I have just finished attending the Fifth Annual Open Source Think Tank, hosted by Andrew Aitken and I at Meritage in Napa Valley.  Andrew and his team did a great job of organizing the event. The Think Tank is a great forum for discussing the important questions facing the industry, but equally important, we have structured the Think Tank to provide plenty of time to meet and get to know other attendees (more on that later!). Colin Bodell, VP Web Platforms for Amazon, said it best:  he always leaves with a thick sheaf of new cards and many new relationships.   I provided my annual summary of Open Source Legal Developments, including both 2009 and 2010 (you can see the powerpoint at  http://www.docstoc.com/docs/34875054/Open-Source-Think-Tank-2010-Legal-Issues)

This year, we focused the discussions on commercial problems through the use of three formal “business cases” with detailed facts and questions:

1.  Public Sector: How should the State of California adopt and manage open source?

2.  Mobile Sector: Selecting a Mobile Platform for Application Development

3.  Cloud Computing and Open Source

Much of the discussion was focused on the cloud and how it will effect open source.  The opinions ranged across the spectrum: many participants saw the cloud as a great opportunity for open source, but a smaller (but vocal) group noted that the cloud could be a major problem for the open source model. In particular, the concern is that with cloud vendors taking responsibility for the “software stack” customers will be less concerned about open source advantages, leaving such issues to the cloud vendor.  As more companies move to the cloud, the customers of open source companies will shift from end users to cloud vendors: consequently, open source companies could have fewer and more sophisticated customers. 

Another challenge for open source vendors is the more sophisticated response of commercial software vendors:  commercial software vendors are building entire “software stacks” and providing such stacks as a comprehensive solution to end users, thus reducing the need for open source applications. The commercial software vendors are also using “cross subsidies” between the different parts of the stacks to compete with open source vendors selling a single application.

The cloud also poses new legal challenges. The interpretation of open source licenses (and commercial licenses) in this new environment is just beginning and lawyers in the industry have very different opinions on the issues. Some of the issues under discussion at Think Tank include: (1) is provisioning software in the cloud a “distribution” under open source licenses and, thus, triggering obligations under GPLv2, GPLv3, MPL, EPL and other “copyleft” licenses and (2) are software stacks in the cloud an “aggregate” as defined the GPL family of licenses and, thus, not a derivative work (a derivative work might require making source code of all of the programs available if the programs are distributed under the GPL type of licenses). 

We also had plenty of opportunity to get to know the other attendees: we had a winetasting on Thursday night in the “cave” at Meritage (including tasting Port brought directly from Portugal by one of the attendees).  After the winetasting sponsored by Scott Collison of Geeknet, we moved on to the bar at the Meritage where we shared our experience over stronger potations until well past midnight. On Friday, after the morning discussion and a wine tasting in the afternoon (or golf), we had a dinner at Artesa http://www.artesawinery.com/index1.html hosted by Microsoft.  We tasted the Artesa champagne, chardonnay and cabernet sauvignon. The site was magnificent with great views from a hilltop across the green hills of Carnaros and the wines were very good.  After dinner, we enjoyed using a telescope to scan the night sky (I saw the rings of Saturn for the first time!). 

The Think Tank was a great mix of fun and work.  Olliance Group will be summarizing the conclusions, so stay tuned!

Red Hat has launched “Opensource.com” as the town square for the “open source” community http://opensource.com/should-be/10/1/welcome-conversation-opensourcecom. It provides for a single location to discuss the legal, social and economic consequences of the open source model. This site comes at an inflection point for the FOSS community: FOSS is now ubiquitous and many of the earlier battles for credibility and acceptance are won. Yet, with those victories, the FOSS community finds itself facing new challenges, such as how to deal with managing the numerous modules of open source in many products in a consistent manner (the so called “Bill of Materials” problem) and the continuing problem of dealing with patents http://opensource.com/law/10/2/looking-out-bilski-software-patents-v-foss. And open source is now being viewed as a model for collaboration beyond software http://opensource.com/business/10/2/what-could-politicians-learn-open-source-way. These discussions cut across wide variety of topics and have been spread out across many sites and blogs.  

Opensource.com provides a forum to discuss these topics in one place and the opportunity to collaborate in the best tradition of the FOSS community. However, the site will only be valuable if it is used by the community. Red Hat has done the community a great favor and provided the platform, but now the community needs to step up and participate in the discussion. Let’s get to it!

