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Google makes Chrome OS open source
Google made the early code available to the open source community and claims external developers will have the same access to the code as internal Google developers.... Continued »
Category: venture capital
October 21st, 2009
Revolution gets $9 million and Nie
REvolution Computing, which is commercializing the open source R language, got a $9 million venture capital infusion and a new CEO, Norman Nie.
Nie, a political science specializing in polling, previously founded SPSS in 1968, and managed to have an outstanding academic career while running the company for nearly 40 years. SPSS was acquired by IBM for $1.2 billion this fall. North Bridge and Intel Capital would doubtless settle for that kind of performance.
Nie replaces Richard Schultz, who becomes an adviser to the company. R is the statistical programming language and part of the GNU project.
Given its nature as an academic project under the GPL, Nie said all the right things on taking his new job.
“I am keenly aware of R’s roots in the academy, just like SPSS before it. We will continue our close relationship with the academic community, even as we meet the needs of commercial users, and we will expand our commitment to the R community in terms of products, services and resources.
Nie said his goal is to make R the “dominant analytics platform.” Accomplishing that will mean doing a delicate dance between the needs of the market and the needs of academics devoted to open source. He has the right experience to do that job.
October 13th, 2009
The original open source niche remains just that
When I first began covering this beat five years ago there was great excitement about one niche, enterprise software.
Large companies would buy support, the thinking went, and open source would save them money. Big money.
Five years later, it’s still a niche.
Consider the good people at Groundwork Open Source. (That’s co-founder and COO Dave Lilly smiling over there, maybe because Peter Jackson replaced him in the CEO hot seat. His corporate picture is much better than the one CNET has.)
Groundwork offers reporters a steady supply of story ideas and leads. They specialize in system management software. They have been around since 2003. They offer many fine resources like MonitoringForge, a community for open source system management problems of all kinds.
Groundwork Open Source is an example of a well-run enterprise open source company. It has good relations with Red Hat, evidenced by its recent switch to JBOSS. It’s also part of the Microsoft System Center Alliance program. At Oracle OpenWorld this week they’re supplying some of the games.
The big news, however, is the closing of a new $5 million round of financing led by Canaan Partners.
Cool. Congratulations. Uh, $5 million?
Please don’t misunderstand. It’s great that Groundwork has this money. A lot of open source companies founded in 2003 are sprouting tombstones, not running tombstone ads.
But $5 million? In venture capital? Six years after launch? When you’re doing everything right? Really? Really.
My point is that there are some zeroes missing in this enterprise open source niche. Previous booms sprouted many more, much faster. This business has already seen a $1 billion deal (mySQL) and a $350 million one (JBOSS). But how many more are out there?
There are other values in open source other than money. I am the first person to say so. But among those for whom money is the chief value, is this an ore vein that’s playing out?
October 5th, 2009
What Everyblock owes Knight after its open source success
The Knight Foundation, as part of its efforts to improve online journalism, gave a $1.1 million grant for the launch of Everyblock in 2006.
Everyblock used the money to build a GPL code base that aggregates local information for use by news sites. Here, for instance, is its recent report on my home zip code.
Last month, however, Everyblock was acquired by MSNBC. Terms of the deal were not disclosed but should Knight get its money back, even a little of it?
A better question might be, is there any money to get? In making the announcement the Everyblock blog indicated it was really looking for a way to sustain itself after the Knight money ran out, and MSNBC’s investment will go mainly into making the site more valuable.
And the code is still available, all of it, under the GPL.
Founder Adrian Holovaty is mainly involved these days with another open source project, Django, and his own post on the deal drew a string of attaboys from around the world. There are no reports of him tooling around his home town of Chicago in a fancy car, buying fancy threads, building a fancy home or buying Oprah Winfrey dinner.
It wasn’t that kind of acquisition.
Despite this some journalists who commented at the Nieman Lab blog posting about the deal seemed to have a feeling of seller’s remorse. One asked whether all the code was released. Another asked whether revisions to the code would remain open source.
All this upset Holovaty, who responded within the thread that the charges are not true. All the code was released, he said, and he has given Knight kudos in every interview.
At the Online News Association show in San Francisco, Knight journalism program officer Gary Kebbel said future grant language will change. Again, he was not specific.
Andrew Hazlett noted that when “The Civil War” became a huge hit producer Ken Burns repaid much of his grant money. But Everyblock is not “The Civil War”.
There is an assumption among journalists that when a company is acquired its founders become rich. This often happens. More often, founders just breathe a sigh of relief knowing they have survived the experience and their baby has found a new home.
