Matthew Aslett, Matt Asay & Alex Fletcher are all writing about the increased funding that open source companies have received in 2006. Good news indeed. (Picture from robinicus919)Money, money, money

I got to thinking about what this all means. What’s the impact of giving investors (who expect big returns) a larger say in OSS vendor operations? Is this good for the open source market, or just a step along the path towards a joint OSS & traditional software business model? So, I called up a friend in venture capital and something he said made me think. He said:

“Everyone’s hoping to either become the next Red Hat or get sold to IBM or Oracle.”

I think his view of “everyone” is more indicative of OSS (open source software) investors, rather than OSS company founders. Although, founders probably do want to become the next Red Hat.

Now, if we believe that the world only needs 5 computers, then does the world only need 10 software companies? Okay, maybe 10 is a ridiculous number. But the software market is definitely consolidating.

How long can the Red Hats of the world remain independent? Up until now, the traditional software vendors have all benefited from an independent Red Hat. Let Red Hat make its money on Linux with “our” help in driving the acceptance of Linux. Along the way we’ll sell a lot more hardware and related software and services. Everyone wins. But as Red Hat and others begin to expand up and across the software stack, there’s more talk about traditional software vendors acquiring pure play OSS vendors. For instance, there have been rumours of Red Hat & Zend being acquired by Oracle, and Oracle did try to buy JBoss.

Next, several OSS vendors out there today are really developing features, not stand-alone products. For the most part, these vendors will either be acquired by pure play OSS software vendors (a la Red Hat), acquired by a traditional software vendor or go under.

I’m beginning to think:

  1. Consolidation in the traditional software market is in full swing and will only continue.
  2. The pure play OSS vendor market will face a similar degree of consolidation.
  3. As #2 happens, investors in OSS vendors will (strongly) direct OSS vendors to seek a buyout from a traditional software vendor. Just think about how many traditional software companies have been able to make it on their own vs. how many have been acquired.
  4. A large portion of pure play OSS vendors will find new homes within a traditional software vendor.
  5. As #4 happens, traditional software vendors will have to adjust their business models to include the OSS business model as another choice, or in some cases, the only choice, for delivering high quality software at the lowest total cost of ownership.

When this happens, will we say that open source won or that the traditional software model won? Ummm. Yes? As I’ve mentioned before, this is why I’m not a big fan of the “us vs. them” approach. The open source business model is great, and I support it. But it won’t replace the traditional software business model anytime soon or wholesale. An evolution as the two models blur together is much more likely. So, let’s focus on “us and them”.