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Linux Business Software

Open Source Forming a Dot Com Bubble? 222

Posted by ScuttleMonkey from the ride-the-wave-while-it-is-here dept.
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."
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Open Source Forming a Dot Com Bubble? More

Open Source Forming a Dot Com Bubble?

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  • Opensource isn't the problem... (Score:5, Insightful)

    by Nos. ( 179609 ) <andrew@nOSPAm.thekerrs.ca> on Monday November 07, 2005 @02:56PM (#13972435) Homepage
    Lets face it, if venture capitalists are investing money in companies because of buzz words (is open source a buzz word now?), then the problem isn't with the product, but with the investors. Linux, Apache, and countless other OSS didn't start with a big investment by venture capitalists. It was started by a person or group that recognized and need and thought they could fill it. OSS will live on, with or without VC.

    • Re:Opensource isn't the problem... (Score:5, Informative)

      by Karma_fucker_sucker ( 898393 ) on Monday November 07, 2005 @03:04PM (#13972507)
      I don't disagree with you because I don't have ESP and can't read the VCs minds. But I can tell you what their strategy is and why it may seem that there's a bubble forming.

      VCs (and many entrepreneurs) use the law of large numbers. They'll sift through a hundred biz ideas just to get one that they'll invest money. They'll keep investing in a bunch of businesses with the hopes that one will hit really big. That's why when you get a VC contract, basically, they'll demand some percentage of return (like 40%+/yr compounded). Which means, even if the business is sold for a couple of million, the original entrepreneur (the one with the idea) will get nothing just so that the VC firm can get some sort of return that approaches their required return.

    • Can't be repeated enough (Score:4, Insightful)

      by ylikone ( 589264 ) on Monday November 07, 2005 @03:05PM (#13972520) Homepage
      What you say is certainly true... yet we keep hearing over and over about how opensource projects need to consalidate, opensource projects need more money, opensource projects need support from big players, and on and on.... That is all completely untrue and misses the whole point of opensource! So, messages such as yours need to be kept being said to combat the other wrong messages that keep being said.

    • Re:Opensource isn't the problem... (Score:5, Interesting)

      by dslauson ( 914147 ) on Monday November 07, 2005 @03:08PM (#13972562) Journal
      I agree with you that Open Source will live on regardless of money invested by venture capitalists. The question is, at what level. Hobbyists? Tinkerers?

      Or can it exist as a robust business model that can compete with commercial competitors?

      I've been seeing more and more paid programming positions advertised on my campus' job site for open source projects. As cool as I think it would be to take a job like this when I get out of school, I don't want to go somewhere where the floor will fall out from underneath me.

      Anyway, I'm not trying to predict doom for OSS, I'm just saying that this is a valid discussion, and I'm curious to hear what people have to say.

      • Re:Opensource isn't the problem... (Score:4, Insightful)

        by mrcparker ( 469158 ) on Monday November 07, 2005 @03:44PM (#13972919)
        As long as you don't sell the software, you are in good shape. Offering value-added support, or using FOSS as a part of a larger contract seem to be the trend.

        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.
        • Computer hardware manfacturers are also freed from the burden of licence fees giving them an incetive to invest a portion of what they would have paid in licence fees to ensure OSS survives and grows.

          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 th

      • What kind of long term viability does one/should one desire in an employer? Conventional wisdom is that these days one is going to have many employers over their working life. If you accept that, then does it matter if you leave a place after 4 years because its simply time to move on, or if you leave a place after 4 years because it no longer exists? And if you are working on OSS projects, does your exact employer matter, if that project lives on and someone else picks up developement (and developers)?

        Ther

      • Open source is not a business model (Score:5, Interesting)

        by jhoger ( 519683 ) on Monday November 07, 2005 @03:45PM (#13972931) Homepage
        FOSS is not a business model. It is way of licensing code that protects the user's ability to user and modify the software. It can also be seen as a vast body of resuable code for projects with compatible licenses. In the case of GNU/Linux it is also a software stack with $0 licensing fees, so conceivably it only costs as much as it takes to get it installed, maintain it, and extend it for a given business's purposes.

        Paid support and customization of software IS a business model. It's called "software contracting."

        That business model is well understood. It can be profitable, and can sustain most salaried engineers at a rate ABOVE their current salary, but not usually as profitable on a large scale as a software product company can be, because as part of the bargain we choose not to leverage the amazing power of government-granted monopoly profits.

