Can Open Source Companies Be Successful?

Open source is dramatically changing the IT landscape on many levels. For example, open source helps existing software companies jump-start their entry into new markets. Rather than trying to convince customers and partners to adopt a proprietary platform, creating an offering on open source platforms allows users to leverage tools they are familiar with. In addition, open source platforms often have the support of active user communities and are continually evolving to support new technical and business capabilities. While there are clearly benefits in the use of open source, there are issues that you need to keep in mind. Companies that attempt to commercialize an open source platform as the primary focus of their offerings do not fare well. The notable exception to that rule is Red Hat, which has had tremendous success in providing support for open source Linux as well as a number of open source middleware services. When I meet with open source vendors, many executives point to Red Hat’s success as a blueprint for profitability. Very few of these optimistic vendors have been able to replicate Red Hat’s model. The question is why is commercial open source so difficult? It is not a deep mystery.

Once customers and partners know that they can use a technology without payment, they are reluctant to pay. In fact, when I look at the many of vendors that have created a support model for open source, the majority have experienced anemic growth. In many situations, vendors discover that customers are actually happy to use an open source tool but less eager to pay for support. Ironically, the better the software tool, the less likely it is that the commercial open source company will be successful. Many smaller software companies depend on systems integrators to leverage their technology to increase their adoption and revenue. Unfortunately for these companies, even when systems integrators take advantage of an open source tool they are unlikely to need third party support. Integrators have enough internal resources to directly support customers that are using their offerings and don’t want to cut into profits by paying another vendor for open source support.

While there are risks for commercial open source vendors, there are also dangers for those customers that adopt open source tools. It is quite typical for individual developers to select an open source tool to support a new project. It is common for those developers not to purpose support services. When this developer leaves the company or moves on to a new project there is often no support for that existing development effort. If the results of the project are experimental there is little consequence. However, if the project becomes mission critical the lack of support can become a danger to the stability of the IT infrastructure. In addition, relying on open source tools without support may cause security risks because of a lack of testing and patching along with compatibility issues when updated are performed.

So, what is the answer? In my view, successful vendors are finding that an open source foundation is a critical ingredient in a software vendor’s strategy. Innovation from software vendors combined with open source resources provides customers with the best option. However, relying completely on open source is not sustainable for commercial software companies. Commercializing open source software needs to be a part of an overall software framework but it cannot stand-alone. Simply adding support and some management tools are not enough to get customers and partners to sign enterprise agreement.

What is the future of commercial open source tools? It is unlikely that independent vendors will find a model to simply sell open source tools with support without significant value add. However, open source in the context of unique value add has the potential for success.