Thursday, January 17, 2008

Hats off to those who made free software into a successful business

I have been stuck in Chicago for three hours--snow in Chicago, snow in Harrisburg--and it looks to be at least another two hours before I get out. So, I've gotten a glass of wine here in the United Red Carpet Room and am prepared to stay here a while longer.

This is a roundabout way of saying that what I planned to write about, how CEOs cannot delegate strategy, will have to wait for another day.

Instead, let's talk about open-source software. ("What?" say the readers. "We were expecting something interesting!") For the uninitiated, open-source software's programming instructions (source code) are freely available and modifiable.

It sounds like a joke. Imagine coming into a venture capitalist's conference room, firing up the laptop, and announcing, "Our business sells free software...we're looking for a first round of $5 million."

"Get out of my office!" says the venture capitalist.

But today comes news that Sun Microsystems will pay $1B for MySQL, distributor of the free relational database software of the same name. And Bob Young, the founder of another open source company, Red Hat Software (most recent quarterly net income: $20 million) was profiled in "The Opposable Mind" (reviewed earlier this week).

Call it Open Source Week.

So how do open-source companies make money? By packaging that free software into standard releases, providing maintenance and help-desk services, to businesses that want to use open-source products.

The businesses' IT staffs could download the source code over the internet, compile it themselves, then distribute it to their own servers for installation--all free. But the volume of open source modules and the frequency with which the modules change add up to a major headache to companies who want a stable, predictable environment for their web sites or other applications.

The genius of the successful open-source companies, therefore, was to recognize a value niche between the chaos of truly free software and the large license fees of proprietary software like Windows. They sell open-source subscriptions at a fraction of proprietary license fees--that offer a stable, supported product to risk-averse corporate customers.

Add it up, and it's worth a pretty penny--or a billion dollars to Sun.

, ,