        However, given the success of the FOSS development model I wouldn't give mass-market proprietary software more than another 20 years unless the government(s) intervene to stop it, or consumers buy into locked-down platforms that will only run signed code.

        From the programmer point of view it doesn't really matter. We seem to get paid the same whether our customer can make billions off of the bits we create, or only gets to charge a markup on our rate. Weird, huh? ;-)

        -- John.

        • Re:Open source is not a business model (Score:5, Interesting)

          by museumpeace ( 735109 ) on Monday November 07, 2005 @04:51PM (#13973626) Journal
          mod this guy up! open source has a community. it does not have a revenue stream aside from packaging and customizing. it has users but not customers. Not that some of the vanished dotcom startups [I worked for a few, note past tense of verb "to work"] had much better business plans. The people who package, test, document and train still have a hope of a viable business model but developers can't pay for their plasma tv and xbox and jetta with the pride and good feelings you get from checking in a solid piece of code to a project. Someone please explain to this old wage slave coder how on earth development as an economic activity fits into the emperor's new business model? Free as in speech, if you haven't noticed, has a nasty way of turning into free as in beer. Toothless licenses are NOT going to get original and valuable code out of any programmer or consortia unless they can support themselves by some other means than their programming effort. RMS solved the innovation problem but I think the bait has a compensation hook in it.

      • It's a development model, not a business model. (Score:5, Insightful)

        by khasim ( 1285 ) <brandioch.conner@gmail.com> on Monday November 07, 2005 @03:47PM (#13972950)
        Or can it exist as a robust business model that can compete with commercial competitors?
        Open Source is a software development model. It is not a business model.

        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.
        I agree with you that Open Source will live on regardless of money invested by venture capitalists. The question is, at what level. Hobbyists? Tinkerers?
        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.
        I've been seeing more and more paid programming positions advertised on my campus' job site for open source projects. As cool as I think it would be to take a job like this when I get out of school, I don't want to go somewhere where the floor will fall out from underneath me.
        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.
        Anyway, I'm not trying to predict doom for OSS, I'm just saying that this is a valid discussion, and I'm curious to hear what people have to say.
        And here is what I say ... don't look to Open Source as a substitute for a valid business plan.

        Look at the business plan. That is what will make or break the business.

        • Re:It's a development model, not a business model. (Score:5, Interesting)

          by iabervon ( 1971 ) on Monday November 07, 2005 @04:17PM (#13973256) Homepage Journal
          The current state of Linux is largely due to corporations. Only a small fraction of development has been done lately by people who aren't employed full time by companies to do it. On the other hand, it's a consortium effort, like Apache. Organizations that would benefit from Linux being a bit better in particular ways put in effort on those areas.

          Getting it started was done by tinkerers and hobbyists, but once it became sufficiently important to employers, corporate involvement increased to be much larger than individual involvement.

          Of course, this doesn't really fit well with venture capital. What I'd like to see would be for venture firms that invest in a number of related companies (like they often do) to invest in a new company which will take their venture money and produce software that the current companies will benefit from. The open source software company obviously loses all of the investment, having no income, but it provides a good return for the venture firm's portfolio in general.
        • "History is littered with failed software companies that used closed source. Why should Open Source guarantee success?"

          Especially since Open Source companies have an additional financial leg kicked out from under them... sales of the product itself.

          • Especially since Open Source companies have an additional financial leg kicked out from under them... sales of the product itself.

            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,
            • Depends on the company. mySQL AB, for example, did create their product from scratch. On the flip side, many "real world" companies exist solely to market products manufactured by others.

              And as near as I can tell, the investment folk mentioned in the article are looking for the companies WITH products, and not just for the "me too" marketers.

      • I don't want to go somewhere where the floor will fall out from underneath me.

        As someone who has been developing software for 10 years, I recommend not worrying about things like that. Your skill isn't "Open source software development" so if the business model fails then it doesn't matter to your long-term prospects. If you worry too much about that then you will get stuck developing boring B2B systems for some fortune 500 company and wondering why you got into software.

        Unless you have 3 kids and a

    • Yep, you are right. So there probably is a bubble, but only some of the businesses are part of it (just as some of the dot-com's which had good business models have survived just fine). Hopefully the fallout after it bursts will not be the undoing of the more deserving ones.

      Actually the bubble at Ximian already burst around the same time the dot-com one did, so maybe the VCs learned something from it. (Maybe? maybe.... nah.)

      My favorites are the ones that make money on hardware and support it via free so
    • "OSS will live on, with or without VC."