Some statement from MSNBC about the financial facts would probably end the speculation, my guess being that they only paid enough to sustain the project. And MSNBC’s future generosity to the Knight Foundation might be worth a press release as well, whenever that occurs.
But this jealousy by journalists is unseemly and based on ignorance.
In the world of open source projects move from non-profit to for-profit sponsorship all the time. It is normally considered a good thing. It is not a sign the original sponsors are bad. It means they have a solid structure in place to keep development going.
It’s an illustration of just how far journalists live from the real world that they could get jealous over good news.
June 24th, 2009
Reductive to service Puppet open source configman tools
Key founders of Puppet have incorporated and received $2 million in venture capital funding to advance the open source configuration management software project.
Reductive Labs, which has evolved from the same named consulting firm founded in 2003, will provide training, service and support for Puppet, the next generation open source infrastructure automation framework which is reportedly gaining strength and numbers of users.
Reductive has formed partnerships with Red Hat, Fedora and Canonical and has about 20 paying customers. Puppet currently supports Linux, Unix and Macintosh environments.
Puppet, which was first made available under the GPL in 2005, is a configuration management framework that enables customers to write policies about how web servers should be configured, how database servers should be configured and how mail servers should be configured,” said Andrew Shafer, chief strategy officer for Reductive Labs, which will be headquartered in Portland, Oregon. “Puppet lets you write policies, enforce them and automate them on an ongoing basis and operating system installation through patches and upgrades.”
Shafer said it’s important to have a robust policy-based configuration framework that can significantly speed up deployment of corporate servers. He noted that policy-based tools are valuable because few servers are configured in the exact same way in any corporation.
He pointed out that configuration management becomes even more critical as virtualization and cloud computing take off.
“With virtualization, your hardware headache eases but with thousands of virtual machines you’ve multiplied your configuration management complexities,” said Shafer. “People are bringing up thousands of [virtual] machines with EC2 [cloud] and configuration management complexity is further magnified. Bringing up a test infrastructure or a deployment infrastructure becomes a much easier proposition than trying to manage it in other ways.”
One senior systems engineer at Digg.com was able to rebuild 60 [virtual] machines from scratch in two hours [using Puppet] that would have taken two full days of work if done manually. “And I was largely a spectator,” said that engineer, Paul Lathrop, of Digg. “Now that’s automation.”
“And if he needed to build 600 machines, it wouldn’t have taken much longer,” because of the policy-based configuration management approach, Shafer said.
Its biggest competitor is amorphous: thousands of unique scripts system administrators write for their own environments, Shafer said. There are some model-based configuration management frameworks developed by BMC’s BladeLogic and HP’s Opsware but nothing in the open source space that compares to Puppet, Shafer said.
Reductive has no plans to commercialize the framework into a product per se and will focus exclusively on the services side of the business. Puppet 0.25 is currently in beta testing and represents a huge step forward: three times the speed in one third of the memory footprint of the current 0.24 series.
March 25th, 2009
It's a Flat World after all
Flat World Knowledge, whom we profiled last November, has closed an $8 million round of venture funding.
Hooks Johnston, General Partner at Valhalla Partners, compared Flat World’s potential to that of the MP3, but its real innovation is the same one powering this blog, a business model that works for publishers, authors, and readers.
As co-founder Eric Frank (above) explained it to me then, authors get a 20% royalty on everything students buy, but the students can download a Web version of the book text free.
It’s ancillary products that make the model go — iPod versions, Kindle versions, print-outs, study guides, and tutoring businesses built around the text and the class where it’s taught.
Current contracts offer lower royalty rates on lower-cost products, and no cut on tutoring, which is considered an independent revenue stream. Flat World offers 20% on the whole education process created by the book. Frank claims his authors actually do better than with traditional contracts.
That is vital in the college market, where total sales may be small and the authors are often professors.
It might not work in high schools, where a single state contract can be worth millions. But there are other possible solutions there, from the private sector as well as the public.
February 11th, 2009
Mark Cuban as a transparent VC
During a bout with depression after the 2004 elections I wrote part of a novel in which Mark Cuban emerged as a hero.
This does not mean I know him. I have never met him. Never did business with him. And the Cuban of my fiction bears scant resemblance to the real man.
With that minor bit of disclosure out of the way, let’s look at the real Cuban’s latest, the Mark Cuban Stimulus Plan.
He calls it open source funding, but that’s a bit like calling American Idol open source entertainment. (Note: Cuban once tried and failed at the reality TV game himself.)
