See our extensive overview of Open Source Business Models

Overview of the commercial uptake of Open Source software

June 2005 status

"And so Linux entered commercial use. Its first, and still most successful, niche was Web servers; for at least five years, the majority of the world's Web servers have used open-source software. Then, several years ago, IBM started to contribute money and programmers to open-source efforts. IBM, Intel, and Dell invested in Red Hat Software, the leading commercial Linux vendor, and Oracle modified its database products to work with Linux. In late 2003, Novell announced its purchase of SuSE, a small German Linux vendor, for more than $200 million. IBM invested $50 million in Novell. IBM, Hewlett-Packard, and Dell began to sell hardware with Linux preinstalled. IBM also supports the Mozilla Foundation, developer of the open-source Firefox browser, and with Intel, HP, and other companies recently created the Open Source Development Labs (OSDL), a consortium promoting the business use of Linux, which has hired Torvalds and other open-source developers. Now, Linux is running on everything from $80 routers to cell phones to IBM mainframes, and is much more common on desktop PCs. Red Hat is a highly profitable $200 million company growing 50 percent per year, and commercial open-source vendors serve many important software markets. For instance, in databases, there is MySQL, which now has annual revenues of about $20 million, doubling every year. In application servers, there is JBoss, and in Web servers, Covalent. In the server market, the eventual dominance of Linux seems a foregone conclusion. Michael Tiemann, Red Hat's vice president for open-source affairs, told me, "Unix is already defeated, and there's really nothing Microsoft can do either. It's ours to lose." Of course, Microsoft, which refused all interview requests for this article, sees things differently. But surveys from IDC indicate that in the server market, Linux revenues are growing at more than 40 percent per year, versus less than 20 percent per year for Windows. Unix, meanwhile, is declining." (Charles Ferguson, Technology Review, June 2005, at http://technologyreview.com/articles/05/06/issue/feature_linux.asp?p=2 )

May 2007 Status

"Presently there are four multi-billion dollar companies that have a very significant open source element to their businesses: IBM, Sun, Novell, and Red Hat (you could make an argument for HP and Dell too if you like). In addition to these juggernauts, there is growing investment in open source models. In the first quarter of 2007 the following companies raised approximately $100 million to fund businesses that directly rely on open source software or services.

Avidence (www.avidence.com) - $5 million, Series A

Adaptive Planning (www.adaptiveplanning.com) - $7.5 Million, Series C

Black Duck Software - (www.blackduck.com) - $12 million, Series C

Fonality (www.fonality.com) - $7 million, Series C

Groundwork Open Source (www.groundworkopensource.com) - $12.5 million, Series C

Greenplum (www.greenplum.com) - $19 million Equity and Debt offering

Penguin Computing (www.penguincomputing.com) - $9 million, Series B

PostPath (www.postpath.com) - $15 million, Series C

rPath (www.rpath.com) - $9.1 million, Series B

Terascala (www.terascala.com) - $3 million, Series A

(http://opensource.sys-con.com/read/367993.htm)

Open Source in Government

For the ‘governmental uptake’ of Linux, see http://news.com.com/2100-1001-272299.html?legacy=cnet& (August 2001 overview by CNet’s News.com)

Discussion

Why It Makes Sense to Open Up Software

Jonathan Schwartz, CEO of SUN, explains why it makes sense for companies to open source their software:

Now, I've heard from a few stockholders saying, "What? Sharing? Free Software? What's up with that! Go make some money!" And so I thought I'd put down, once and for all, why we're committed to sharing, to open source, open standards, and eradicating the digital divide. Ready?

Because we're going to make more money. How? It's trivially simple. Why do carriers give handsets away for free? Because they make money on the subscription necessary to receive the handset. Why do banks give away free checking, or free credit cards? Because they acquire new customers. Why do Google and Yahoo! give away free search? Because there's a fortune in the end result. So why on earth would we give our OS away for free? Because it'll ensure those without the economic wherewithal to pay for it will still consider using it. Companies that suffered from piracy a decade ago now know the lesson well - piracy is a good thing so long as the pirates are folks who could never afford your products. So stop calling them pirates, call them users. Free software has no pirates. As I've said forever, there's value in volume, even if you're not paid for it.

Do I worry about enterprises or corporate customers taking OpenSolaris and not acquiring a subscription to someone's (hopefully our) service contract? No, not in the least. Do you really think a hospital, or an air traffic control authority or a Minister from an African nation would run their institution on unsupported software? No. No way. Are we guaranteed to get that business? Nope. But we are guaranteed the opportunity will be greater than if we kept Solaris locked up. And I'd rather get 20% of a business that's planetary in scope, than 100% of a business with 17 customers. Like I said, there's value in volume. (And I haven't even touched upon the impact of open sourcing on innovation.)