      If they give money, they're VC. If they don't give money, they're well-trained VC.

  • Looks to me like an overreaction. Not everything that increases in value like this is necessarily a bubble. (though it does sound more exciting this way)

    • What if... (Score:3, Interesting)

      by drgonzo59 ( 747139 )
      ZDNet's comment would actually change the perception and make some investors out there doubt the decision of investing in open source. Kind of like a measurement of a quantum system would change the system, so perhaps an article in a popular tech news commenting on the investment situation in the tech industry would end up somehow changing the overall open source investment trends eventually...
      • that's 100% true. it may or may not be a result, but that's totally a phenomenon that we live with. the coverage of the sony drm rootkit is a perfect example of this weird relationship between between "stuff" and "talking about stuff"

      • Re:What if... (Score:3, Insightful)

        by marcosdumay ( 620877 )

        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 i

    • Re:I'm gonna have to disagree... (Score:5, Insightful)

      by Red Flayer ( 890720 ) on Monday November 07, 2005 @03:17PM (#13972644) Journal
      "Not everything that increases in value like this is necessarily a bubble"

      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.
      • Google is both a good example and a bad example. It's a good example because it operates on very narrow margins, and business models around open source software almost always require very narrow margins: cost of production goes down, but a large fraction of users do not become paying customers (I believe it's 2% for most OSS companies).

        It's a bad example because it was technologically advanced enough to dominate an emerging space, so despite its narrow margins, it can dominate the space. Most OSS companie
        • Sorry if I implied that my Google experience can be extrapolated to OSS firms in general... I just wanted to point out a recent example of speculation, rather than value, driving an investment decision.

          Interestingly enough, I think it's Google's market cap & cash reserve that is driving a lot of the VC in OSS. Especially as Google gets into the OS and web-based app market, there could be a lot of OSS service-oriented companies that look attractive to Google... so the in-n-out strategy may work out.
    • ... that exists is the aneurism that's growing in my brain because /. keeps getting "news" about OSS from friggen ZDNET.

      Haha, and how fitting that the turing test to make this post was "travestry".

  • DRM (Score:5, Interesting)

    by duerra ( 684053 ) * on Monday November 07, 2005 @03:00PM (#13972464) Homepage
    I think one of the arguments for an open source "burst" would be the reluctance of the open source mentality to accept things such as DRM. While I am very much with the typical slashdot mindset that thinks of DRM as bunch of BS, the corporate world is still heading in that direction. If the open source community can't come up with something acceptable on the DRM front, it's going to give the closed source vendors such as M$ a one-up where there otherwise may have been an open source trend.

    One of the problems that I have been struggling to grasp in terms of its impact on my job is how important of a role DRM is really going to take in the coming years. As a pretty much Linux-exclusive shop, and as a media company, we could be in a very awkward position in the coming years since we don't really support anything in the way of DRM right now, and there doesn't appear to be a lot of headway from the OSS perspective, either.

    • Re:DRM (Score:3, Insightful)

      by Skowronek ( 795408 )
      The problem isn't with Open Source. The problem is with DRM; all DRM schemes, namely, assume storage of keys on user's computer at some point (if it's pay-per-view, in which case the keys are sent to the user from a remote location). This means that given the full source of the DRM implementation it is possible to circumvent it. This is a design flaw in DRM.

      DRM is the idea of storing keys with the encrypted content and hoping that nobody will find the keys.

      • Re:DRM (Score:3, Interesting)

        by Kjella ( 173770 )
        This means that given the full source of the DRM implementation it is possible to circumvent it. This is a design flaw in DRM. DRM is the idea of storing keys with the encrypted content and hoping that nobody will find the keys.

        Ah, but the root key isn't in Linux, isn't in software at all. The root key lies in hardware, in the TCPA chip. It is fully possible to design an OSS system that uses DRM and is secure despite being open. The reason OSS and DRM go together like oil and water is that the smallest poss
        • On the subject of "trusted" computing, I'm curious as to how long it'll take an enterprising hacker with a microscope to figgure out the hardware shielded master key.

          Really, i could be wrong, but in my mind it'd be time consuming and eye straining, but not all that hard, since every gate is etched on to a piece of glass
      • Wish I had mod points for ya, but instead I'll just elaborate.

        Your argument that open sourced DRM won't work is pretty convincing. From DRM to work 100% it has to involve an inviolable, probably hardware, black box, and a black box which runs all the way from the display medium (speakers, screen) back to the encrypted data stream. So you could in theory have a black-box hardware DRM player, and open source the front-end downloading of the stream, but that's it. The black box can't be open source; otherwi
        • Hardware based DRM will always fail. If hackers have a stationary target to aim at (read: any copy protection scheme that is not changed) they will crack it given enough time.