The deal is you show him your deal, posting it online, and if he likes it he funds it. His blog post offers a set of rules aimed at weeding out the William Hungs of the business world. But hope springs eternal, and it’s always possible you could post with Cuban and get a nibble elsewhere.
One of the great fears of every would-be entrepreneur is that their “great idea” may be stolen, either by another wannabe or by some big corporation. This is generally a misapprehension. The key to success in business is not the idea, but its execution, the ability of an entrepreneur to turn that idea into a working business model.
That’s where Cuban’s plan, if it truly is open source venture funding, will fall short. At least for Cuban. What a good entrepreneur needs is not an idea. Ideas are a dime a dozen. It’s execution skills.
If Cuban can scare someone who has real entrepreneurial skills out of the woodwork with his proposal, I will be pleasantly surprised. It will also say volumes about where we are in the economic cycle, because entrepreneurs who can execute their ideas are my real heroes. And if there’s no work for heroes, what is there for the rest of us?
January 30th, 2009
Can open source save the debt market?
J.P. Morgan has decided to open source its CDS Analytical Engine, placing the code with the International Swaps & Derivative Association, a derivatives market trade group.
The engine is used to price Credit Default Swaps, the contracts which collapsed the whole financial world starting in 2007. (Picture from Elaine Meinel-Supkis.)
The ISDA insists that CDSs are “insurance” that “hedge risk” despite all evidence to the contrary. They were used for years to leverage profits on debt instruments and to let people pretend they had no risk.
Still, it will be interesting if ISDA really releases the code and lets all market players get access to it. I would like to know which license they will use for the code release — it would be cool if it were GPL’ed.
Will this release actually help unwind the market and return some order to the debt market? Or is this just J.P. Morgan throwing some bad code over the side and hoping for a pat-on-the-back at a time when its credibility is near zero?
Stay tuned.
November 5th, 2008
Open source valuations remain birdseed
Pingdom, a Web site monitoring outfit, did a piece on open source corporate valuations on its blog recent and they make sobering reading.
You’ll never be Bill Gates working in open source.
The valuations offered are, frankly, birdseed. Mozilla brought in under $67 million, 85% from Google. Canonical, the sponsor of Ubuntu, still isn’t profitable. SUSE Linux may book $110 million in revenue this year, Red Hat about $600 million.
If these were taco stands this would be serious dosh. But these are the leaders in what is becoming the dominant end of the software market.
Of course sometimes the bottom line is not the bottom line. Judging the success of open source merely through vendor revenue numbers is very short-sighted.
Much of the value in open source is money that customers aren’t spending, value which is plowed into other businesses, far beyond software.
The nature of asset value is also different. The code is the chief asset of open source, while in the proprietary world it’s generally goodwill.
And that code, as we’ve seen, is immensely valuable. But who holds that value? No one person or company does. Everyone does.
This is why proprietary critics continue hammering on open source as a loser. The criticism is valid, but short-sighted and irrelevant.
Your bottom line is not the only bottom line. Mine counts for something, too.
October 31st, 2008
The Twiki fork, a takeover opportunity?
One of the first stories I did here was about the fork of the Mambo CMS project. Three years later both the Mambo Foundation and the fork, called Joomla, survive.
It’s happening again, this time with Twiki, an open source Wiki system.
The cause is the same as before, a dispute between management and coders over management’s desire to monetize the code.
Management in this case is represented by Twiki.Net, where founder Peter Thoeny (above) has recently aligned with Sun, which now runs its servers. Thoeny founded Twiki.Net in 2007.
Some developers call this a hostile takeover. They have organized their fork of the code as NextWiki.
They write, “As of October 27th 2008, ‘TWiki’ is no longer the same - it is now commercial open source. The people that have driven TWiki development for the past decade feel the time has come to do so under a different name.”
Big Money Matt Asay is all over it, calling Twiki.Net “radioactive” to VCs, who measure open source investments in large part through the vibrancy of their communities.
It could be that, through its alliance with Sun, Thoeny has an exit strategy for Twiki.Net. VCs aren’t the only potential open source investors, and in this market you certainly can’t depend on their being there.
We have written often here at both C|Net and ZDNet about the failing economy and the opportunity that may hold for cash-rich proprietary software companies and open source projects which exist on less-tangible foundations.
Might this be the way the former takes over the latter, simply by picking up forks?
September 29th, 2008
Open source and the blame game
Times are tough. We all want to blame someone else. We all want to avoid paying the piper.
This is a natural human impulse. The difference between life’s winners and losers is how the former resist that impulse. Instead they look for the best possible deal and move on.
