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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."
they will [..] paint one of its defining successes — saving money — as a failure.
Hmm.. so they're bringing in 10% of the revenue of non open source equivalents - basically meaning that their clients need to spend 90% less.. how is that not saving money?
which is totally what she said
Many businesses that reach billions of dollars in revenue often rely on government contracts and monopoly protection--patent law being the biggest of these. Without government interference in the economy businesses would probably be less likely to hit "billionaire" status. I don't doubt that there would still be some, just not as many. In the open source world this is (to some extent) playing out.
the Political Inquirer
There are almost too many to count when it comes to billion dollar companies involved in open source. They are the main motivator in new Linux kernel development and amongst 100's of other projects including Apache, Perl, MySQL etc you will find @email's from dozens of billion dollar companies in the dev-lists. O'Reilly himself squashed some of these rumors about open source himself over 11 years ago now, so why discuss this? It is just going to turn into a flame war about licenses and corporate responsibility.
An Education is the Font of All Liberty
You mean the same multiple open-source side projects that add little to nothing to their bottom line? Google gets it's money from it's proprietary search engine and ad platform.
Why no building dollar bicycle-pump manufacturers? Why no billion-dollar indie record labels? Why no billion-dollar oil companies that have not polluted? Why are there no billion-dollar hockey franchises?
Asking why there are no "billion-dollar" open source companies is kind of stupid. Considering how much of the very fabric of the Internet and the web are open source, I'd suggest that if "open source" disappeared tomorrow, a lot of "billion-dollar" companies wouldn't be worth anywhere near a billion dollars.
This story is the Slashdot equivalent of "If you're so smart, why ain't you rich?"
You are welcome on my lawn.
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.
Just ask Google.
Why should your profits go to Adobe, Microsoft, IBM, Oracle and all those other closed source companies? Look at the .com companies that survived the 'dot bomb' era. They used open source.
Using expensive proprietary solutions is a sure way to increase your expenses and decrease your profits.
How do you become an open source billionaire? Ask Sergey Brin and Larry Page.
Copyright laws and software patents make traditional closed source business models too lucrative. And while copyright and patent infringement may still occur, it is a better model to chase in the eyes of investors because a company like Microsoft will offer them reports on how much money is lost to such things and claim that as potential profit or unrealized profit or put it on the balance sheet to make investor's eyes light up. How much "theft" (don't jump on me for using it, that's what Microsoft calls it) do you think Red Hat suffers from? Not a whole lot, I'd imagine as I believe the bulk of their profit comes from support and that support is kinda hard to steal.
Anyway, if copyright laws didn't exist for software? Well, you'd see companies like Microsoft fall apart and companies like Red Hat thrive. Because the business model would shift from protecting your source code through litigation to making it available for free since that would be the only way to effectively combat piracy. Right now, the system is so screwed up that even when the original Windows becomes public domain, no one is going to have the source code and if they do they're not going to release it. I almost wish the Library of Congress kept a proprietary source library if that didn't leave to government abuse and a multitude of problems with huge security concerns.
As a young idealist, I once thought that open source should be welcomed by all since there's an infinite amount of code that the populations will always need written. If they don't need an operating system, they need a web server. If they don't need web server software, they'll need the specific application on a per company basis. Ad infinitum. And therefore you shouldn't fight open source when you're generating revenue from such a general purpose and widely used tool. Unfortunately I came to understand copyright, marketing and how Microsoft keeps making bank on Windows despite it being -- in my opinion -- an inferior product. And so my logic was inherently flawed--especially in the eyes of stockholders and lawmakers. Such skewing of profits between open and closed source companies reveal this.
My work here is dung.
How do you become an open source billionaire? Ask Sergey Brin and Larry Page.
You mean create a hugely successful proprietary search engine and ads platform? Sure they may have leveraged open source in creating these proprietary products but they didn't make their money through selling open source products.
Perhaps it's time for managers of open source startups to stop chasing the billion-dollar dream.
I love it when authors use a false premise to setup their stories. Of course every one wants to make it big but the idea that there is some mythical number that every open source CFO is reaching for is just stupid.