          Google has learned this, which is why they tweak the PageRank formula almost daily. DirecTV is another one. A moving target is always harder to hit.
    • Most users (eg. programmers who want to scratch an itch) see DRM as more of an itch that should be removed than as a desirable feature. Furthermore, DRM and open source don't mix, since DRM usually involves obscuring the decryption code, and then securing the decrypted digital data until it gets to the output device. All of that is completely counter to open source.

    • Re:DRM (Score:5, Insightful)

      by salesgeek ( 263995 ) on Monday November 07, 2005 @03:29PM (#13972777) Homepage
      I think one of the arguments for an open source "burst" would be the reluctance of the open source mentality to accept things such as DRM. While I am very much with the typical slashdot mindset that thinks of DRM as bunch of BS, the corporate world is still heading in that direction.

      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.

    • Not tentirely true; We need DRM in the OpenSource community as well.

      For example, we need to be able to automatically keep GFDL an CC-copyleft texts separate. In wiki, we need licensing information to transport along with a document, and it's history, if required by the license.
    • thinks of DRM as bunch of BS, the corporate world is still heading in that direction.

      Heading in that direction? Heading implies a movement. Corporations aren't heading in that direction, they've been anchored there for many years. They sit in that port doing very little business, thinking they're protecting their property. But all they're really doing is limiting thier profit.

      Look, I thought I was going to be the next great Shareware author back in the early 90's. I developed a couple less-than-notabl

  • The main question (Score:5, Insightful)

    by xappax ( 876447 ) on Monday November 07, 2005 @03:01PM (#13972474)
    The main question that you have to ask when determining whether a particular market is a bubble is "Are investors over-valuing it?"

    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.
    • DRM is a solution in search of a problem. It differs from other similar solutions in that the encryption isn't based on what you know, but who you are. A lot of people are excited and aroused by DRM because they see a solution, but they don't realize that the problem is illusory. Even if they do realize it, they're hoping that the very presence of the solution will create the problem for it to solve.
    • Technically, no - if people see value that isn't there, they are just wrong and someone will take them out of the decision making process by removing their great heaping wads of cash.

      A bubble is when people invest based on the perception of increasing value, rather than the value itself. (It's an economic term, just consult an economic text.)

  • Key difference (Score:5, Insightful)

    by itwerx ( 165526 ) on Monday November 07, 2005 @03:03PM (#13972488) Homepage
    The key difference between OSS investment and any other investment is that there can never be a true "loss" in value. I'm probably not going to explain this very well but I'll try anyway.
          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...
    • > 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.

      Well said sir. And that's as opposed to those huge corporate systems on which armies slave for years - and then are unceremoniously dumped.

      The beauty of it, too, is that a company can have a closed source product and still contribute to open projects. Running a backend database? Contribute something to Postgre [postgresql.org]

    • Re:Key difference (Score:3, Insightful)

      by LWATCDR ( 28044 )
      Or you can look at it another way. OSS never has any value to the investor.
      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.
    • The key difference between OSS investment and any other investment is that there can never be a true "loss" in value.

      While that's true from a community perspective, if a VC dumps several million dollars into an open source project and never sees any profit in return, you can bet that that's goign to be viewed as a loss by them and their peers.
    • true. but what you are doing is creating an externality. you are creating a benefit to those who did not pay for it. VC firms are not in the public charity business. Typically you see governments, not private investors creating lighthouses.

  • AJAX (Score:5, Funny)

    by iMaple ( 769378 ) on Monday November 07, 2005 @03:03PM (#13972494)
    Ajax , the biggest bubbles any detergent can produce :)

    • Re:AJAX (Score:2)

      by Lxy ( 80823 )
      Don't I know it.

      Btw, never use Ajax to clean a dishwasher unless you needed to clean your floor too.

  • who pays for this stuff? (Score:5, Interesting)

    by boxlight ( 928484 ) on Monday November 07, 2005 @03:04PM (#13972503)
    I use lots of open source software, Apache Tomcat, JBoss, a bunch of Eclipse plug-ins. In fact, before I tackle most tasks I check to see if there's a free open-source project that has already solved the hard problems.

    I'm really happy that these projects exists because being able to stand on their shoulders make me a much more productive and a better programmer.