It reminds me of the last recession I saw, the dot-bomb in 2000. I was on an Ad:tech party bus listening to some young stud bemoan the new attitude among VCs, namely that there were other fish in the sea.
I laughed, long and hard. I laughed so much I cried. I laughed until my stomach hurt.
Which brings me to the sad story of Ringside Networks, makers of the Ning open source social networking system.
Apparently Ringside made the classic mistake. They tried to hold an auction in a falling market. It’s the same thing Bear Stearns did, the same thing Washington Mutual did, the same thing Lehman Brothers did.
When the boat is sinking you grab the first liferaft available. If the captain of the raft dithers you grab another raft. Amazing how so many people would rather drown.
Big Money Matt Asay grabbed a few graphs off Bickel’s last post to blame a certain company whose name apparently rhymes with frugal.
That is not the way Bickel concludes his post:
The building of a company requires so many things to come together. Good ideas, good target markets, good people, good business models, good timing. I think we just missed on the final ingredient - good luck…
If a deal could not be done with anyone, then I agree with Bickel. There will be plenty of time for counting now that the dealing’s done.
Ringside knew when to fold ‘em. The man will get a chance to play another hand. Learn from his mistake.
September 14th, 2008
Ubuntu should not copy the Mac
Ubuntu is putting serious investment into improving the interface of its Linux.
Mark Shuttleworth wants Linux to become comparable to the Apple Macintosh, quoting the watchwords of Web 2.0:
- Make your site visually appealing,
- Do something different and do it very, very well,
- Call users to action and give them an immediate, rewarding experience.
Good idea. But the Ubuntu Developer Summit is taking the wrong approach.
It is past time for open source to become truly innovative. The Macintosh interface is a nice point-and-click interface, but that’s all it is.
We need something completely different. How about a high quality voice interface, based on Perlbox? (The graphic above is from Perlbox.org.)
Perlbox already has a KDE interface, and three years of work behind it. It may not be all it can be. What could it be with a few million development dollars?
My friend Lamont Wood has been working with voice recognition technology and says some of it is now ready for prime time. By that he means it can be 95% accurate at 120 words per minute.
True, he was testing a proprietary product, but I am first contemplating an open source voice interface, not a voice-based word processor. The parts to do something ground-breaking appear to be here.
Besides, there are millions of visually-impaired folks, like my mom and my friend Jim Pettigrew, who have been totally left out of the computer revolution until now. Why not bring them in?
If Ubuntu is ready to be truly competitive, then that says to me it’s ready to innovate. And if voice isn’t your favored direction, what is?
April 28th, 2008
Black Duck buys Koders
Black Duck Software has acquired Koders, the open source code search engine.
(A Black Duck spokesman says a picture of a hungry black duck would work well here. Rob Fergus of Birdchasers says black ducks like this little guy are threatened.)
Those looking at questions of profit should know that the press statement says Black Duck “acquired the assets of Koders.” That’s usually code for they didn’t take the whole business, or its debts.
A statement in the release from Koders CEO Darren Rush seems to confirm this. “Black Duck is the ideal company to take over the Koders technology and our developer community,” he said.
In addition to maintaining the Koders Web site, Black Duck said it will incorporate its search technology into the rest of its portfolio.
In his statement, Black Duck CEO Doug Levin says Koders’ code search will integrate well with Black Duck’s existing component and fragment/file search capabilities.
Black Duck Software is a code management company, able to distinguish code under various licenses so companies stay in compliance with their licenses.
The last time I looked at merger activity in this space, back in October, I asked whether things were getting a bit frothy. This deal indicates the froth has been blown away.
April 15th, 2008
openQRM goes solo after Qlusters dumps open source strategy
openQRM is looking for a new sponsor following its separation from Qlusters earlier this month.
On April 9, on the release of openQRM 3.5, Qlusters announced it decided to donate the open source data center management provisioning and monitoring project to the community on SourceForge. The project, which will continue to be led by active project lead Matt Rechenberg, is alive and well and looking for support, Rechenberg maintains.
“My plan is to continue openQRM as a full community-driven, open-source project,” Rechenberg wrote in an email to ZDNet.
When asked if there are any vendors vying for control of the project, Rechenberg offered no direct comment but hinted that help is needed. “I am happy that it is now the time for the community to drive the openQRM project. We, the openQRM-Team, will focus on keeping the project open and free. Of course, this does not mean that we are not looking for new sponsors of the openQRM project.”
It is not clear why Qlusters tossed the project, which was founded in January of 2006. openQRM is a very promising technology that provisions software on both physical servers and virtual machines.
