Open Source Forming a Dot Com Bubble? 222
sebFlyte writes "ZDNet is running an interesting look at the sudden upswing of investment in open source products and the ensuing debate as to whether the open source business model has given us a bubble (akin to the dot-com bubble) that is about to burst. The counter-argument is that the increase in investment is just the natural progression of a robust business model whose time has come. One point that few people, whatever their viewpoint, could disagree with is that the key to a financially successful open source project rests with the community, rather than just the technology."
Opensource isn't the problem... (Score:5, Insightful)
I'm gonna have to disagree... (Score:2, Insightful)
The main question (Score:5, Insightful)
I would argue that open-source, as it is today, is actually undervalued, and had a huge amount of economic potential that hasn't even begun to be tapped. This is not true of, say, the housing market, which many say is a bubble.
I think rather than an insubstantial bubble, what we're seeing is a whole bunch of investors realizing the very real value of open source business models all at once.
Key difference (Score:5, Insightful)
What I am getting at is that every dollar invested in OSS which leads to publicly released code is a dollar whose benefit will last long beyond any potential demise of the original VC group and/or development team.
This is the ultimate difference between OSS and CSS...
Times have changed (Score:5, Insightful)
Can't be repeated enough (Score:4, Insightful)
Re:DRM (Score:3, Insightful)
DRM is the idea of storing keys with the encrypted content and hoping that nobody will find the keys.
Short term or long term? (Score:4, Insightful)
Re:Key difference (Score:3, Insightful)
OSS may end up being a charity at best. I have seen all sorts of "models" like support or customization but those can not be "locked in".
I can see the value of traditional OSS development. I.E. a company paying people to work on a project they use like Postgres, GCC, Apache, or even Perl. I do not see how VC investment works for OSS. I could be wrong but we will have see.
Here's the difference (Score:5, Insightful)
The difference is this: At the end of the dotcom bubble burst, there was a lot of proprietary code floating around, locked up in asset portfolios that would never see the light of day. At the end of an alleged OSS bubble, there will be a lot of open source code floating around *in the open*, where people can actually make use of it and build upon it, regardless of the solvency of the company that originally authored or contributed to it.
This may well actually give the supposed "bubble" more floating power, since one company that might not be able to properly handle an open source project might have their fumbles recovered by another company that can. This could happen immediately, rather than waiting for the former company's death march to complete, drying up the VC and selling off the company's copyrights to the code.
It's not big enough to be a bubble (Score:5, Insightful)
Re:I'm gonna have to disagree... (Score:5, Insightful)
Actually, an increase in value doesn't make a bubble -- an increase in invested capital without a corresponding increase in value is what creates a bubble.
The second part of creating a bubble is speculation; people investing in something not because of value, but because of expected ROI due to speculation. I know (well, believe) that the P/E ratio of Google was too high for me to get a good return on my investment through long-term investing -- but I also knew that the perceived value of Google shares would net me a good ROI when I sold. I wasn't investing in Google; I was investing in the public perception of Google as a good investment.
Bubbles take a long time to burst (Score:3, Insightful)
So, open source is a bubble.... fine. But to say its "about to burst" is a reach. If its like other bubbles of late, now that its been declared a bubble, it won't burst for a few years yet. My advice, then, is get on that train and make some money while the getting is good.
Size of bubble. (Score:3, Insightful)
Until the end of September this year, the amount of venture money that went to companies with "open source" in their business description was $144m (£81.8m). That's more than double the total for the whole of last year, according to research from the National Venture Capital Association, PriceWaterhouseCoopers and Thomson Venture Economics.
In addition, a conservative estimate is that there have been at least 18 open source companies funded in the first three quarters of 2005, compared with 12 last year, a NVCA representative said. Among this year's top investment recipients were XenSource, which landed $23m, and SugarCRM, which got third-round funding of $18.7m last month.
What's the size of the "bubble" we're talking about here? $144M? That's like a spit bubble, heh. I bet if you take MS, Oracle, and Dell's yearly complimentary food, drink, and party budgets, they'd be more than that. Ok well, that's probably not true, but I mean, $144M as far as business investments go is a peanuts. Whether or not this is bad for the OSS/FS community, I don't know. How much OSS/FS software is developed by employees of IBM and other friendly companies versus how much software is developed by some little startup on VC funding? That to me, would be a larger indicator on how "volatile" this is becoming.
Open Source Never Fails (Score:4, Insightful)
Whether businesses that try to make money off open source can fail is another matter. I see it this way: open source exerts a downward pressure on software prices. This means that it tends to make businesses that try making money by selling software fail, but it provides businesses using software (and what business isn't?) with financial benefits. This, and the properties mentioned in the previous paragraph, is where the business benefit of open source is.
TFA seems to be asking whether venture capitalists can expect to see returns on the money they invest in open source startups, or that it's a bubble that will burst. That depends on how you see it. If they want these businesses to generate money that flows back to them, it's probably a bubble, because these businesses are trying to make money exactly in the way that is likely to fail (see previous paragraph). However, the open source software these companies make will be around, no matter if the company persists. So the invested capital is never really lost, as it would be if the company had been making closed source software (and failed to pass on the rights before closing down, as too often happens).
