January 16, 2008
Open season on Open Source
You could forgive Kevin Harvey of Benchmark Capital if he sounded a little smug when I spoke to him earlier today about the eye-catching $1bn sale of MySQL. A longtime venture investor in open source companies, Harvey has had to put up with a few knocks along the way. As he put it:
When we first invested in Red Hat it was thought to be totally insane. When we funded MySQL it was only partly insane.
Benchmark’s purchase of a 26 per cent stake certainly looks pretty smart now. Harvey (whose earlier successes have included eBay) wouldn’t say how much he had invested, but MySQL took in around $39m in all.
It’s hard to shake off the lingering feeling, though, that open source as a pure-play strategy will never add up to much, and Sun’s purchase of MySQL seems to confirm this. Sure, it’s hugely disruptive to the software establishment, but it’s beginning to look like open source has more value when used as part of a traditional technology company’s armoury, rather than as a stand-alone business.
Sun hopes that owning MySQL will give it a chance to sell other (proprietary) software to users of the open source database. That is the same idea that prompted earlier open source acquisitions by Novell (of Linux distributor SuSe) and IBM (middleware company Gluecode.) Oracle didn’t even bother making an acquisition but simply declared that it would support Red Hat’s version of Linux, dealing a big blow to that company.
It seems only Red Hat really believes in trying to build a pure open source software "stack". At around $500m a year and growing at 30 per cent, Red Hat’s revenues are not to be sneezed at. But, tellingly, it is Sun, not Red Hat, that has bagged MySQL. Equally tellingly, MySQL’s investors discovered that the company was worth more as takeover-bait for Sun than as a stand alone business. "It was on the IPO track until Sun convinced us to take this track," says Harvey.
Maybe Sun has overpaid. But if Schwartz is right and MySQL is worth more dead than alive (as it were), then it suggests that the dominant software models will be hyrbid ones, not pure open source.
Open Source is not a business model. Services to support software is a business model, shrink wrapped software packages are a business model, software licensing is a business model. As a business, you can make money in any of the above ways with closed or Open Source software, but some will be more successful than others.
The beauty of Open Source software is that from here, if the community doesn’t like the direction Sun takes MySQL in, the code will be forked, a new DB will be created and a phoenix shall rise from the flames.
Try doing that if the codebase of your applications is closed and controlled by a third party!
SV
Posted by: Sredni Vashtar | January 17th, 2008 at 8:09 am | Report this commentFair point, my wording was too casual. The point I was trying to make is that the open source business model as generally practised, which relies on service and support, is not as powerful as one that can also draw on licensing of related (proprietary) software.
Your point about Sun is well made. Sun clearly hopes MySQL and Solaris together will become an attractive foundation for Web services (Schwartz said he was looking to switch the Solaris licence to GPL so it’s compatible,) but if it does anything to alienate the Linux users who are the lifeblood of MySQL it will have a problem on its hands.
Richard
Posted by: Richard Waters | January 18th, 2008 at 1:18 am | Report this comment