Okay, I usually don’t like writing about the new batch of so-called “open source” management companies. Since we are trying to position OpenNMS against products like Tivoli and OpenView, they really aren’t who we are trying to compete against, and since we don’t have millions of dollars in investment it could come across as if I was a big whiner, boo-hooing about our poverty.
That really isn’t the case. We made a decent amount of money last year (made as in “net profit“, not “gross sales“), and I’d be more than willing to welcome in an investor or two who shared our vision. It’s finding such an investor that has been hard.
Let’s drop Qlusters right off the bat, since they aren’t really in the same “monitoring/fault” space as the other three. It just goes to show you that the guy who came up with the name really wasn’t doing his homework (grin). All three have raised quite a bit of money:
Groundwork: US$25 million in three rounds
Hyperic: US$10 million in two rounds
Zenoss: US$15 million in two rounds, including US$11 million announced today
This money was raised from venture capital (VC) firms. Now VC firms exist for one reason, to make money. The way they make money is with a “liquidity event,” which is when something happens to turn the assets of the company in which they invest into cash. This can happen as an IPO or an acquisition. Open source IPOs are rare, and with MySQL being acquired by Sun, the closest hope for an open source IPO in the near future is gone. So that leaves acquisition.
VCs want these companies to spend money, and quickly. They need to get the value of the company up to the point where their share is approximately ten times the amount they invest, and they tend to want it within 5 years. Examining our “little three” at a minimum they need:
Groundwork: US$250 million
Hyperic: US$100 million
Zenoss: US$150 million
That’s a lot of money, especially for a company that plans to give their software code away.
But wait, these companies don’t give their software away. Only a small part of it is open. A large portion of the revenue that is to drive these massive valuations must come from software licenses. By accepting this money they have pretty much promised not to open up the rest of their code. If they did, their software license revenue model would be in jeopardy, which would make the VCs very unhappy.
You don’t want to make the VCs mad.
Example 1: Last year I learned about Medsphere. Started by Scott and Steve Shreeve, their goal was to create better medical software using the open source development model. They accepted some VC funding, developed some code, and released it on Sourceforge. They were promptly sued by their board to the tune of US$50 million for releasing trade secrets. I’m serious – an open source company sued its founders because they … opened their source. And I’m not talking little bitty counts either – they were sued under RICO (Superior Court of California, Orange County, Case 06CC07475). RICO was designed to catch mobsters, but the severe penalties imposed by the law (i.e. they can seize your house, the kid’s college fund, your 401(k)) are used by unscrupulous lawyers to scare the bejeezus out of you. The case was settled last October, but the Shreeves are no longer associated with the project or Medsphere.
Example 2: One of the first companies to jump on the open source management bandwagon was Groundwork. Riding on the popularity of Nagios, they built proprietary software tools around it. President and CEO Ranga Rangachari made the rounds of all the industry rags with his vision for how to make money with open source. However, if you look on the Groundwork site today, his name has been quietly removed from both the Management Team and Board pages.
Remember, don’t make the VCs mad.
I have to wonder. If acquisition is the main exit for these companies, why would someone like IBM or Sun want to pay US$100 million or more when they could pick up, I dunno, something like OpenNMS for half that? (grin)
I sincerely want to wish Zenoss luck with their new investment. I enjoy the competition even if I dislike what I see as the shareware open source model, and it makes me even more determined to keep OpenNMS 100% free and open. But I don’t dislike the people at Zenoss (heck, one of my old friends is a sales guy for them) and I am very fond of the folks over at Hyperic as well (to the point of feeling bad about my spat with Doug MacEachern on Slashdot so long ago – he’s an amazingly nice guy).
But as a profitable project with a pure open source business model, we’re gonna be dogging their steps every bit of the way, providing for free what they provide for a fee, and diluting their revenue streams. At least I don’t have any VCs to get mad at me.