Further if they want to look for a company that uses the FOSS model and has billions: http://www.google.com/finance?q=NYSE%3AIBM
Really, I know what I'm doing...Ohhhh, look at the shiny buttons!
The issue is that proprietary software allows ridiculous profit margins (close to 100% since the software costs nothing to distribute and economies of scale are pretty much linear since the upfront costs remain the same regardless of volume)... Now no industry could possibly achieve such margins if there is any competition, so proprietary vendors stifle competition through lock-in..
Open source vendors are unable to rip their customers off by selling zero cost goods at ridiculous markups because if they did someone else could come along and offer the same code for a cheaper price, instead they must make their money selling services... Services have a constant ongoing cost to actually provide the service, and these costs increase as you provide service to more customers.
The proprietary software market is effectively a scam, which sooner or later will come to an end... Customers will wake up and realise just how badly they're being ripped off, but until then the fraudsters will make as much as they can out of it.
The services market on the other hand is far more reasonable and although competition may eventually result in consolidation and razor thin margins, there is a lower limit.
http://spamdecoy.net - free throwaway anonymous email - avoid spam!
So? That's just showing how they are using the Open Source Software to help their main source of income. The point is to give away the abundant and infinite goods (How many copies of Google Chrome can you give away? About as many computers are there are in the world).
But how many ad spots can you sell to the specific people that want to sell to the specific people that want to buy? That is VERY SCARCE. Google has found a very valuable yet scarce resource, and uses the very valuable but abundant software to promote it and make it easier for people to access the scarce ones.
Open Source is a means to an end. You'll starve to death if the only thing you do is create things to go away. You have to make it work for you, while keeping it open source.
Try asking why are there no billion-dollar companies using 100% CLOSED source software?
The answer is simply because billion dollar companies dabble in a bit of everything. Oracle has a lot of open source products. It also has a lot of closed source products. Same with IBM, Microsoft, Google, Apple, etc etc. If you don't consider these billion dollar companies to be open source companies then you can't consider them to be a closed source companies either. They all dabble in a bit of both because they are all really big.
Once you get into the $Bns you become responsible for causing suffering, hardship, using litigation and loopholes, throwing your weight around, metaphorically "knifing" people in the back and being a nasty PoS. By then any of the attributes that attracted you to Open Source have withered and died.
politicians are like babies' nappies: they should both be changed regularly and for the same reasons
You mean all running on an internal, proprietary fork of GNU/Linux, right?
So what? This article wasn't about multi-billion dollar companies leveraging open source for their bottom line. It was about companies selling and supporting open source products that they create.
A relentless focus on profit over all else is the scourge of capitalism in our nation. We have forgotten that business exists to serve people, people do not exist for the sake of money. There are other business models other than focusing purely on profit. For example, ask Muhammad Yunus: 2006 Nobel Peace Prize Winner; Founder, Grameen Bank.
Currently hooked on AMP
Neither. I'm merely pointing out the facts which are that the Linux kernel they use is an internal, proprietary fork, their GoogleFS is proprietary, and the version of Ubuntu they use is an internal and proprietary fork. Why would it make me a troll to make sure that the entire story is heard?
That's great and all but it doesn't change the fact that Google's actual business is in it's proprietary search engine and ads platform. They'd ditch their open source projects long before they'd over ditch those core business.
Says the man with a sig linking to a scammy late-night informercial style site.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
Perfect! You dismiss my main point and focus back on business being solely for profit. Inside of that world, yes, absolutely, Microsoft, Apple, Google, they are the heroes of the world. Have you ever noticed that under that paradigm, businesses get more and more evil? The search for power and profit as an end in itself is a short-sighted context. I'm a scientist and a darwinist and I understand the arguments for it. I'm just saying it does not work -- it causes pathologies and we need to keep our humanity even as we use money to serve our needs as human beings.