The NY Times published an article about open source yesterday which was very disappointing. The article perpetuated many of the myths and misperceptions about open source.  http://www.nytimes.com/2009/11/30/technology/business-computing/30open.html?_r=2&hpw=&pagewanted=all The first misperception is found in the title: “Open Source as a Model for Business is Elusive”.  Open source is not a “business model.”  It is a development methodology which supports multiple business models as I have discussed in an earlier post. http://lawandlifesiliconvalley.com/blog/?p=147  The article starts from two false premises: (1) open source software is released free of charge to the world and is maintained by volunteers and (2) the revenue for open source companies comes solely from “support” deals.  These assumptions are very dated.  For the last five years, much of the most useful open source software has been created by commercial companies who develop most of the software using their own employees, such as SugarCRM and Zimbra.  Similarly, most open source companies use a combination of license or subscription revenue as well as revenue from support services. For example, MySQL received revenues from licensing of a commercial edition its software as well as “support” revenues.

The most disappointing quote was the following: “Whether open source firms are practical as long-term businesses, however, is murkier.”  The problem is that the long term business strategy of most software companies is “murky” due to the rise of less expensive “open source” alternatives and cloud computing.  The fact that several open source companies were sold at very substantial multiples to their revenues suggests that large software companies view them as valuable.  Moreover comparing the profitability of open source businesses with the traditional enterprise software model fails to take into account the tectonic changes which the traditional software business model is undergoing.  In fact, the traditional enterprise software model has proven  not to be a “long term business” for many proprietary companies. You need only consider the demise of Siebel Systems and PeopleSoft. Open source software is one of the major driving forces in these changes. For example, the Linux operating system is the most serious competitor to Microsoft’s operating system business. The fact that it is supported by IBM, Intel and other large companies is a further testament to its competitiveness and value. Although the Linux code may be contributed by corporate employees, the Linux operating system is continues to be distributed at no charge under the GPL: it is truly an “open source” program.  Moreover,  Linux users do not care whether the contributors are corporate employees or individual “volunteers”.  And Linux has succeeded where proprietary operating systems from major companies, such as IBM’s OS2 failed.

The final part of the article continues the unfortunate pattern: it suggests that the sale of open source companies to larger traditional software companies is a failure of the “open source business model.” It is not. This conclusion fails to consider that more than 90% of venture backed software companies in the past three years have been acquired rather than gone public, whether they used an open source or a proprietary development methodology. These acquisitions prove little about the viability of the ”open source business model” or open source software companies. In fact, they suggest that sophisticated companies are willing to pay a substantial premium for such companies.

Olliance Group has recently announced the dates of the Open Source Think Tank: March 1-3, 2009. http://thinktank.olliancegroup.com/.

This year represents the fourth Think Tank sponsored by Olliance Group and DLA Piper.  I go to many open source events each year and the Think Tank is my favorite because it combines a sophisticated audience, a reasonable size and interesting discussion.  Those who have attended also enjoy the format:

The Open Source Think Tank that was hosted by Olliance Group and DLA Piper was ideal, not only for the chance to share ideas and address the challenges surrounding commercial open source with my peers, but for the networking and business development opportunities. CollabNet was able move at least three partner and potential customer relationships forward at the event itself.”

Bill Portelli, CEO, CollabNet

During the 2008 Open Source Think Tank, 120 CEOs, CIO/CTOs, VCs, attorneys and industry luminaries representing the entire open source ecosystem from venture backed startups to Fortune 100 companies. The event is invitation only and it has sold out each time, so sign up early!

Business models in open source continue to evolve. We are seeing a very interesting dialog on this issue, started by Matt Aslett in his post last week http://blogs.the451group.com/opensource/2009/01/05/commercial-open-source-business-strategies-in-2009-and-beyond/.  He notes that David Rosenberg’s described the dominant business model for commercial open source products is the “open core” model which he describes as follows:

“Typically we now see an “open core” freely available with “exclusive” or proprietary features only available when you pay. If you are trying to build a commercial business on top of an open source project, this is likely the right answer.”

In the past, this model has been called “dual licensing” and has been the basis for the successful open source businesses built by Zimbra and SugarCRM.  It is not the only business model: as I noted in my post about the confusion on open source and business models, Marten Mickos found over thirteen different business models for open source companies. http://lawandlifesiliconvalley.com/blog/?p=130

Business models for open source companies are continuing to evolve. However the “open core” model poses the very significant challenge of deciding where to draw the line between the functions in the community edition and the “commercial” edition.  This issue was the most interesting to the audience at the presentation to the Silicon Valley Chapter of the Association for Corporate Growth last Thursday by John Roberts on “Open Source and the Future of Software.”  We set up the presentation as a dialog and my question to John about business model brought the most comments from the audience. The discussion reminded me how new “commercial open source” industry is: SugarCRM started in 2004.  We should not be surprised that the model is still evolving.