Following the announcement on April 9, the 451 group issued a report about the departure and speculated that Qlusters corporate could be in trouble. Qlusters, GroundWork, Hyperic and Zenoss were designated by the research firm last year as the ”Big 4″ open source systems management companies.
Qlusters, which received $10 million in funding last July, would not provide its reasoning for getting out of the open source business but said the company is not shutting doors.
”The speculation that something happened to Qlusters is absolutly false. Qlusters has not folded and has no intention to do so,” said Amit Ashman, Vice President of Products at Qlusters, in an e-amil response. “We indeed decided not to continue our activities in the open source arena, but as you know, the open source activity around openQRM was not the only thing Qlusters did.”
“I cannot disclose at this time what new initiatives we are working on, but I can say that we continue to build on our unique expertise and experience and we intend to continue to be a leading provider of advanced solutions to the modern dynamic data center,” Ashman added.
One open source consultant said Qlusters may have been too ahead of its time.
“As far as OSS provisioning, it’s still a really immature market. To a certain extent, Qlusters was early and ran out of steam,” said Chris Maresca, a founding partner of Olliance Group, Palo Alto, Calif. “I know Levanta just tanked as well, which makes one wonder.”
March 25th, 2008
What does IBM mean for an open source start-up?
News that IBM is among the new investors in EnterpriseDB has already been remarked upon by our own Matt Asay.
I know it gives employees a warm feeling to know that the VC money is flowing and Big Blue believes in them.
But what should this mean to the EnterpriseDB community? Does IBM’s backing for an open source company give you the same feeling, or something queasier?
I know that “back in the day,” which is to say the late 20th century, such an embrace would have meant you were buying new suits and becoming part of the IBM borg. Now that reaction is reserved for Microsoft investments. IBM, not so much.
IBM has long gone back-and-forth on how it should treat open source companies. Its partnership initiative, launched in 2004, now makes it a sort of Johnny Appleseed for start-ups, in the words of the woman in charge of it.
So the direct investment in EnterpriseDB takes on new meaning. In that C|Net interview, after all, Deborah Magid wrote “We have invested directly into companies, but we rarely do it.”
So IBM’s name on this deal looks and sounds important, and there are strategic reasons for it to back a company like EnterpriseDB.
After all, enterprise class open source databases prevent Oracle from rolling-up the industry, and there are now plenty to choose from. Sun’s MySQL deal puts that software on the enterprise-class path.
EnterpriseDB, like Ingres, is among the commercial implementations of PostgreSQL. There’s already speculation that this is just a way of fighting Sun.
The company seemed to confirm that interpretation with its other announcement, a family of PostgreSQL products. It confirmed its enterprise ambitions with a version of its software for grids.
But in all the common speculation about what this means vis a vis a few big vendors, what would it mean to you if IBM came in, checkbook in hand, and threw a few large your way?
February 14th, 2008
Who gave SCO that $100 million lifeline?
Rather than join in the high dudgeon over SCO getting a lifeline of up to $100 million to go private let’s talk a little about the man who put the deal together.
His name is Stephen L. Norris. (Picture from The Epoch Times.)
Norris’ biography takes great pride in his being a co-founder and chief strategist for the Carlyle Group. (It was, he says, the ride of a lifetime.)
Let’s let his Web page explain:
He also served on the boards of directors of major Carlyle portfolio companies. He was actively involved in recruiting all of Carlyle’s current senior partners and played a major role in recruiting President George W. Bush to serve as a director of one of its portfolio companies and in enlisting former Secretary of State James Baker III and former Secretary of Defense Frank C. Carlucci to be senior partners of Carlyle.
Please don’t think this is a Republican hack. Nuh-uh-uh. His COO comes from George Soros and who’s that over on the left of the org chart — why it’s our old friend (and former Democratic Presidential candidate) Gen. Wesley Clark!
Now you’re going to hear he’s been linked with Saudi Arabian interests. Well, he did do that. But, look, he’s maxed-out for Hillary Clinton, he gives dance tickets to poor people, and he’s helped capitalize Hollywood Pictures!
Oh, and this isn’t his only tech investment. Far from it.
Jim Zemlin of The Linux Foundation insists he’s not afraid:
“There is always margins to be had from the ruins of a wrecked company. Clearly, Norris Capital see some value in SCO’s future business model, but that value will only be realize outside and apart from any litigation. The SCO litigation has been like a bad horror flick and about as believable. This case has been going through the courts too long, and the facts remain the same. We hope that SCO’s new investment is focused on the future and not rooted in the shock value of an old scary movie.”
