Advice for Open Source Startups: Remember LinuxCare 116
LinuxCare
was born in 1999 -- venture-backed by top tier VC firms like Kleiner
Perkins, with total
funding in the ballpark of $70 million.
Those were the frontier days for Linux. There was
a ton of industry interest and activity despite the fact that the jury
was
still out with respect to end user adoption. Nobody really
knew exactly
how Linux was going to be used – would it be for the desktop,
servers,
etc.? The company used the vast venture coffers to promote
the brand and
staff star-power (even Linus Torvalds consulted for them
briefly)– and
LinuxCare quickly became the recognized name for Linux services and
support,
doing work for big systems vendors like Dell and IBM in addition to
developing
device drivers and offering education services.
Red Hat had the Linux OS and
software, VA Linux had the
hardware – and LinuxCare had the services. It was a
theoretically perfect
enterprise Linux ecosystem triumvirate.
But it wasn't meant to be.
The demise of LinuxCare can be attributed to many
factors. The first was that enterprises were slow to adopt
Linux
– in the early ‘00s, IT spending came to a grinding
halt
with the dot-com and stock market crash. But the key factor
to
LinuxCare’s spectacular death spiral was the fact that they
were going up
against Red Hat, the very company they were basing their business on.
Red Hat
not only developed their own distribution of Linux, but also started
offering
support for it. Red Hat offered a one-stop shop for Linux software and
services
regardless of hardware. Enterprise
customers decided it was easier to buy from one vendor. This same
sentiment is
what drives sales of Microsoft software in enterprises today.
LinuxCare suffered a painful public death over months
of executive departures and layoffs, VA Linux abandoned hardware for
software,
and RedHat, with the cash to weather the tech spending downturn,
expanded its
revenue streams and became the de-facto enterprise Linux distribution.
It's easy to dismiss LinuxCare as "ahead of their
time", which is definitely true. But the fundamental and fatal flaw was
that they based their products on someone else's IP, with no IP of
their own.
When the market tanked abruptly, LinuxCare didn't have the money to
weather the
storm and didn't have consistent alternative revenue streams to combat
the lack
of services income.
Some of the executives from LinuxCare went on to start a new company called Levanta, which focuses on Linux systems management. They have since developed IP in software and hardware that can sustain the business beyond the services revenue.Their LinuxCare experience taught them how to build a sustainable technology business model on top of open source software. No longer do they rely on IP that walks out the door every night in their employees' heads.
In the end, it all comes down to
IP. Building a
business on top of something you don't own is extremely risky.
Companies need
to develop their own IP to be innovative and have competitive
differentiation.
And if they don't develop it themselves, they need to acquire or
license the
relevant code to protect themselves and ensure they aren't caught
without
alternatives.
An Open Source Danger
Zone?
In my eyes, the bubble associated with open source is less related to the millions of VC dollars and more related to the reliance on software and components that are not part of a company's internal IP. When Oracle acquired InnoDB, it had a less than positive effect on MySQL, but MySQL is a smart enough company to not bet the farm on something it doesn't own. It owns enough IP to sustain its products-and it's business from the risk associated with relying on someone else's code.
IT Groundwork has built a business
on top of an open
source network monitoring project called Nagios. They don't own the
copyrights
and they don't employ the creator. Kleiner-backed SpikeSource offers
"certified stacks" of open source software components, but they don't
actually create the open source components themselves.
And in SpikeSource's case, Red Hat announced that
they too would offer "certified
stacks." Who do think is going to win that battle? Red Hat, the
one-stop
shop that offers the OS and the apps, or the company that offers merely
a
portion of the total package. Does SpikeSource have the IP or
alternative
revenue sources to withstand Red Hat? Let's wish them
luckand hope they
know the LinuxCare tale.
If there is a bubble, it will burst when the open
source projects these new company's products and services depend on go
private,
fork, or get acquired. The market for open source is so new we haven't
seen
much of this yet. Only time will tell if the recently funded open
source
companies can build sustainable businesses, or if this grand experiment
will
result in a few 800 pound gorillas and many tiny monkeys.
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