October 2008

WaveMaker CEO Chris Keene has an excellent, and surprisingly open, post on WaveMaker’s business results.

While Chris mentions that WaveMaker has secured 700 customers out of 300,000 website visitors, I’m more interested in the download to customer conversion rate.  Well, 700 paying customers out of 90,000 downloads = a 0.8% conversion rate.  That’s an incredibly high conversion rate.  Chris explains:

“These conversion numbers are pretty lumpy – a small number of channel partners can have a big impact on customer numbers, particularly at the beginning. Most of our leverage at WaveMaker has come from small systems integrators and ISVs, both of which act as channels to amplify the activity that is already being generated by our open source channel.”

Interested in increasing downloads of your open source product?  Chris explains WaveMaker’s experience:

“The percent of web visitors who download has inched up from roughly 20% of visitors to 28% of visitors as we have gone through various iterations of our home page. As the messages have gotten simpler and the graphics more compelling, the download rates have climbed.”

Very cool Chris & team.  Keep up the great work and thanks for sharing your experiences for others open source startup to learn from.

I’ve had a few discussions with customers over the past week that lead me to believe that Jim may regret the emphasis he is putting on the cost advantage of Red Hat’s products.  Here are two quotes from Jim’s interview with Computerworld:

“I’ve had a couple of conversations with CIOs who said “we’re a Microsoft shop and we don’t use any open source whatsoever, but we’re already getting pressure to reduce our operating costs and we need you to help put together a plan for us to help us use open source to reduce our costs”.

“And we’ve had other customers literally looking at ripping and replacing WebLogic or WebSphere for JBoss, so I do think that we will pick up quite a bit of new business where companies are looking to save money from what they are doing…”

The problem with “use open source to reduce our costs” is that the conversation leads customers and their vendors down the path towards lowest cost wins.  Many open source vendors have attempted to shift the discussion to the business value delivered (i.e. innovation, ease of use, lightweight, etc), rather than focusing on cost.  That’s the absolute right decision, and one that’s taken open source vendors many years to figure out.  I’m concerned that in today’s economic climate, leading open source vendors will revert back towards the cost discussion in an effort for short-term revenue gains.  But these vendors will face customer pain when subscription renewals come up in 1, 2 or 5 years and the customer threatens to simply use the “pure” open source edition of the product if they don’t receive a significant discount.  That’s why open source vendors need to compete on value delivered, not price, and that the products sold need to be differentiated versus freely available versions.

As they say, live by the sword, die by the sword.

What do you think?

Sun preannounced preliminary results of their first quarter. Not a pretty sight…I’ll leave it at that. Sun also announced impairment to Goodwill of $1.8B, out of a $3.2B total Goodwill balance. Goodwill is essentially the difference between an acquisition price of a company and the tangible assets (i.e. cash, securities, equipment, etc) of the acquired company. Think of Goodwill as the price premium for an acquisition.

Many reports have suggested that the $1.8B Goodwill impairment is related to the StorageTek acquisition. But read this from Sun:

“Based on a combination of factors, including the current economic environment, Sun’s operating results, and a sustained decline in Sun’s market valuation, the Company has concluded that it is likely that the fair value of one or more of its reporting units has been reduced below its carrying value. As a result, Sun is currently conducting an interim goodwill impairment analysis to determine the required amount of the non-cash impairment charge, if any. As of September 28, 2008, prior to the impact of this potential non-cash impairment charge, Sun’s total goodwill balance was $3.2 billion of which $1.8 billion relates to reporting units that may be impaired.”

Nothing in the official text indicates that StorageTek is, or is the only culprit. Some have mentioned MySQL’s $1B purchase in passing. So I did some exploring to see if any of the $1.8B impairment could be related to the MySQL acquisition:

Preliminary Purchase Price Allocation from StorageTek acquisition (from Sun’s SEC filing):

Goodwill $ 1,754 USD Millions
Other intangible assets 1,122
Tangible assets acquired and liabilities assumed:
Cash and marketable debt securities 1,204
Other current assets 505
Non-current assets 334
Accounts payable and accrued liabilities (539 )
Other liabilities (347 )
In-process research and development 49
Total purchase price $ 4,082

Preliminary Purchase Price Allocation from MySQL acquisition (from Sun’s SEC filing):

Goodwill $ 723 USD Millions
Other intangible assets:
Customer base 70
Developed technology 73
Trademarks 28
Tangible assets acquired and net liabilities assumed (12 )
In-process research and development (IPRD) 22
Total $ 904

I’m not an accountant, (although I did ace Accounting I & II in my MBA…which my mom is very proud of :-), but if Sun is impairing $1.8B in goodwill, the StorageTek-related goodwill could be the major driver.  To answer the question posed by the title of this post, it seems the answer is no, MySQL does not have a (major) role to play in Sun’s Goodwill impairment announcement earlier this week. But, the fact is we’ll never truly know unless Sun tells us/its investors the details.

Why would a company take an impairment charge? Goodwill is an asset.  A key financial measure is return on assets (ROA), defined as Net Income divided by total assets. An easy way to improve ROA, with consistent Net Income, is to reduce assets.  A great time to do so is in a market like we’re seeing today.  Companies do this, so please don’t think I’m singling out Sun.  Remember when eBay took $1.4B off it’s books related to the Skype acquisition?

