Saturday, August 15, 2009

Commercial Open Source Redux

A big congratulations to SpringSrouce, a commercial open source company with an estimated $20M in annual revenue after years of effort sold for 20x trailing revenue. Pundits such as Matt Asay point to this as another success, after pointing out that in the Commercial Open Source Failure piece I wrote for BusinessWeek that I also missed the XenSource and Zimbra exits, two companies with <$10M in revenue that also sold for >20x trailing revenue.

I am in full agreement that these companies all had great technology in interesting spaces, but lets be clear that these are technology acquisitions, not business acquisitions like MySQL and JBoss. I do not think that Citrix and Yahoo! are patting themselves on the back about their acquisitions of XenSource and Zimbra. At least VMWare using SpringSource as an accelerator into cloud computing makes a lot of sense.

As the New York Times pointed out last week, the trend here is that enterprise IT spending has fallen into the gutter and is not going to climb back out. And even with the open source marketing message, commercial open source companies are selling proprietary software with direct sales, marketing at tradeshows, and supporting it with support staff into a market whose growth is almost on par with the rate of inflation.

These companies are fundamentally no different than the enterprise software companies that preceded them, which is the main point I am making and the point that no one in all of these "rebuttals" wants to address. Yes, a few will be successful as businesses, and for the rest there will be technology acquisitions, some exorbitant. But in the end the enterprise software market as we knew it is history and is morphing into cloud computing.