to actual software usage, I wouldn't be surprised to find that Microsoft is giving away as much or more software than Red Hat. Direct end-user sales are just the icing on the cake - someone paying full price for Windows is very rare, it's usually OEM cost, which is approximately 10% of the cost. So Red Hat's numbers are probably not far off Microsoft's numbers, it's just reported as software sales vs. support costs. And even that difference is a technicality - Microsoft still charges for support depending on what you need and where you got the software.
Fundamentally, it's the same business model. Give lots of software away and make up for the sales losses with support charges - but with OEMs in the middle it's not transparent to the end users. Only the businesses see how the model truly works.