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Making code open source is proving to be a key weapon in the race to profit from clouds.

The latest proof of this is Citrix' decision this week to make Cloud.com's Cloudstack open source, starting with version 2.2.10.

Citrix acquired Cloud.Com in July. As an independent entity Cloud.Com had been holding some software proprietary. Now, to win new business, Citrix is opening the entire code base.

Just because something is open source doesn't mean you can't charge for support, doesn't mean enterprises won't buy support, and certainly doesn't mean enterprises won't need hardware. Clouds are complicated, and that's what vendors like Red Hat (RHT), Citrix (CTXS), Rackspace (RAX) and VMWare (VMW) are betting on as they continue their game of “more open source than thou.”

The strategies of all these vendors are laden with open source components:

  • RedHat's OpenShift Platform as a Service (PaaS) aims to enable use of popular open source languages on cloud platforms. The company plans to make the whole system open source in the future.
  • Rackspace's OpenStack was announced a little over a year ago as an open source PaaS and now has 110 companies contributing to it.

  • VMWare has a whole page of open source tools for desktops, servers and clouds.

There remains plenty of money to be made in clouds, despite all the free software being downloaded. Services, support, and hosting costs add up. VMWare parent EMC sells data storage clusters that are a key component in clouds. OpenStack parent Rackspace is a hosting provider. Red Hat Enterprise Linux is often used in cloud server formations.

And despite all this open source goings on Microsoft (MSFT) remains a market factor with its proprietary Azure cloud and Hyper-V hypervisor. Microsoft is telling its customers that their total cost of cloud ownership includes all the work done in designing and implementing a cloud, and that its Windows-based offerings are thus a bargain because they reduce cloud complexity.

What does this mean for investors? It means you should ignore all the open source talk and focus instead on big customer wins.

As clouds expand lock-in will occur naturally, despite all the talk of avoiding it, just as it gets harder-and-harder over time to switch from a Windows machine to a Mac. We're not talking of individuals here but whole organizations, entire business models. Choices made today will turn into profitable business tomorrow.

That's why the purer the cloud play, the higher the PE multiple a company can enjoy. VMWare is a unit of EMC, yet VMWare's PE is 66 and EMC's is under 23 because clouds mean growth while data clusters don't.

So by opening Cloud.com's code, Citrix is trying to lock down business now that will accelerate its profits tomorrow. That's the money you need to follow in analyzing cloud stocks.

Source: Open Source As A Cloud Weapon