rand($thoughts);

As Zack reported, Sun is buying MySQL for ~$800M plus $200M in options. Interestingly, the MySQL acquisition represents 8% of Sun’s current market cap (~$13 Bil). While I’m happy for the MySQL team, my views on Sun’s OSS “strategy” are mixed at best. Let’s hope Marten and team can help Sun realize that there is value in software…good software, not the stuff that was 5th in class, and remains so after open sourcing it.

Oracle also announced it will acquire BEA for $8.5 Bil, a higher price than Larry rejected a little while back. The deal also represents 8% of Oracle’s current market cap (~$109 bil).

The software industry continues to consolidate. Next question…When will Oracle buy Sun?

Come on, you have to admit, the resemblance is uncanny. I’m obviously kidding. I’m much better looking. His sizable bank account and ability to keep a beat probably balances the score though ;-)

Marc gave me a heads up on his recent post, in which he comments on Matt’s post. If you don’t already subscribe to Marc’s blog, I’d suggest you read his post today. Here are some key points that reinforce my OSS views of late.

Matt said:

“…It may mean that Benchmark knows something that the rest of the industry seems determined to ignore: services-based businesses may well be the future of the software industry. “

Marc responded:

“FALSE: the future of the software industry (as a whole) is services. I always enjoy it when in debate people mention the case of VMWare to evangelical OSS zealots. Here is a company that is creating vasts amount of technological innovation and money with a classic licensing model of software. When asked why they didn’t go OSS, the CEO responded “why would I do that?” …. What? my ideology is not perfect? the good old model is still kicking arse? by orders of magnitude in terms of technology and, it goes without saying, financial value creation?…”

“The proprietary model is alive and kicking. The existence of OSS models DO NOT negate the proprietary models. GET OVER IT, both models will co-exist and thrive sometimes at the expense of each other, sometimes independently of each other. It is not a zero-sum gain, there is value being created in both.”

“In fact, witness the RUSH of OSS companies to emulate the proprietary licensing models to monetize their bases. The VC’s may have invested in service based companies but they are all becoming product license companies…The proprietary licensing model is still top dog and the OSS guys are falling all over themselves to emulate it. BTW, on this topic, I find that Savio Rodrigues, the “community blogger” from IBM is a more enlightened read. Maybe because he is from IBM and they literally wrote the book over the past 50 years?”

I respect Marc’s willingness to speak/write with his unique sense of candor about OSS business. Whether you agree or disagree with Marc, be happy that his ($300M of) OSS credibility forces us to rethink the OSS business model, if only for a few seconds. Marc’s willingness to evolve his thinking around OSS and, gasp, learn a thing or two from the commercial vendors is refreshing. It’s a good thing for us commercial vendors that he’s retired… ;-)

All truths are challenged over time. It may well be time to challenge the belief that OSS growth will come at the expense of commercial software. As Marc so eloquently put it, there is value being created in both the OSS and proprietary markets. One plus one could actually equal two and a half. Take that Ramy (my accounting prof)!

By now you’ve likely read my views on OSS 1 & 2.

Here’s something you may find interesting. Red Hat released JBoss Developer Studio in early December 2007.

InfoWorld reported:

“While JBoss Developer Studio is available for a $99 subscription, support for the platform costs extra. Support agreements start at $3,500 a year. But users get access to all Red Hat and JBoss software through these agreements, Che (Red Hat product marketing manager) said.”

Huh?! So, if support for JBoss Developer Studio is extra, what exactly is in the $99 SUBSCRIPTION? For that answer, let’s head to a blog by JBoss developer Max Andersen:

A reader (Andres Testi) asks Max:

“Where is the free edition?”

Max replies:

“There is no free edition, but there is the JBoss Tools which are the JBoss.rg developed plugins and I’ll be back later this week with details about JBoss Tools 2 GA.”

Another reader (Eriks) asks:

“What are differences between free and 99$ version?”

