President/Founder of DPCI

As President of DPCI, Joe directs all operations, business development, R&D, partnerships and marketing activities at the company.

Joe enjoys blogging about various trends in content technologies, on project management best practices, and also on his insights into the operations of running the business of DPCI.

Blogs

Recent Webinars

> Integrating K4 and Drupal to Support Multi-channel Workflows

White Papers

> The Challenges with ECM With or Without a Down Economy

> Innovations in Digital Asset Management, Circa 2008

January 09, 2010

A review of Dana Blankenhorn's blog on ZDNet regarding venture capital backed open-source software vendors not getting acquired

Del.icio.us

Technorati

Digg

StumbleUpon

Just read a blog posted by Dana Blankenhorn on the ZDNet site entitled Open source may be a venture capital dry hole. In the blog, Dana references Dave Rosenberg's blog on open-source acquisitions. That blog, Dave ponders what the hold up is for VC money into the open-source software (OSS) startups.

OSS vendors make money by helping enterprises reduce risk. Sure, if the software is a localized, point solution that a departmental techwhiz can implement, it might not be a smart idea to build a commercial enterprise around that OSS. However, if the software is sufficiently complex, or requires expert support in getting it tuned, optimized, secure, and properly updated in a corporate environment, the smart CIO is going to invest in that 'software assurance' in the same manner he or she does with proprietary software products.

I'll add that the venture capitalist has to think carefully about investing in commercial OSS vendors that don't structure their operations in a manner that is optimal FOR software assurance. Many commercial OSS vendors still preserve the iconoclastic, loose culture of the open-source project from whence they were born, and that is not good for business. The challenge is that if the company goes too corporate, they risk alienating the community that they serve.

This is a difficult balance, and few, if any, commercial OSS vendors have managed to succeed with it. I think Acquia is becoming a good example of a company that is indeed doing so, although there is still the tension between it, the Drupal community, its Drupal integration partners, and its investors. Acquia seems to be a company that is keenly aware of reconciling these tensions and doing something about them.

At the end of the day, the success of the commercial OSS vendor lies in its ability to package or ‘productize' its support offerings without alienating the community of developers and integrators that it serves. Those vendors that succeed and learn how to make a profit in doing so, IMHO, are very much worth the capital investment and ultimately acquisition by larger concerns. Any open-source software vendor that 'represents' a successful enterprise-ready solution with operational best practices for soft assurance is going to be a good bet for acquisition by ANY major software company.

Or, at worst, for those open-source projects that are encroaching upon the market share of proprietary vendors, those vendors can try to make an attempt at acquisition (witness MySQL->SUN->ORCL) of the project by acquiring the OSS vendor that 'represents' the 'product', then changing the licensing scheme or shutting the project down. However, in either case, inevitably the community behind that project would rebel and from the ashes will rise another 'phoenix' project, or minimally a branch, to take its place. According to Matt Aslett, who blogs over at the 451Group, his research indicates that the proprietary vendors would acquire OSS in order to market "complementary products and services." It is worth mentioning that Matt also suggests earlier in his article that there has never been a case where a "proprietary vendor acquired an open source project in order to kill it off."

What a remarkable time to be alive, since we're witnessing the evolution of new models of business emanating from 'free'.

Posted at 01:31 pm by Joseph Bachana