Currently hooked on AMP
A few things that many geeks seem to not get:
Salesmen make the world go 'round. They are pounding the pavement every day. They are making relationships with CIOs every day. They have convinced those CIOs that the low-risk path is to buy name brand stuff. It's proven. Plus, if there's a disaster, the CIO can tell his board he bought the best stuff. That's the old IBM line: you never get fired for buying IBM.
CIOs and other management types like the whole sales process. They like the kind of people they have to mingle with. They like the idea of contracts, and terms and conditions, and so forth. It makes them feel like 'real' businessmen, and that they are worth something.
This is the excuse that people give for focusing EXCLUSIVELY on profit. I did not say "profit is evil." I said what I said. Re-read it. I understand free markets, capitalism etc. YOU sir seem to not understand what it means to be a human being. Are we supposed to be slaves to money? Is your life's purpose to maximize shareholder's value so you can buy another ski jet and park it in your garage? What is money for? These are not simply idle questions for a conversation over beer.
Currently hooked on AMP
the only way you would know that your business is serving people is if it makes a profit.
Obviously and demonstrably false. And the profits from the business goes back to the people it serves. The Grameen bank does not use its profits to enrich its owners at the expense of the poor. It does not seek to maximize shareholder value above all else. It's a matter of recognizing that a business exists for something MORE than just making a profit. Money should not be the end goal. If you don't get this, keep thinking about it. Maybe when you are over your cynicism about your life, you can start to understand that the worth of a company cannot be measured purely in dollars.
Currently hooked on AMP
Gee, I wonder how companies who give away software for free and whose software is largely maintained by the user community could ever make less money than the companies that lock their software down and charge hundreds of dollars per copy?
It's almost like people aren't paying for it!
Most "duh" article I have ever seen on /.
If the only way you can accept an assertion is by faith, then you are conceding that it can't be taken on its own merits
People need to stop saying "Linux" as if it were one operating system. A Linux distribution is an operating system; different distributions are similar, but not identical, and the problems you have with one distribution may not be reproduced with a different distribution. You say you cannot get Flash to work? Which distribution are you using? Which architecture? Adobe does not maintain a Flash plugin for every single distribution, and they only compile the plugin for x86. I know, it may seem pedantic to question whether or not you are using x86, but when dealing with operating systems other than Windows and (the current) Mac OS X, that is a relevant question -- I myself own an ARM desktop that runs Ubuntu.
I think that you might have been joking, at least judging by what you said about Windows installation. In all seriousness though, the sooner people stop treating "Linux" as if it were a single operating system, and the sooner they stop expecting everything they want to be installed by default (which is not the case with any other operating system -- so why should a Linux distribution be any different? Yes, you need to install the Flash plugin separately after installing Windows!), the sooner we can get back to having "productive" conversations about the relative merits of different operating systems.
Palm trees and 8
People need to stop saying "Linux" as if it were one operating system.
Debian, Ubuntu, Fedora, Mandriva, SUSE, etc. individually will never become popular enough to attract developers of certain kinds of software for which free software has been shown not to make business sense, such as games and game-capable 3D video card drivers. The only way to make a market for non-free programs that run on Linux is to have a single ABI for user space. Linux Standards Base was supposed to ensure that.
You say you cannot get Flash to work? Which distribution are you using?
The fact that you feel the need to ask that question illustrates the problem. Should a program require different binaries for Windows Starter vs. Home Basic vs. Home Premium vs. Professional vs. Ultimate vs. Server?
Which architecture?
There are only two architectures left for consumer products: x86 and ARM. Given "laptop" as opposed to "smartbook", I'll take an educated guess of x86.
I thought this was the whole POINT of OSS in the first place. Not to be "for-profit" but to be *USED* to make your profit in whatever field you desire. TFA is basically one big troll, OSS' goal isn't about direct profit, it's always been about secondary profit by the money saved.
Socialism is the realisation that a large proportion of a population are so self-centered and selfish that they simply don't realise the benefit of helping everyone in their society. "Without giving me nothing in return" - what are you smoking? If I have to give you examples, then you clearly don't have a fucking clue about what you're talking about. Your logic is a fucking joke.
There are a few distinct concepts which have been conflated:
- The size of the Open Source software market as measure in dollar revenues.