Matthew also makes the point that many traditional proprietary companies are adding open source elements to their business model.  I have assisted a number of proprietary companies on these issues and I expect this trend to accelerate in 2009.

He has followed up this week with a post this week about the importance of the community in any open source business http://blogs.the451group.com/opensource/2009/01/12/commercial-open-source-community-strategies-in-2009-and-beyond/.  I think that the management of communities is one of the core differences between open source companies and proprietary companies.  Communities provide open source companies many of their core advantages and their management is critical to the success of open source companies. Yet as more open source companies adopt the “Open Core” strategy, they need to ensure that their communities remain active and engaged.

After a busy year end, I have time to reflect about the last year and developments in open source.  I was particularly interested in the cascade of articles and comments about how the “Open Source” business model is broken started by  Stuart Cohen’s article in Business Week on December 1.  http://www.businessweek.com/technology/content/nov2008/tc20081130_276152.htm. I believe that Stuart is just wrong.  I think that Charles Babcock got it right in his blog responding to Stuart.  http://www.informationweek.com/blog/main/archives/2008/12/open_source_bus.html?cid=RSSfeed_IWK_ALL.  

From my point of view, Charles’ most important point is that  “open source” is not a business model, it is a means of developing and distributing software. And 451 Group makes a similar point in their report on open source business models (which actually pre dated Stuart’s article). http://www.the451group.com/caos/caos_detail.php?icid=694. I represent over fifteen open source startups (as well as large companies developing open source software) and they have  a variety of ways of making money on open source software, ranging from “dual” distribution to support for proprietary additions.  Marten Mickos in his keynote at OSBC in 2007 noted thirteen different ”open source” business models.  http://akamai.infoworld.com/weblog/openresource/archives/OSBC2007%20-%20Marten%20Mickos%20Keynote.pdf.  Second, “open source” cannot be a single business model because it spans a wide variety of different products: the business models for application software are quite different from infrastructure software.  Third, most of the companies that I represent use a mix of business models, such as dual distribution and SAAS.  In fact, even the “dual” distribution model has two forms: the newer model in which the company distributes a commercial version which has additional functions compared to the open source version and the older model in which the open source and the commercial version are the same.  While the characteristics of “open source” development have strong similarities across different types of products, the business models are likely to quite different and will continue to evolve.

The open source community also owes Charles Babcock (and his colleagues at InformationWeek) a vote of thanks for the Analytics report “Open Source Enterprise: Its Time Has Come, And the Price is Right.”  It provides an excellent summary of the state of open source software in the enterprise, with plenty of specific examples.  However, I think that the most interesting part of the report is “What Happens After the Acquisition”.  This section describes the challenges faced in the integration of open source companies into larger companies.  The nature of open source companies and their communities requires a different approach from traditional acquisitions.  In particular, the acquiring companies need to consider carefully the effect on the open source companies employees and their community when modifying the business model. As more open source companies are acquired by traditional software companies, these issues will take on increasing importance. Both sides need to understand that such an integration will require flexibility.

I think that 2009 will be a very interesting year for open source!

I wanted to alert you to the Open Source Think Tank this month in Paris Sept 21-23, in conjunction with the Paris Capital du Libre conference. It takes a lot to pull me away from Northern California during the grape harvest, but this event will be great. As in the United States, the Open Source Think Tank is the only by-invitation gathering where leading global experts will come together to collaborate on the issues facing commercial open source. Like the Open Source Think Tank in Northern California, the format will focus on brainstorming sessions, CIO panels and networking activities. We expect that all attendees will actively participate. We have a great agenda and confirmed list of attendees, and unique networking activities including a private reception at the Paris Chamber of Commerce and the main event - wine tasting and dinner while cruising down the Seine through Paris. We have some great speakers including Marten Mickos and Larry Augustin. You can learn more at http://thinktank.olliancegroup.com/. If you need an invitation, please contact Andrew Aitken at andrew@olliancegroup.com.

I have participated with Andrew in all of the prior Open Source Think Tanks and they are great events. They provide an opportunity for everyone to work together in small and large brainstorm groups, addressing the future of open source. The Think Tank will also ensure that you have great opportunities to network with your fellow attendees. In Paris, the first night we will have a reception at the Paris Chamber of Commerce and the second night main event, wine tasting and dinner while on a barge cruising down the Seine through Paris

Most of the attendees of our annual Napa events have said it was either the best or one of the best events they have ever attended and we have almost 100% return attendance. In Paris, the schedule will include analyst meetings, press events (Sun and Jaspersoft and some of the other attendees are planning announcements) and a meeting of North American ISV and European SI/VAR.

I hope to see you there!