    But I have often wondered -- who are these people that pay (in money or time) to develop all this stuff? I'm really glad they do, but I hope all the "funding" doesn't all dry up someday. I'd have to do all that work myself!!

    boxlight

    • Amen. Hear, hear for the Apache folks, especially the Jakarta group. Wow. Awesome stuff there.
    • For instance.... Company X wants Feature Y in open source Product Z. Company X can pay someone for Feature Y. Most of the time, this is a developer already working on the project, the money just allows them to work on it exclusively. Then the code goes back into the project... at least on paper thats how it would work.

  • Times have changed (Score:5, Insightful)

    by jav1231 ( 539129 ) on Monday November 07, 2005 @03:04PM (#13972509)
    The financial world has grown a lot from the days of the first bubble. That bubble was building over a five year period and was due in large part to ignorance. People were being paid with what amounted to an ignorance tax. The less a company knew about the technology, the more they were willing to pay for it. OSS has been slowly moving along and there are more people with a good understanding of what is happening with it in the larger tech sector. You don't have the mindset of "who cares what it costs or what it does, we need it!" Rather, you have "what is it that we have now that we can leverage more value from by going with OSS!"
    • Bingo. Well for the most part.

      People are still lingering on to old school thinking in some respect. "we gotta use Word, our clients use Word", "we gotta use Redhat, our vendor only support Redhat". It's a matter of taking a stand and saying "our documents are available in open document format and PDF, that's all" and "we run a modern Linux distro, support us."

      When I was working at $PREVIOUS_EMPLOYER their standard line was "the vendors would have a huge support matrix if they had to support Gentoo as wel

  • Community vs. Technology??? (Score:5, Interesting)

    by MisterLawyer ( 770687 ) <{moc.liamg} {ta} {reywalekim}> on Monday November 07, 2005 @03:06PM (#13972530)
    > "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"

    What a vacuous tautology!

    The technology of open-source projects are the direct result of the efforts of its community.

    This is like saying "the key to a successful private R&D firm rests with its researchers, rather than with its research!"

    • I didn't read the quote that way. The community is far larger than the group of developers. If they had said developers were the key to financial success, your point would be correct.

      But the community - developers, testers, document writers, bug submitters, evangelists, etc has a *very* large role in a product's success. The developers aren't the only heroes.
    • I think you meant to say syllogism. A tautology is a true syllogism.

      Anyway. Technology = product, community = the driving force behind that product. I think what the GP poster wanted to say was that the product was based on the community, and not viceversa.

      A product is dead without support. There are open source products that have no support, even from their authors. Some investment could make the difference to let the project survive, and flourish.
    • The community referred to is not the group of developers who work for the financially-successful open source project, but the outside community.

      The success of a private R&D firm does not rest with the community at large outside the R&D firm.

      The point of the quote is that financially successful open source projects depend upon the actions of the outside community, and thus must act to foster participation by the large open source community. This also means that the open source project in questio

  • Short term or long term? (Score:4, Insightful)

    by UR30 ( 603039 ) on Monday November 07, 2005 @03:10PM (#13972577) Homepage
    The question of a "bubble" is as relevant for open source as for science. Is there a bubble in science? Both open source and science are based on openness and peer review. It there is a bubble, long term it does not matter.
    • " The question of a "bubble" is as relevant for open source as for science. Is there a bubble in science?"

      Please show me where I can invest my VC group's funds in "science".

      The possible bubble relates to investment in for-profit open-source based companies. And yes, there have been bubbles in "science" -- biotech comes to mind.

      People aren't investing in a field of knowledge -- they are investing in a company that operates within a field of knowledge.
  • We're the first to call the bubble!1one Other analysts PWNED!

    First off, it may be a bit premature to say that there is a bubble. The open-source movement is still an adolescent, and it remains to be seen if expected returns on investments justify the VC going in. The only people who think there is a bubble now are the people who firmly believe that open source business models aren't as profitable as proprietary software models -- which remains to be seen.

    Unrelated to that thought:
    FTA: Echoing those

  • Here's the difference (Score:5, Insightful)

    by bitspotter ( 455598 ) on Monday November 07, 2005 @03:12PM (#13972596) Journal
    There may well be a bubble forming. That's business.