Max replies:

“The free version does not provide:
* An installer
* Eclipse and Web Tools preconfigured
* JBoss EAP preconfigured
* JBoss AS and JBoss Seam preconfigured
* 3rd party plugins bundled and configured
* Access to RHEL and Red Hat Network
* Access to the supported software”

Lastly, a reader (Sakuraba) asks:

“If all of that stuff is not-preconfigured in the free version, is the free version usable at all?

What features wont work out of the box because of the free version not being configured correctly?

(I appreciate you effort and the fact thatRed Hat wants to earn money with this hard work, but I am interested nevertheless.)”

Max replies:

“Sakuraba - I don’t know how to explain it otherwise than what I did above. There are no functional limitations in the open source version; its just a matter about what is prebundled and preconfigured which you can do yourself for free or get from JBDS which additionally provides you access to the software that JBoss/Red Hat supports commercially.”

Okay, so we finally have an answer to what the $99 SUBSCRIPTION provides.

Since support isn’t included in the $99, you simply get a working product and you get updates to this working product as piece parts are updated. Sound like anything you’ve heard of before? If you said “a regular software product with the support removed” you’re bang on. The fact that Red Hat calls this a subscription is a shame. They are selling a product… bits and bytes. Calling this a subscription continues the “OSS obvious truth” that selling proprietary/gated access OSS products is for less pure OSS vendors.

BTW, if you try to purchase JBoss Developer Studio, you may notice the “(development use only)” text under the product name. Interesting that Red Hat, the beacon for openness and user freedom would (gasp!) limit user freedom by limiting the production use of the offering. I am not calling this out to throw eggs at Red Hat. I am calling this out for the OSS purists who hold Red Hat on a pedestal. If I were a Red Hat shareholder I would be perfectly okay with this move.

Anywho, maybe Red Hat is trying something with JBoss Developer Studio that they’ll implement in other products? When news gets out about Red Hat selling gated/proprietary OSS/OSS-based products, it may become more acceptable to do so. I believe this will be good for the OSS vendor ecosystem.

I guess time will tell.

See post 1 of 2 here.

Recently Shaun Connolly wrote:

“I admit I have traded barbs with Savio in the past. I still like my “Open Source Community and Barack Obama” blog that got him off his uninformed rants of JBoss not being “open source” enough.

Savio appears to be stuck in a 3 month rut yet again…it’s the same old flawed analysis rehashed and restated in slightly different contexts. Comparing apples and oranges.”

As I mentioned in my previous post explaining my views on OSS, I stopped caring about whether JBoss was “truly open source”. I will freely admit that Shaun’s post helped me realize that I was being too much of a purist, without considering that JBoss was helping all OSS vendors with its success. I hope that I can repay the favor to Shaun with this post ;-)

Shaun thinks that my distinction between selling a support subscription and selling products is pointless. Matt has argued as much, and believes that there is no reason to sell proprietary (OSS or OSS-based) products alongside freely available OSS products.

Here’s why I disagree.

Shaun and Matt reiterate the dogma that the OSS business model is better than sliced bread. It is, to a point. However, in the software market, selling products drives more revenue than selling support. We’ve trained IT buyers to value software support and maintenance at ~15% of the initial price of the software product. Why do OSS proponents ignore this point?

What if Red Hat, JBoss, MySQL, SugarCRM, MuleSource, Hyperic, Alfresco and Zend all woke up tomorrow and told the market they are going to offer great OSS products and proprietary/gated access to other (OSS or OSS-based) products. The reason for doing so, as these vendors would explain, is to capture a higher percentage of revenue from the user base who is receiving a lot of value from OSS today. The additional revenue would be used to fund further product development, both for the OSS product and for the proprietary/gated access product. The extra revenue would be invested in growing the company, thereby expanding the reach of OSS in general. Now, OSS purists would claim that these vendors are trampling on the true vision of OSS. But, wouldn’t the average user benefit from better products that reached a wider user base?

Yes, some of the above mentioned OSS vendors already sell products under the guise of a service. By doing so, these vendors minimize the value of the product itself. Worse, they make it next to impossible for an OSS startup to follow a business model other than one that will severely limit their revenue size in the future (i.e. selling support subscriptions). They make it taboo to sell products, because, you know, “a real OSS vendor wouldn’t need to stoop to doing that”. OSS proponents tend to err on the side of purity when the markets that we (well, you, I work for a commercial vendor) participate in are based in pragmatic reality. As I realized when I questioned whether JBoss was “truly open”, it doesn’t matter as much as whether a large number of users benefit and the vendor is open ‘enough’.