- The total number of Open Source software deployments.
- The value of Open Source software to its users, as measure in revenues of its users (e.g. Google)
- The size of the largest corporation operating in the Open Source software market.
The assumption that with Open Source software those measures would be in the same relation as with closed-source software markets is probably incorrect. In particular, using the sizes of the largest corporations as a proxy for the "success" of Open Source software is bogus. The Open Source Software business might tend to fragment into multiple vendors because the license permits that, whereas in the closed source market services cohere around large corporations, the software copyright holders.
The failure of predication here was not to overestimate the success of Open Source software. It has been a wild success. Rather, the failure was to to predict the specific forms which that success would take, which Open Source business models would succeed and particularly which corporations would be winners and which losers. Some predicted that companies which rigidly devoted themselves to vending purely Open Source solutions would prosper the most. That prediction has proven incorrect. The actual outcome seems to be the Open Source adoption is broad but the biggest winners are not strict adherents to the ideology. Significantly, Google, current market cap. 154.65B, runs on Linux. Apple is thriving and its machines run the Open Source Darwin in combination with proprietary layers on top. IBM provides Linux on its servers.
Conclusion: Open Source software is a muti-billion dollar business but the winners in that market were not the Open Source purists.
Ceci n'est pas une signature.
Competition is thriving in the open-source market, hence the lack of massive market-cap non-specialised companies. FOSS is showing capitalism how it's done.
I'm a huge supporter of both capitalism and the open source movement, but please, lets not pretend that the latter has much to do with the former. The reason why open source doesn't make much money is because it's essentially a volunteer effort. The vast majority of people that do FOSS work do it unpaid, and on their own time. I've yet to find a stockbroker that works for "the love of the game". Capitalists are in it for the money, first, last, and always. The open source movement is basically a bunch of voluntary communes. If they make some money, hey, that's nice, but the software is what's important to them, and they're willing to work for free to see it happen.
The two ideas have little to nothing in common, save the idea of voluntary participation.
Life is hard, and the world is cruel
It's absolutely correct that corporations are legally obligated to attempt to maximize the return for shareholders. However, abiding by the law isn't the same as being a good citizen. The legal obligation to maximize returns in conjunction with the demi-personhood of the corporation has led to the increasingly common comparison of corporations with sociopaths. They exist only to satisfy their own needs and desires and are not designed or operated to benefit society. Management can take the enlightened, modern, view that they can do well by doing good, but there's no requirement for this and competition does tend to breed ruthlessness over generosity.
The fact that there are no enormously rich and successful open-source software companies speaks to the fact that maximizing concentration of capital is an activity that is done more efficiently by predation than by symbiosis. Profit in itself is not an evil. We require profit to survive because it is both the measurement of how well we use our resources and how much wealth we are creating. Wealth is vitally important for every kind of progress.
Perhaps it's time to think very deeply about how we want to organize our economic activity so that the rewards of our hard work are more diffused and mutually beneficial than the model that we have created which encourages vice in pursuit of profit. The question shouldn't be, "Why are there no billion-dollar open-source companies?" but rather, "Are business models based on generosity more or less useful for creating and distributing wealth than those which place value only on scarcity?".
To that end, I have a proposal: develop a set of metrics that measure the wealth generated by open-source activities. I don't think we should be focusing on the dollar-equivalent of the developer hours. We need to look at the contribution to the standard-of-living. That is, after all, the real purpose of economic activity. Once we start measuring these things in a way that is not biased toward our current system, but gives us a good idea of how useful these various activities and organization really are, we can start thinking about how we're really going to increase our wealth instead of just how we're going to make profits.
...because in this 21st century world of ours where just about everything is driven by money, it's great to see a huge, world-wide collaborative project confusing the hell out of accountants and marketing types who simply cannot grasp the simple concept that *sometimes* things happen just because enough people *want* to making it happen, rather than being paid to make it happen.