Whistle a happy tune, Jim!
Now, can Norris really raise the dead? Because that’s what it’s going to take to bring this lawsuit back to life.
January 29th, 2008
Is the open source IPO a pipe dream?
Will Red Hat be the only major pure play open source company to go public?
That’s what observers are wondering as more and more open source stars are swallowed up by traditional proprietary giants, with Nokia’s purchase of Trolltech – announced yesterday - and Sun’s buy of MySQL earlier this month being the most recent. IBM, Oracle, Citrix and Novell have also made big open source acquisitions over the past five years.
“There will not be an open source company that goes public for the foreseeable future. Liquidity is too good and too hard to pass up. The players are too big with too much at stake. That’s a shame. I wanted to see an ecosystem of independent companies,” predicted JBoss founder Marc Fleury, after the mySQL deal was announced mid this month.
“This second generation of open source software companies while very successful has failed to produce public companies. There are countless software companies that are publicly traded but only one –Red Hat — is focused on OSS” said Fleury, who sold his JBoss company to Red Hat in 2006 for $350 million. Red Hat went public in September of 1999.
MySQL promised it would go public repeatedly last year but agreed in November to be acquired by Sun. The $1 billion deal, announced in mid January, was the first major open source acquisition of 2008.
MySQL vice president Zack Urlocker said the company was sincere about doing an IPO but needed the deep pockets and resources of a large company like Sun to take on IBM DB2 and Oracle. It would have taken the small company five to 10 years to scale up sufficiently to compete against those rivals, he said.
Zurlocker maintains that the M&A activity does not threaten the integrity of open source. Rather, it simply reflects how disruptive technologies alter the business models of incumbents even as it creates new opportunities for startups. Eventually, traditional proprietary companies will transform into fully open source companies, many predict.
“In a normal technology disruption, you end up a little bit of both: startups who are successful grow into big companies like Red Hat and some that reshape companies like Sun, and some large companies that don’t pay attention to it and they get disrupted,” Urlocker told ZDNet. “Many startups like Alfresco and SugarCRM were rooting for us on an IPO. But from their perspective, this [deal] still means open source is a legitimate technology that is now in larger companies.”
According to a recent 451 Group report on commercial adoption of open source, the number of open source acquisitions by established vendors increased to 30 in 2007, up from 22 in 2006 and 15 in 2005. Yahoo’s $350 million buy of Zimbra and Citrix’s $500 million purchase of XenSource led the pack last year, while Red Hat’s purchase of JBoss and Oracle’s acquisition of Sleepycat dominated in 2006. Novell’s purchase of SUSE Linux in 2003 fulfilled predictions that a large operating system company would buy a Linux distribution.
The 451 report predicts that more deals are coming and names MuleSource, SpringSource and Terracotta as likely targets. Others cite open source content management ISV Alfresco and open source CRM star SugarCRM as other potential targets.
“There are many VC-backed startups that drew in rounds in previous years and have since build significant customer lists; these startups are ready to be harvested,” said the report, which also pointed out that VC funding last year dropped 25 percent to $267 million.
There are other reasons open source ISVs are not doing IPOs. For one, their revenues aren’t typically on par with those of proprietary companies.
ISVs are also worried about product quality. Zurlocker said mySQL felt “trepidation” about the pressure Wall Street exerts on companies for quarterly results and the strain of hefty compliance requirements such as Sarbanes Oxley, a burden for many startups.
Fleury summed up the M&A trend as the potential “death of the standalone OSS business model” but he was quick to add that a pure play multi-billion dollar OSS consultancy is not out of the question. Today, SpringSource announced the purchase of Covalent Technologies, an acquisition target cited by the 451 Group.
The M&A wave hasn’t deterred the IPO prospects for other ISVs such as Alfresco.
“We are at the very beginning of the open source revolution, not the end. It is far too soon to worry about the eclipse of the open source movement into the shadows of proprietary software companies,” said Matt Asay, vice president of business development at Alfresco. “ Surely proprietary vendors will continue to acquire open source companies, as they can see the writing on the wall … meanwhile, pure play open source companies like Alfresco will continue to build toward IPOs. Alfresco was founded by a team that has successfully taken several companies public. We see no reason why we and others can’t do this same thing again, but this time with open source software.”
