In my previous post, I compared Red Hat’s financials to Microsoft’s results to test whether open source vendors are more capital efficient than commercial vendors.  I was not able to conclude that they are.

However, Zack suggested that:

“I’m not sure this is a fair comparison. Microsoft’s scale is several orders of magnitude larger than Red Hat. If you want to do a fair comparison, use companies with similar scale in terms of revenue, employees, etc.  “

Very valid point.  So I quickly looked at Tibco, a commercial software vendor whose revenue is within $150 Million of Red Hat’s, have a similar employee base of approximately 2,200 and were founded within 2 years of each other.  Here’s what I found (percentages are percent of total revenue):

RHT-TIBX Revenue Results

Red Hat’s operating expenses are 87% of revenue compared to 90% for Tibco.  If Tibco did not amortize acquired intangible assets, then the operating expenses would be 87% in FY2008.  Both vendors spend just over 35% of revenue on sales and marketing and just over 17% on R&D.  Tibco appears to have a more slightly efficient organization as their general and administrative costs are 8% of revenue, half of Red Hat’s 16%.  Keep in mind both vendors have the same employee size and close to the same revenue base.

Based on this comparison, I still can not conclude unequivocally that mature open source vendors are more capital efficient than commercial software vendors.