There Is Still No Open Source Software Market

Includes: IBM, MSFT, ORCL, SAP
by: Dennis Byron

I receive frequent requests from investors to discuss the various “open source business models” and “open source software (OSS) vendors.” It seems to happen more frequently around events such as the Open Source Business Conference [OSBC] which recently took place in San Francisco. Of course if you promote something called the OSBC you need there to be an open source business model and market. But investors need to realize that when it comes to investing in enterprise software, do not be fooled by the term open source.

  • There is no ‘Open Source Business Model.’
  • There is no ‘open source market.’

In addition, as I wrote on ebizQ in 2008, there are very few “open source vendors,” because most software licensed with open source terms and conditions (Ts&Cs) now comes from the same friendly guy or woman in the blue-striped suit (Polo shirt at trade shows) who works for IBM or its partners, Microsoft (NASDAQ:MSFT) or its dealers, Oracle (NASDAQ:ORCL) or its ISVs, and SAP who has always called on IT buyers.

I cannot think of any examples of an open source-licensed product or service that is monetized and brought to market in any way uniquely different than various closed-source software that has been monetized and marketed over the last half century. The idea of giving away the razor to sell the razor blade predates enterprise software by another half century. The idea of “free as in air” software was not new when first described as such in the mid 1980s. In addition, there is really no business model to ascribe to pure “free software” in the Richard Stallman sense, although it is an interesting cultural phenomenon. I'm sure there is something out on the fringes of the blogosphere but I haven't run across it.

Furthermore, from a market-research perspective, there is no separate market for open source in the sense that either OSS Ts&Cs or OSS culture is a market driver. By the definition of a market, if there are no market drivers specific to open source, there is no “open source market.”

As I explain on ebizQ, this matters to IT managers and staff because it often affects how software suppliers deal with the IT group. And it sometimes affects how executive management and the legal departments of a company or organization deals with IT.

That in turn affects how you should invest in enterprise software. It means that companies that know how to monetize enteprise-software-related services will do better in the long run than those that are very technology focused. That takes you back to IBM or its partners, Microsoft or its dealers, Oracle or its ISVs, and SAP.

Author's disclosure: no position in companies mentioned.