I am aware of one well known OSS vendor who will be announcing a gated access product in addition to their lineup of ‘pure’ OSS products. MySQL has gone down this path with MySQL Workbench. I cheer for them and other vendors wise enough to learn from commercial vendors and brave enough to act in the face of OSS purity.

You can disagree with my argument for selling proprietary OSS products (heck, I could be wrong!). But I ask that you do so after considering the historical success of selling software products versus the predicted success of selling support, the latter of which is to represent 1.8% of the 2011 software market.

Recently, John Jackson wrote:

“After reading your posts for the last ~1 year, I am wondering why you are on an open source forum. It seems to me that you don’t understand the point that comparing the newer model of open source software (technical and business models) to the models of the proprietary companies is not the be-all-end-all of the comparisons. Specifically the revenues and profit margins of the two models. They are different, and will be different.”

John, I completely agree with you that OSS is different. But one of two things happen to a successful OSS vendor. They get purchased or IPO. For simplicity sake, let’s assume that the acquiring vendor is a public company. Once we begin to add public investors into the fold, I believe that focusing on “OSS is different” is a losing business strategy. Investors don’t really care about different. They care about revenue, profit, share growth and dividends. OSS proponents can ignore investors and Wall St. if they wish, but I’d suggest against it. Individual investors and Wall St. make it possible for public OSS vendors to access capital that may be necessary to fund the vendor’s growth. (Cheap) Capital allows (OSS) vendors to make acquisitions, build out a larger WW sales force, develop new products, etc. [Heresy_On] The value of development effort received by an OSS vendor, around a single-vendor-controlled OSS project, is much lower than you’ve been led to believe. Building (OSS) products is expensive [Heresy_Off]. I think we can agree that most leading OSS vendor would be much better off if they had more capital at their disposal.

If we put aside the dogma of “OSS is different, so don’t compare it” and realize that at some point, it WILL be compared, could we as a community make it easier for OSS vendors to succeed in the market? Recognizing that OSS vendors will be compared to commercial vendors might lead some of us to get past the OSS purity debate (as I did with whether JBoss was open enough - see my next post). It may lead some of us to accept a leading OSS vendor giving away 90% of its products and offering gated access to 10% of its products. But you can’t get to this conclusion if you always end the discussion at “OSS is different, duh”.

I would rather see an OSS vendor valued at $20B with 90% OSS products and 10% gated access products vs. that same vendor valued at $250M with 100% OSS products. I am pragmatic. Not everyone will share these views about OSS being used to generate revenue from products that may not be completely open. I’m not suggesting that others have to change their views on OSS purity. I am putting forward a view that says, mostly open and big (i.e. Google) does more good for the largest set of users, than fully open and small.

PS: I have been a little tardy on replying to comments here at InfoWorld. I apologize. I am in the middle of an executive mba while working full-time….which may explain my capitalist views here ;-) I do appreciate your comments and read them all. Please keep telling me when you think I’m off base! I will try harder to reply.

Some of you may have seen this article in Discover Magazine by Jaron Lanier. I find it difficult to argue when someone challenges “OSS obvious truths” because doing so takes some degree of professional courage. Jaron writes:

“Twenty-five years later, that concern seems to have been justified. Open wisdom-of-crowds software movements have become influential, but they haven’t promoted the kind of radical creativity I love most in computer science. If anything, they’ve been hindrances. Some of the youngest, brightest minds have been trapped in a 1970s intellectual framework because they are hypnotized into accepting old software designs as if they were facts of nature. Linux is a superbly polished copy of an antique, shinier than the original, perhaps, but still defined by it.

Before you write me that angry e-mail, please know I’m not anti–open source. I frequently argue for it in various specific projects. But a politically correct dogma holds that open source is automatically the best path to creativity and innovation, and that claim is not borne out by the facts.