Red Hat itself has made some acquisitions but at least one venture capitalist posed the company should have picked up more visible targets to grow its business – and ensure its survival
“Will Red Hat survive as a standalone tech company? Not sure. They may have left too many open doors for Sun, Oracle, Microsoft and even Citrix,” said the VC. “If you think about how Red Hat could have been the open source Microsoft or Oracle - having the OS, JBoss, MySQL, Xensource, Zimbra and a desktop and server application strategy that could push Microsoft and Oracle to think differently about their business. The issue with Red Hat is they breathe their own exhaust fumes and think they can engineer better than anyone else. Once you hit a certain level of critical mass within a company, you need to keep your antenna up and be on the lookout for competition that makes for good M&A targets. Instead, Red Hat believed it could out engineer the market. So far, that has proven to be a bad idea.”
After Novell bought SUSE, IBM bought Gluecode, and Oracle bought Sleepycat, I wondered if the strategy of traditional proprietary publicly traded companies was simply to remove their emerging competition and prevent little open source companies from growing into big ones — that might go public.
One MySQL customer expressed little concern about the M&A trend, noting that there’s no guarantee that pure play open source companies will protect their interests better than a traditional company. Novell’s Miguel de icaza told ZDNet that Sun has a good track record of working with FOSS companies.
“It would be my hope that Sun pursues a path with MySQL that keeps a very strong commitment to the free MySQL tree that lags a bit behind the enterprise version. Despite the grumblings sometimes in the free-version community that we’d love to get MySQL enterprise patches more quickly, the fact is that eventually [MySQL] did move back to the free version and we did get them and both the free and the enterprise customers had the same core set of features minus some management tools,” said Nat Brown, CTO of iLike.com, who is also a Sun customer. “This felt to most people to be equitable. I contrast this to the Red Hat Enterprise Linux path that Red Hat took where they carved off their free/community version (Fedora Core) and left it out in the cold for the community to build & maintain – very few people in OSS thought this was supportive of the many developers who had worked for free to make RHEL possible.”
The 451 report cited Ingres at the “head of the open source IPO queue” after the MySQL deal. But it’s not clear which direction that company will take.
“It makes us the only independent open source database company, which will no doubt open up new partnership opportunities for Ingres. The price tag Sun is paying for MySQL has many swivel-chair financial analysts trying to put a valuation on Ingres today,” acording to a company blog posted after the deal was announced. “Above all else, I believe that Sun’s acquisition of MySQL is a ringing endorsement of the open source model. ”
January 22nd, 2008
Alfresco takes Matt's advice
It should be no surprise that Alfresco has taken our own Matt Asay’s advice and put money in the bank when it was offered.
They’re his day job after all.
He claims in today’s post to be unhappy over the dilution, but devotes most of his discussion on the subject to talking about the growing role SAP Capital (which led the latest Alfresco round) and Intel Capital are playing in backing open source.
While other analysts feel companies are getting cash while the getting is good, there are plenty of other questions to play with here:
- So what’s Alfresco’s revenue look like, after Matt’s own rampant speculation?
- What will be the role of corporate venture funds, like SAP, especially if we go into a downturn?
- When do all these start-ups start bumping into one another — does an ECM really need social networking functionality?
- Will insider-bloggers still be as forthcoming if times get bad?
My own guesses on these questions are not huge, a real squeeze, yes why not, and it’s not going to be up to them.
Your mileage may vary.
January 22nd, 2008
What is an open source company really worth?
The correct answer is whatever someone will pay for it. (This cute business shark lives at Hyde Valuations, an appraisal company in Idaho.)
Certainly a home worth $500,000 last year is worth less now. Certainly a stock worth $100/share last week is worth less now.
As to tomorrow I take the advice former Fed chair Paul Volcker once gave a lady asking for stock market advice. “Madam, prices will fluctuate.”
Matt Asay and Savio Rodriguez have been looking at recent open source merger deals, with Matt concluding that basing a price on a multiple of booked revenue sounds nice.
Then he notes none of that explains Xensource getting $500 million.
What about growth? Yes, people will pay for growth, in a growing market. People will also pay for location on a technology map. I’ve seen them pay for virtual location on a virtual map, when they’re feeling greedy.
Then there is fear. Fear makes almost everything worthless. Did you notice how that happened during the dot-bomb early this decade? Everything was buried, and most of it stayed buried.
My own theory is based on cycles of boom, bust and growth. People will make up excuses to pay anything when there’s a boom on. They will pay nothing when a bust is on. It’s only when we get beyond both that we find out the truth.
It’s possible that this week’s ongoing market panic will cause a bust cycle, in both open source and Web stocks generally. So I look to booming stocks, like Apple, to time our location in the open source boom-bust cycle.