Re:DRM (Score:5, Insightful)
DRM: Let's all erase nearly 10 years of incredible growth by closing and locking things down. DRM has ALWAYS been around. From the lousy copy protected floppies of the 80s to the parallel port dongles of the 90s to todays public key technology. It doesn't matter - it's all the same, and it is and always has been an utter and complete failure. A failure of customer service, a technical failure, a financial failure and ultimately a corporate failure. And despite everyone's best efforts, DRM will fail again.
There's no such thing as an open source bubble, BTW. Why? Because open source software, or at least the free variety, doesn't die when it's creator dies. What would happen if Mozilla.org, Apache.org, the MySQL guys went belly up or blew u Hint - development would slow for a while and would fork and then the strongest tines of the fork would continue. Open source software exists outside corporate control, and that is something that open source advocates need to explain clearly. An open source company is not about building a widget and selling it like proprietary software. It's about helping customers apply technology to their business exactly the way it should be instead of adapting to what someone working out of your industry, for a technology company thinks you should do.
Investor's Guide to Open Source (Score:5, Insightful)
1. Invest in companies that know how to make money by being paid by a customer to perform a service.
2. There are usually minimal or no barriers to entry in the open source universe.
3. Check community involvement. A small community or lack of one indicates a lack of mastery of the open source model.
BTW: coming out with a closed source derivative product can be risky: sometimes you get forked and out developed.
Re:Opensource isn't the problem... (Score:4, Insightful)
As an owner of a consulting firm, I can compete with a good deal more companies using FOSS. We get paid for solutions, not products. If I can grab some code, make some quick improvements, and have a quick turnaround, then I can make my clients happy.
Re:Opensource isn't the problem... (Score:2, Insightful)
There are some OSS projects that are very large and have (paid) developers from many companies (the Linux kernel being the biggest example), I suppose if you were a very valuable kernel hacker and your employer went belly up, one might easily find work - the exact same work - with someone else. OTOH, there are OSS projects that are dominated by one company (JBoss comes to mind) where it might take a fairly long time for the project to recover if its one major commercial sponsor evaporates, let alone another financial benafactor to materialize. Then there are companies who simply use OSS, and if you were an OSS developer there, you might never contribute anything large to any one project, or possibly anything at all that was accepted upstreem, as you would be responsible for little fixes for a wide range of projects.
It's a development model, not a business model. (Score:5, Insightful)
A business model can be based upon selling items/services/etc related to systems developed via the Open Source model, but they are not the same.Given that Linux advanced to it's current state almost 100% via the "hobbyist" and "tinkerers", is that a bad thing?
More funding is always nice. It allows people to devote more time to it. But it won't make or break a project. The community is what decides that.Again, if that happens, it is because of a failure of the business model, not the Open Source development model.
History is littered with failed software companies that used closed source. Why should Open Source guarantee success? It's all about the business model.And here is what I say
Look at the business plan. That is what will make or break the business.
Pretty Tiny Bubble ---- $144 million (Score:5, Insightful)
Free software is maturing and growing still. In ten years....
Hans
Maybe... (Score:3, Insightful)
So here is the queston: Is any other vendor out there creating a Dot Com bubble? Or could they have created the previous Dot Com bubble?? Yes I'm thinking about Microsoft: Did MS oversell its technology in the 90s which allowed people to believe they could build anything cheaply, securely, etc?
One Rule in Investing (Score:2, Insightful)
Twice? (Score:3, Insightful)
Re:It's a development model, not a business model. (Score:3, Insightful)
This is made up for by not having to sink the development costs to create the product from scratch in the first place. If you want to sell a product, you have to build it first, and if no one buys it you're still out all the money it cost to develop.
Open source businesses make their money from support and customization. It's certainly not as possible to hit a home run that way, but it's certainly possible to build a successful business around that and it entails less risk than creating a product from scratch and attempting to sell it.
Re:It's a development model, not a business model. (Score:2, Insightful)
Re:What if... (Score:3, Insightful)
At economics, it's called a "self fullfiling profecy" and is very well known and described (as far as an aconomical model can be). It differs from the measurement modifying the result of a quantum experiment because its results determinable, while at the quantic case, they are not.
That said, the funny part is that it makes no difference if the readers realise or not the it is BS, even if they know that it is not a bubble, they may think that other ones are convinced that the bubble exists, so they'll not invest for a while.
That happens unless everybody knows that everybody knows that it is BS, and everybody knows that everybody knows that everybody knows that it is BS, and so on...
Re:Opensource isn't the problem... (Score:2, Insightful)
Yes, that's simplified, and part of it was the fault of the industry talking things up. But even if OSS is an excellent concept, and is sustainable without venture capital, it can still get hurt. If investors start getting into it, resulting in OSS companies becoming overvalued, a bubble burst is inevitable. If that happens, OSS will very quickly get a bad name. And we'll only begin to realise how much a bad name will affect OSS when it actually happens.
Re:Opensource isn't the problem... (Score:3, Insightful)
A lot of the venture funding relating to OSS could simple be the money freed up from the sell off of investments in proprietary software companies looking for some other place to go (the shares of proprietary software companies is currently being propped up by stock buy backs, mug punters who still believe the marketing and pension funds with managers whose own personal fiscal futures will suffer no harm while the funds they manage takes yet another massive hit).
As the amount of money going to the large proprietary software vendors drys up, investors are expecting that money to get distributed to other sectors of the tech economy. Picking the loser (M$) is often a lot easier than trying to pick the winners (IBM to date as for the others ?).