Why are so many of the more sophisticated examples of code in the online world—like the page-rank algorithms in the top search engines or like Adobe’s Flash—the results of proprietary development? Why did the adored iPhone come out of what many regard as the most closed, tyrannically managed software-development shop on Earth? An honest empiricist must conclude that while the open approach has been able to create lovely, polished copies, it hasn’t been so good at creating notable originals. Even though the open-source movement has a stinging countercultural rhetoric, it has in practice been a conservative force.”

The fact that many “sophisticated examples of code in the online world” are of the commercial software kind, and not OSS, is simply because the vendor felt they could grow and be profitable without open sourcing the product. In some “innovative products” such as Joost or Skype, the open/closed nature of the underlying software is of little concern to the users. In other cases, such as RIM’s enterprise software, users may prefer a more open product, like Funambol, but are willing to trade openness for a product that just works.

When a vendor has a truly innovative product, they do whatever they can to increase their return on investment. In most cases, this means that the source code isn’t released. The conclusion is not that OSS projects don’t innovate. Rather, that projects that are truly innovative are developed by vendors whose benefactors (VCs or Wall St.) want the biggest bang for their investment. Ipso facto, closed source is usually the path taken in these situations. This has nothing to do with the type of innovation that OSS can deliver….

My accounting prof liked to say that “cash is king”. I believe him, and in 2008, I predict that cash (i.e. revenue and profit) will begin to matter a lot more to OSS vendors and their VCs/investors. I don’t buy the “OSS is different, so don’t compare us using metrics that commercial vendors are compared with” line of thinking. I’ll expand on this in the next few posts. I will also reply to 3 comments on a recent post.

Bill Miller wrote:

“But to have adopted “just use the commercial software business model from day 1″ would never have provided the opportunity to have a business at all.

The assumption that they “…would have paid to get your product…” is a bad one. A lot (most even) of these user would not have paid for it and would never have used it at all.”

Bill, you are 100% correct, because of OSS awareness and preference, a commercial software business model from day 1 is not going to work in the majority of software markets these days. I agree that OSS lets a vendor reach a lot of users who would never have used your product. However, I do not think OSS is very successful at converting this set of users into paying customers. This has more to do with human nature than goodness or badness of OSS.

Let’s imagine that there are 3 users:

[a] Would have paid for a comparable product, and will pay for support
[b] Would have paid for a comparable product, but will not pay for support
[c] Would not have paid for a comparable product

In a Support Subscription business model, you will have 3 users, but only 1 paying customer. Is that good? Absolutely, you are trying to break into the mature and consolidated software market, so a large number of users are a good thing.

The problem is that user [b] was already looking for a similar product when he found the OSS product 1. If not for OSS product 1, he would have been stuck with a commercial product, or an alternative OSS product 2. Now you and I can argue what percent of [b] users can be convinced to pay for support. I suggest it is a very low figure. The problem is you’ve given the user something of great value for free (i.e. the product), and now you’re asking him to pay for something of much less value (i.e. the support). Before someone says “see, Savio doesn’t understand the high quality support that OSS vendors deliver”. I get it, but do you pay a premium for a BMW or Mercedes for the customer care when you take your car into the shop, or for the actual product? We are all trained to value products to a higher degree than the services that go around these products. I don’t want to minimize the ancillary services, but only to point out that we are trained to value products more. In software land, we’ve trained buyers to value support at approximately 15% of the value of the initial software cost. Also, [Heresy_On] OSS products of high quality provide little incentive to purchase support [Heresy_Off]. With all this in mind, how can we expect a large portion of users like user [b] to pay for the milk when we’ve given him the cow for free? (or something like that)

This is why I believe that OSS businesses of the future will employ the model that MySQL did with Workbench from day 1.x (likely not day 1 as it would kill the hopes of a community around the product).

This is a long winded way of saying: OSS businesses of the future will have to offer products to paying customers that are different than what is available for free. Emphasis on products. OSS proponents will have to leave “religious definitions” of what is and isn’t OSS at the door. OSS vendors, investors, and users will be better off.