When the leaders catch a cold the laggards catch pneumonia. After the disease has run its course we’ll finally get to the truth.
September 27th, 2007
Winblad: Open Source VC Funding Is Not Drying Up
In spite of a recent slowdown in venture investment, open source remains high on the list of Hummer Winblad Venture Partners.
Ann Winblad, a partner in the prominent San Francisco VC that funded MuleSource, said at MIT’s Emerging Technologies Conference Thursday that the money will keep flowing as open source software penetrates deeper into the IT infrastructure, beyond the operating system, application, and database layers.
Winblad pointed to the success of open source firms Red Hat, mySQL and Alfresco and recent acquisitions of XenSource and Zimbra as evidence that open source is paying off in bigger dividends.
she also cited recent Gartner Group report that claims that open source accounted for 13 percent of the $92 billion in software revenues in 2006.
“The opportunity distilled here is that core pieces of the
infrastructure are becoming open source, ” Winblad said. “The opportunities are almost everywhere where software is not matching the current architecture. If it isn’t open, isn’t supported by an open
community of innovators, there’s an opportunity for an open source company.”
During her chat on stage with MIT Technology Review Editor Jason Pontin, Winblad said service-oriented architecture, software-as-a-service, open source and open standards are key trends driving VC investment in software.
The vast majority of clients listed in Hummer Winblad’s portfolio are proprietary software firms.
But MuleSource, which the VC began funding a year ago, is doubling its revenues every quarter, and exemplifies a prime candidate for investment in this climate, she said.
“The integration platform is a core fundamental software in the enterprise that we’re funding with these new business models and development models, but also pricing models,” she said.
“It’s an open source integration platform and enterprise services bus, on premise and across the cloud, that touches all pieces of software in the stack, she added.
“SOA is a really big driver of redefining the IT architecture in the enterprise,” she said. “The [enterprise] buses used today are quite old and quite expensive. MuleSource is the innovation platform at the integration layer for these companies, so open standards are key here. ”
“If I am building a new trading platform, I don’t want off-the-shelf trading platform, I want as much value up the stack and innovation up there as I can have.”
MuleSource raised an initial $4 million round of funding in October of 2006 from Hummer Winblad Venture Partners and Morgenthaler Ventures. In May, the San Francisco firm raised another $12.5 million from Lightspeed Venture Partners.
After her presentation, Winblad said she expects consolidation to continue as the valuation of open source companies increase, with deep pocketed industry giants such as Cisco, Citrix and EMC leading the way.
She dismissed the notion that investment in open source companies has peaked or dried up. “The mash up going on in the enterprise is clear,” she said. “This is a disruptive force.”
September 13th, 2007
Open source in its boom phase
Sometimes Matt Asay makes me laugh out loud. (To the right, the logo of a Sand Hill Road VC, Leapfrog Ventures.)
Matt’s piece yesterday, dissing the open source wannabes now beseiging Sand Hill Road, reminds me so much of where I was 10 years ago.
In 1997 I had been covering the Internet for 12 years and e-commerce for about 5. I was shocked, angry and appalled at all these newbies with their Internet business plans, their buzzwords, their ponytails, and their pretension.
Later I realized this was just a phase, and a really good phase at that. The years 1997-1999 would become the dot-com era, and while a lot of that money was wasted, you must admit that some real good stuff happened too. There were a ton of great stories.
That’s where we are in open source right now. Everybody wants to get into the act. Everyone wants to say they’re open source, even if they’re not, because that’s where the money is, or where they perceive the money’s going.
Sitting on a park bench and shaking your fist at those crazy kids won’t change anything. It’s what gold rushes look like. Two years ago it was housing, and before that it was defense stocks. When I first started as a business reporter, in Houston in the 1970s, it was oil.
As to his point about soccer. I agree the American game would benefit more from other strategies. I’ve long advocated a unified pro structure, with promotion-and-relegation as in other countries, so every city with a pro team can feel it might see the LA Galaxy one day.
If we had that now, LA would be going down, and they’d be playing my Silverbacks next season. Let’s see if Becks can bend it into Spaghetti Junction.
But that’s not the way the money is flowing. Money follows its own tidal forces, and when it comes in lots of strange things happen. My advice to Matt is, enjoy them. You’re far more likely to end up rich at the end of this ride than I am.
I’m just looking for stories here. And amid all the silliness there’s a new one every day.
Dana Blankenhorn has been a business journalist for 30 years, a tech freelancer since 1983. You can follow Dana on Twitter. See his full profile and disclosure of his industry affiliations.
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