Yes, Virginia, There is Commercial Open Source

After yesterday’s post some people might think I’m a long-haired, all software must be free and open, hippie, and that anyone who is trying to make a buck on open source is evil.

Nothing could be further from the truth. I buy a lot of software, it is just that I pay small amounts for it. My belief is that software will take one of two paths. Stuff that is designed to just work out of the box with little user training will become a commodity, and the expensive, high-end stuff that requires a ton of consulting will become open. Plus, I have short hair (the better to fit under a motorcycle helmet) and I pay my mortgage on open source.

The problem is that neither of these paths make it easy to make the serious amounts of money in a short amount of time that one could in the past. People aren’t willing to pay 6 to 7 figures for commodity software, and it is hard to sell free and open software licenses since, well, they’re free.

Now what happens is that the people who long for the good old days and want to sell millions in software licenses stick the term “open source” on it and hope no one will notice. This is my take, in a nutshell, on the current state of “commercial open source” software.

But there are a couple of examples of companies that truly are “commercial open source” and are doing well. Plus, they are in the US of all places. However, the two companies that first come to mind are not in Silicon Valley. I know some amazing people in Silicon Valley, but sometimes when I’m there I get this vibe that it’s a bunch of smart people who are still a bit insecure, and thus they have to spend a lot of time patting themselves on the back for how clever they are. The clever/smart density outside of the Valley is much lower, so we actually have to get some work done [I kid, I kid].

The first company is Digium in Huntsville, Alabama. Our own Jeff Gehlbach is currently is Arizona at AstriDevCon and has let me know of some great things coming in the near future. I come from a telephony background, and what Digium has done with Asterisk is quite amazing. We use it, and I was humbled that OpenNMS was only one of two open source projects that made TechTarget’s Product Excellence Awards last year, and the other was Asterisk.

Even though a number of companies have tried to commercialize the Asterisk code, Digium remains solidly behind the free and open source model, as Mark Spencer recently said:

I believe it would be foolish to attempt to make Asterisk’s innovation only available as a proprietary product when clearly it is its Open Source foundation that made it so successful and continues to do so, in spite of emotional and to a lesser degree business challenges imposed by people who leverage my work without contributing — and in some cases directly attacking the very company that makes it possible for them to succeed.

The second one is my old favorite, Red Hat. Located about 30 miles away from our offices in Raleigh, NC, they are quietly moving forward, recently posting a 29% year over year revenue increase. Unlike the Valley open source firms, the goal is not to rapidly get acquired and cash out, but to build something lasting. In fact, it is Red Hat that is doing the acquiring.

What I love about Red Hat is that they enable us to exist. Even though we run on Windows and Solaris, if there wasn’t a stable, supported Linux distro out there my job would be a lot harder. I would estimate that about one third of our clients are also Red Hat clients, with another third using CentOS. The last third is spread around Solaris, SuSE and Debian/Ubuntu.

Neither of these companies have a business model based mainly on proprietary software licenses, yet they are doing well. As it was demonstrated, at least in Europe, there are different expectations overseas for software that calls itself open. As more and more business is being done overseas, it will be companies like these (and I hope, OpenNMS) that see the lions share of growth in market share and revenue.

That sounds pretty “commercial” to me.