Dennis Byron submits: Open source software [OSS] overtook the leading software suppliers in 2007. Or they took over OSS.
• By the Research 2.0 taxonomy and methodology, IBM (NYSE:IBM) probably now realizes as much OSS-related software revenue as Red Hat (NYSE:RHT) even as Red Hat grew 30%.
• And whereas in 2006, Oracle (NASDAQ:ORCL) saw OSS as just a way to stick a finger in Red Hat’s eye, in 2007, Oracle saw OSS for the tactical advantages and reduced R&D expense it provides. Oracle rolled out a virtualization product in 2007 in a matter of weeks because of OSS.
• Google (NASDAQ:GOOG) has built its infrastructure on OSS for more than 10 years; in June 2007 it decided to get intellectual property going for its first-generation applications products with minimal cost to its investors using OSS.
• SAP (NYSE:SAP) is trailing in OSS-related tactics but has made its almost unheard of database software OSS and will probably use OSS more aggressively as it tries to market NetWeaver outside of its own installed base in 2008.
• Adobe (NASDAQ:ADBE), perhaps the last holdout to OSS among major suppliers, says it will make its BlazeDS server-based Java remoting and web messaging technology available to the OSS community in 2008 under the Lesser GNU General Public License [LGPL] version 3.
• Sun (JAVA) of course went OSS in 2006.
• I call Adobe perhaps the last holdout to OSS because Microsoft (NASDAQ:MSFT) decided earlier in 2007 that all the hoopla over its OSS statements (e.g., “Linux is cancer,” “hundreds of patents violated,” and so forth) was a distraction. Now Microsoft is moving ahead aggressively cooperating with an OSS Linux-Windows interoperability community called Samba, making code available via licenses approved by the Open Source Initiative, and on many other OSS fronts.
No matter which direction the takeover happened (OSS of the software market leaders, or the software market leaders of OSS), it’s time to start looking at the implications of the takeover on these companies’ investment outlooks.
And here’s the good news, the implications are practically nil.
In terms of revenue streams, IBM’s, Oracle’s and SAP’s are already heavily weighted to “services” so the fact that they are not realizing some minor right-to-use perpetual license streams on their current or planned OSS “products” is of little consequence in terms of deferring revenue or otherwise making for hard compares. Sun is biting the bullet slowly and the entire services accounting structure is irrelevant to Google. Adobe and Microsoft, although committed to OSS, will just talk the talk for a few years. Eventually they will likely move their entire businesses—not just their “OSS products”—to a “services” context. When that happens, OSS will be the least of the investment-research-related issue.
In terms of competitive environment, because everyone is doing OSS, there is no strength or weakness either way. That’s what OSS is all about to the leading software suppliers: commoditization.
All of the suppliers are likely to be shopping for OSS pure play acquisitions, however, but there is nothing out there that will have any major dilutive effect.
And, as any old timer will tell you, you can’t beat the “free R&D.” The OSS development model isn’t really free of course and there isn’t any “R” but the OSS development model still holds down expenses wherever a certain software functionality is basically a commodity. This allows the leading software suppliers to dedicate more resources to differentiating functionality. What a deal!