And what's even better about the whole Open Source movement is that it benefits *everyone*. Nowadays, there's no justification for software piracy just because commercial software is overpriced in some parts of the world because now there are truly free alternatives that can, in most cases, give enough functionality - for example, about 10% of MS Office users use enough of its functionality to not be able to use an alternative package, but for the remaining 90% OpenOffice.org provides more than enough functionality.
Even if you don't use or support Open Source, there's no denying that its presence means that commercial software publishers now have a benchmark that they need to be better than, and that, in turn, can only mean better quality software all-round.
Gentoo Linux - another day, another USE flag.
So when you grow a garden, you only grow exactly how much food you need to eat an no more, because producing extra profit is evil right?
Nobody said that.
You seem to not understand what capitalism and free markets are.
Too easy, I'll pass.
You're leaving out the part that says anyone, regardless of class, race, sex, or anything can, if they choose, pursue as much profit as they wish. You don't even have to work if you don't want to. You can choose to sit on a corner and beg like a lot of people do. Capitalism and free markets are essential to freedom.
This is where my BS meter went into the red. This would be true ONLY in a condition of true equality, which condition cannot exist in the real world. In the real world, a noticeable percentage of people lie, cheat, steal, commit violence against each other, discriminate unfairly against people who look, sound, or act different from themselves, and generally are complete bastards whenever they think they can get away with it.
This is why idealistic ideology falls apart in the face of actual events, whether it's capitalism, communism, libertarianism, or benign authoritarianism. All of these theoretical ideals offer important insights, and should be pursued, but should be recognized as measurements, not goals. The human experiment thus far tends to suggest that a balance of competing ideals is the most workable solution. We must learn to recognize that going too far in ANY direction causes more problems than it solves.
Luckily, most of humanity realizes this, and acts accordingly, with local variations and frequent missteps. You know this, yourself, as you proceed to demonstrate:
When government takes my work away from me in the form of taxes and uses it for schools, police, or fire departments, I don't really mind. It beats going out and actually helping build a road myself. Instead of working on a sewer system, I can do other work that I freely choose to do and trade that work in the form of money for a sewer system. Everyone benefits, including me, and I get something in exchange for my work.
Aha! So, what you are saying, I think, is that in some cases the collective good outweighs personal freedom and absolute capitalism. An interesting twist of phrasing, working "freely choose" in there. But an essential recognition of truth at some level.
Under socialism, when government takes my money and gives it to another person without giving me anything in return, that is no different than forcing me to work for that person for free, getting nothing in return. That is the very definition of slavery.
Oh dear, now you contradict yourself. If your house does not catch fire, was your tax money wasted on the fire department? Please step away from the loaded words for a moment. Notice that, sans the "S" word, you just described the same situation as your previous statement, only this time instead of "freely choose" we have "Socialism" (shudder).
Newsflash: Collective action, in the form of taxation and government services, OF ANY KIND, is a form of "Socialism". Here's a useful set of definitions. See especially definition number one.
So, your defense system, court system, fire service, police service, border guards, etc. etc. are all part of the socialist side of the balance scales, along with the usual "evil socialism" suspects of public financial assistance and health care. It's amusing, in a "makes me want to vomit" sort of way, to hear otherwise generally intelligent people decry one sort of socialism while practically worshiping another sort.
Unfortunately, there are lots of people out there who believe slavery is superior to freedom.
More unfortunately, there are far too many people out there who believe in a fantasy world where you get to, or
WALSTIB!
Open source solves the broken window fallacy in the software market. Seriously. Does anyone believe that Bill Gates or Steve Jobs are ridiculously rich because their companies' software is that much better? That they really earned all the money they have? Linux and other OSS has saved the world probably on the order of trillions of USD which has been put to other uses (curing cancer, researching alternative energy, feeding the poor, etc, etc). On top of that, it has made it possible for people who could never afford the outrageous prices of Microsoft or Apple to be able to use a computer.
Coding Horror already answered the question of this article over three years ago:
Nathan's blog
Those are the same OS with different add-on bundles.
As are Debian and Ubuntu and Easy Peasy and Mepis and Super OS. So how can the publisher of a Linux distribution make it worthwhile for companies to develop and market products specific to that distribution?