My blogging partner Zack Urlocker writes:

“So if anything, I think it’s the traditional closed source business model that is broken at this point. That may not be obvious yet, but you just need to look around to see what software is being adopted by startups and new projects inside large companies. Hint: it’s the one that costs less. As long as open source companies add value, they will do fine.”

I hate to disagree with Zack, but I will ;-)

As always, I remain convinced that open source has an important role to play in the evolution of the software market. As Ian points out, and I’ve long agreed, this isn’t an Us vs. Them competition.

Let’s consider the use of open source by startups. I completely agree that startups are using open source products in some shape or fashion. But is this a warning sign for the traditional software business model?

First, what portion of the total IT market does this customer set represent? I’d argue it’s significantly less than 2%. Second, what percentage of startups will become large enough to represent a significant (actual or potential) IT budget? I don’t have data here, but I can think of five startups from the 1990s, out of hundreds, that have hit it big. Third, what percentage of these customers will eventually pay the open source vendor in question? I would argue that it’ll be a lower percentage than the overall open source user base. Startups typically have deep technical skills and can live without support or “added value around open source” more than an enterprise IT department relying on open source. Additionally, using open source does not preclude the startup from using commercial software when their needs warrant it. Fourth, since cost is a key driver behind the use of open source by a startup, could initiatives like Microsoft’s BizSpark impact the technology choices made by startups?

I do not want to diminish the value of reaching startups. I am simply stating that software usage or purchase decisions by startups do not correlate with vendor success in the software marketplace.

I’ll follow up to deal with Zack’s comment regarding the use of open source inside of the enterprise. Which, if you ask me, is a much better revenue opportunity than startups ;-)