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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I hate to be a dick, but . . . (Score:5, Insightful)
The 90s are over. I hate to break it to my fellow geeks, but being successful in a startup was always a risky proposition even in the heyday. Your best bet, now, is to learn how to properly brown-nose and pick up lots of business and office-politics skills and make yourself satisfied with the "employee" thing. Working for other people kind of sucks, but it's better than suffering grand delusions of greatness.
Then again, it's christmas time and I like being a grinch. So go suck a glass ornament.
OSS is not at its tipping point - yet. (Score:2, Insightful)
They were just ahead of their time. Like Go computer was. Now, there's a market for handheld and tablet devices. OSS' time will come. When, if I knew that, I'd be investing/starting something myself!
Linuxcare ... beh (Score:4, Insightful)
Using Linuxcare or VALinux or even Redhat to judge the financial viability of open source companies doesn't paint a complete picture. The number of companies deploying open source technologies in their production infrastructures, embedding Linux in their hardware and porting their software in order to save their customers' hardware budget, these are a better barometer of the movement's success than the attempts of the aforementioned companies to make money off of something which is intrinsically free.
Re:That's not the only thing (Score:5, Insightful)
I wish business were that easy. It's not just about avoiding the mistakes of your predecessors, though that's probably a necessity.
Right. It's also about doing the same things right. I saw a presentation by Bill Matthews of Hurricane Labs [hurricanelabs.com] (no affiliation). He was presenting on building a company on open source. He said that number one thing is to not take venture capital. He said that the investors will likely force your company in a direction in which you do not want go, if it means they think they will get a higher return.
Basically, he said to start small and self-fund as much as possible. That is what he did and he claims that he and his partners were able to make Hurrican Labs profitable in two years. When I start out on my own, I plan to at least give self-funding a shot before seeking venture capital.
Re:I hate to be a dick, but . . . (Score:5, Insightful)
Seems to me... (Score:3, Insightful)
What exactly to they mean by "IP"? (Score:5, Insightful)
They know absolutely nothing about what happened to LinuxCare, except that it tanked. My impression is that it's a good example of a geek-founded company taking on Professional Management to keep the VCs happy and getting royally fucked over by the Professional Management with the Impressive Credentials.
Suits never want to take the rap when suits screw-up. You can bet that if the geeks had tried to maintain control and tanked the company, the business press would never stop yammering on about how they obviously needed Professional Management.
Open Source StartUp Bubble (Score:5, Insightful)
Re:I hate to be a dick, but . . . (Score:2, Insightful)
More importantly, as geeks are fond of saying "I'm an engineer - not a manager". They don't want to be bothered with business things. They want to sit in a dark room drinking soda and coding. If you just want to code and make stuff and let someone else do the important work (the marketing, management, payroll, loan negotiation, paying the bills, business plans, etc) then . . . well, work for a company like most of you probably already do.
The really successful people tend to be business oriented and let other people do the grunt work . . . because they have to make the decisions around the place.
Not to mention, most businesses fail. And by most, I mean almost EVERY business fails.
On the other hand, if someone wants the stress and ulcers and short life and agony that comes with being responsible for every aspect of a business that won't do much more than provide you with the income you already had when you worked for someone else, go for it I guess... But remember, you HAVE the salary you're making now. When you work for yourself, you will probalby not turn *any* profit for years. Much less make what you're already making.
Frankly, I just don't think geeks are cut out for business and running their own companies. What successful companies out there have an owner or CEO that still spends the majority of their time designing and writing their own software and such? I bet it's small or nonexistant.
Re:What exactly to they mean by "IP"? (Score:3, Insightful)
For RedHat, it doesn't matter if their source code is out in the open. What is valuable to them is their network of developers (e.g. mindshare) and the ability to affect the direction of projects. Think of them as the used car salesmen, they make someone else's ugly cars look good and sells it. Microsoft is like the new car salesmen in this example.
Re:Open Source StartUp Bubble (Score:3, Insightful)
Personally, if I were an investor I'd remove the words Open Source from the business plan. Then see if you'd invest in yet another consulting business (or whatever it is) anyway.
Re:I hate to be a dick, but . . . (Score:4, Insightful)
It isn't luck - that's what people say who do not have the dedication or risk accepting attitude. You can always use whatever luck you have - there is always some option.
That said, there is a lot of luck involved - but it determines the level of success, not who is successful.
Business Models (Score:4, Insightful)
It's like dieting. No matter what the diet fads are, the only way to lose weight is to eat less and exercise. Similarly, no matter what the Open Source pundits tell you, the only way to keep a business running is to sell a product or service other people are will to pay for.
The Open Source fairy going to come along and give you a magical business plan. So start eating less, exercising more, and selling a product people want.
Missing the point... (Score:3, Insightful)
I'm sure the VC people made it sound great... "10 billion eyeballs looking at thousands of Red Hat Linux servers... someone needs to support the servers!"
The problem is that they were a third party in a commodity business. If I buy a server from IBM, HP or Dell, I'll get hardware support. Linux support is and was available from Suse,Red Hat, etc.
So where was the growth? If Linux failed, Linuxcare would be out of business. If Linux took off, IBM, HP, Dell, Sun, etc will offer support themselves, with established professional services groups to make it easier.