To prove the point, the Minister this morning was joined by the head of a bank headquartered in his country. His customers are increasingly coming to him via the network. He clearly recognized that a world in which the development and digital divides have been eradicated is a world in which he grows more customers, transaction volumes and business opportunities. And we both recognized that as the divides are eradicated, he'd find himself... ...buying more infrastructure to support his business. (Just so happened he was a Sun customer - and given that it is Q4, I will admit to giving him a brief update on chip multi-threading and storage containers.)

Sharing is good for our business. Free software is good for our business. Anyone who believes in preserving the old model of software distribution is, at a certain level, fighting gravity. The most popular credit cards are the free ones. The most popular handsets, search engines, and checking accounts are the free ones. Just like the most popular operating systems will be, in the long run, the... Free ones. nd as I've consistently said, and as you'll soon see, there's a lot of value in volume." (http://blogs.sun.com/roller/trackback/jonathan/Weblog/sharing)

The General Public License as an ‘ideal capitalist tool’

“The GPL is one of the most exciting, innovative capitalist tools ever created. The GPL breaks down walls between vendors and customers while enabling strong competitive differentiation. Unlike the BSD, which strikes me as serving an ever-narrowing slice of the development community that shares code simply for the sake of sharing, the GPL takes a hardheaded look at software development (and human nature) and works to maximize choice, control and a free market. From its inception, the IT business has depended on intellectual property. This dependence is enshrined in the U.S. Constitution, Section I, Article 8, which establishes copyright/patent to "secur[e] for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." This limited monopoly grant has enabled software companies to create exceptional, customer-focused products without inordinate fear that competitors will freely clone their innovations for sale as their own. No other open source license has done more than the GPL to make open source commercially viable. By emulating the traditional copyright format, the GPL facilitates commercial involvement in open source communities, which is important for expediting the spread and depth of open source software. Free market open source, thanks to the GPL." (Matt Asay is director of Novell's Linux Business Office, Network World, http://www.networkworld.com/supp/2005/opensource/070405-face-off-no.html)

Is there a Tragegy of the Commons in Open Source

Does business profiteering threaten the model? William Hurley fears so at http://talk.bmc.com/blogs/blog-whurley/whurley/.

"There are too many entities taking advantage of open source technology without giving back. Some are literally pillaging the community that butters their bread. How long before we all suffer the effects? If major project contributors were to stop work, how would that affect the industry as a whole? Let's use the monitoring segment of systems management as an example. Several "open source contributors" simply download code from popular projects and then "build" their software, service, or company on top of it. These contributors often refer to "improvements" they've made. Where are these improvements? Why weren't they contributed to the community from which they took the code? Open source should be about working together for common benefit.

Nagios is one of the most popular monitoring projects in open source, and one of the most abused. There are countless projects, products, and services predicated on the Nagios code base - some symbiotic, others non-contributing parasites. What separates legitimate use from outright exploitation? Where would you draw the line? Should violators be black-listed by the community?

To me, open means that everyone can participate on a level playing field. As a community we have to take the good with the bad, but I cringe when I see a project taking more than its fair share of punishment. How will the community address this problem? Should there be a ratings system? A sort of mooch-o-meter to rank companies and projects that use open source? Would that subjective hierarchy help or hurt the community? How would it be regulated?

The community has to answer some of these questions if open source is to continue to flourish. Everyone who leads, participates in, or utilizes an open source project should realize they have a personal interest in protecting it from abuse. Keeping the pirates honest will take effort, but the repercussions of apathy will affect us all in the future. Besides, tales of the pirate hunters are often more exciting than the tales of the pirates themselves." (http://talk.bmc.com/blogs/blog-whurley/whurley/.)

More Information

Articles

Open Source Initiative, "Open Source Case for Business", http://www.opensource.org/advocacy/case_for_business.php

Open Source Initiative, "The Open Source Case for Customers", http://www.opensource.org/advocacy/case_for_customers.php

Behlendorf, Brian. 1999. Open Source as a Business Strategy. In Open Sources: Voices from the Open Source Revolution, edited by C. DiBona, S. Ockman and M. Stone. Online version: O'Reilly. Available from http://www.oreilly.com/catalog/opensources/book/brian.html

Hecker, Frank. 2003. Setting Up Shop: The Business of Open-Source Software [Internet]. hecker.org 2000 [cited 21 Jan 2003]. Available from http://www.hecker.org/writings/setting-up-shop.html.

Young, Robert. 1999. Giving It Away: How Red Hat Software Stumbled Across a New Economic Model and Helped Improve an Industry. In Open Sources: Voices from the Open Source Revolution, edited by C. DiBona, S. Ockman and M. Stone. Online version: O'Reilly. Available from http://www.oreilly.com/catalog/opensources/book/young.html

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For a general discussion on how peer production, and free software and open source models in particular, fit in the for-profit economy, see our entry: Peer Production - Immanence vs. Transcendence

Open Source Commercialization

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