Andrew Keen writes the following in a post titled: “Economy to Give Open-Source a Good Thumping”:

“So how will today’s brutal economic climate change the Web 2.0 “free” economy? It will result in the rise of online media businesses that reward their contributors with cash; it will mean the success of Knol over Wikipedia, Mahalo over Google (Nasdaq: GOOG), TheAtlantic.com over the HuffingtonPost.com, iTunes over MySpace, Hulu over YouTube Inc., Playboy.com over Voyeurweb.com, TechCrunch over the blogosphere, CNN’s professional journalism over CNN’s iReporter citizen-journalism… The hungry and cold unemployed masses aren’t going to continue giving away their intellectual labor on the Internet in the speculative hope that they might get some “back end” revenue. “Free” doesn’t fill anyone’s belly; it doesn’t warm anyone up.”

First, it seems that Andrew is using “open source” to mean any non-paid activity by a third-party that carries out work that otherwise would have to be done by the owner of the project/product/website. He isn’t speaking directly about open source software.

I’d love to know if Andrew thinks his comments are applicable to open source software.  If I hazard a guess that he does, then I’d say he’s way off. Aside from a very select number of non-vendor controlled project, the majority (or all) of contributions and decisions are attributed to employees, not outsiders.  The tale of people contributing (code, docs, etc) in their “spare time” for the greater good has long been proved an open source software myth.

Do you think that the very minor percentage of contributions from outside developers will dry up as a result of the tough economy?

I haven’t covered Funambol in a while, so I was glad to get a quick update on the state of affairs.  I’ve always liked how much time and effort they invest in community participation. Here are some results:

  • Active Funambol installations growing more than 50 percent YTY
  • 3 million downloads, with huge uptake in China after translating the Funambol Forge into Chinese
  • 1,500 new developers registered in the last month alone

Here are three programs from Funambol that rely on community participation:

Phone Sniper: Have a phone and some time to spare?  Then, you can test Funambol with your phone and make some extra cash. (Think about the thousands of phone models in use across the world, especially emerging countries where a BlackBerry or iPhone is priced out of the market)

Code Sniper: Cash bounties to work on Funambol projects.

Lion Sniper: Rewards developers/users who can localize Funambol to languages that users want.  Funambol is focusing on French, German, Italian, Spanish, Japanese and Arabic.  But hey, if you’re interested in another locale, have at it!  BTW, according to Funambol, ‘Lion’ is a play on ‘L10n’, which is shorthand for ‘Localization’, as there are 10 letters between ‘L’ and ‘n’.

The cool thing about Funambol is that almost anyone can be a community member.  Few of us will ever write a file system or a transaction manager, but most of us could verify that our phone works with Funambol, or translate docs into another language.

Very cool – keep up the good community work guys/gals

I have long written about the opportunity for Microsoft and Open Source.  Heck, I even suggested that Microsoft should buy Red Hat (fat chance…but just imagine the possibilities ;-).  Over the past two years, Microsoft has continued to embrace open source.  Is Microsoft anywhere close to the position that IBM or Sun have achieved in the hearts and minds of open source proponents?  Nope, nowhere close.  Will that change?  That’s difficult to say.  I’m sure that Microsoft will adopt open source into their business model as much as IBM has (maybe not to the degree of Sun – because, to me that doesn’t make business sense…if you ask me).  But will “the community” give Microsoft the kudos for adopting open source more wholly?

InfoWorld has a great interview with Horacio Gutierrez, Microsoft vice president and deputy general counsel for Intellectual Property and Licensing.  I suggest reading the whole interview, but here’s a piece that really caught my eye.  It’s proof that Microsoft “gets it” when choosing between Open Source and Closed Source software. Mr Gutierrez is quoted:

“For example, it is harder and harder to continue to define the world of software as a world divided between open source companies and proprietary companies. The truth is that today we’re all mixed source companies. Every company that traditionally comes from an open source background has over time moved to the middle after realizing that in addition to the open source foundation, they also need proprietary offerings that will differentiate their services from others and therefore will enable them to build a viable business.”

Clearly, when faced with choosing A or B, Microsoft is realizing, much like IBM did over a decade ago, that A along with B is a much better option.

Sine Nomine Associates has released an OpenSolaris distribution for IBM’s System z mainframes.

Some of you may remember the Sun & IBM partnership to bring Solaris to the IBM mainframe.  However, I still don’t see IBM’s System z as a supported platform on the Solaris specs webpage.

I’m not completely sure about the relationship between Sine Nomine Associates and IBM and/or Sun.  Clearly Sun and IBM are aware of this effort since Sine Nomine Associates is the key driver behind the “Sirus” project at OpenSolaris.org.

Is Sine funded by IBM and/or Sun to do this work?  Will this work be the basis of the Solaris on System z offering (that the Sun & IBM partnership was set to deliver)?

A “no” and “yes” respectively to these questions would be very cool.  It would show that the “community” is scratching an itch.  It would also show that Sun is benefiting, through lower development expense and broader platform support, from their decision to open source Solaris.

I’m certain that Linux proponents will not like this news.  Linux on the Mainframe has been an extremely hot growth area for Linux.  But hey, competition is good for everyone!

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