    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)

    by electroniceric ( 468976 ) on Monday November 07, 2005 @03:16PM (#13972635)
    Open source may be garnerning more investment than it merits, but it's still a very small fraction of the software development market, much less the overall enterprise IT sales and service markets. So if OSS investment overheats, it will just lead to VC's being wary of investing in OSS companies for a while. Given that OSS is more a process than a particular sector or a business model, this will have limited effect on the overall march of open source, and especially open standards. In concrete terms, it would suck for JasperSoft to lose funding because hype around OSS' profit potential turns out to be overrated, but it wouldn't really stop people like Sun or IBM from moving towards open source, nor will it stop the commoditization of a variety of products by open source equivalents.

  • Bubbles take a long time to burst (Score:3, Insightful)

    by spike2131 ( 468840 ) on Monday November 07, 2005 @03:17PM (#13972649) Homepage
    So what if its a bubble. Bubbles take a long time to burst. Alan Greenspan noticed there was "Irrational Exuberance" in the stock market in 1996 - but the bubble didn't pop until 2001. The real estate bubble is supossed to pop in the US any day now.... but it hasn't yet. While I have no doubt it will pop one day - probably soon - its a fools game to try and time the thing. The thing about economic bubbles is that they last a lot longer than anyone expects they will.

    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.

    • "The real estate bubble is supossed to pop in the US any day now.... but it hasn't yet. While I have no doubt it will pop one day - probably soon - its a fools game to try and time the thing."

      As long as the expected rate of return on real estate is significantly higher than inflation, the RE market will not bust. All the fed actions to keep inflation in check will prevent a real estate bust -- apparently we learned something from the 80s.

      We're already seeing readjustments at the high end in certain ma
  • Seems like the bottom line of expected profit will determine whether a bubble will burst. Besides, what more is an economic bubble than an overvalued profit making mechanism?
    Profits don't seem to go too well with the open source definition shown here:
    http://www.opensource.org/docs/definition.php [opensource.org]
    Do and should people profit from Open Source? If so, who? and how? Why does Open Source need investment? Why do people/companies need to profit from Open Source projects? Is it inherently wrong to look a
  • Open Source is largely sucessful when there is a large enough community of quality contributers. They have seen a problem, and are trying to solve it. A company, on the other hand is management directed. The dichotomy of this problem is that an Open Source Company must have "Management" trying to direct what is essentially a community of volunteers.

    From the question on managing geeks (or coders, or cats) yesterday (?), I gather that if you take away the mouse (interesting problem) from the cats (programme
  • It seems a bubble is created when there are no checks and balances, yet when any bubble pops, that in itself is a way of balancing what is otherwised unbalanced. That said, I believe any person or other entity which receives let's say, new ability, might tend to abuse that ability at first and go through various cycles of progression to hopefully become better in the long run than at first.

    Since money, in this country at least, is a motivating factor for our capitalist society, then it stands to reason that

  • Size of bubble. (Score:3, Insightful)

    by NumberOneFan ( 811608 ) on Monday November 07, 2005 @03:24PM (#13972719)
    To quote from the article:

    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.
  • First of all, I haven't heard the tales of VCs going mad throwing cash at every tom dick and harry, just so long as they could pronounce "e-commerce". Bubbles only work if people invest in them.

    Certainly we've seen some investment in open source companies, and a bit of lively trading to control some of the commercial distros. We're still a long way from the giddy days of dot com madness. How many paper open source millionaires ("on paper", don't forget the magic words) live in your neighbourhood? Anyone l

  • Open Source Never Fails (Score:4, Insightful)

    by RAMMS+EIN ( 578166 ) on Monday November 07, 2005 @03:29PM (#13972775) Homepage Journal
    The key difference between open source and everything else is that everyone gets equal access. This means a product can never fail while there is interest in keeping it alive. Even if the party producing it quits, the product continues to be available (through the right to redistribute), maintainable (through the right to read and modify the source), and even improvable (nothing stops you from making a new, better version).

    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).

  • All the rules have changed. (Score:5, Funny)

    by dpbsmith ( 263124 ) on Monday November 07, 2005 @03:29PM (#13972780) Homepage
    If you think this a bubble, you just don't get it. This is a fundamental paradigm shift. The secret to wealth without effort has finally been found. This is totally, absolutely different from the Internet bubble, Florida real estate during the 1920s, multilevel marketing, pyramid clubs, and arbitrage of international postal reply coupons. You see, it's completely legal, because you give the government your social security number so that you can pay income tax on the fabulous wealth this system generates--guaranteed!

    This one works. You just have to dare to be great. Fire your boss and never work again! It can work for anyone. You can do it from your home in your spare time. And for $19.95 I'll send you absolutely free a valuable envelope packed full of information on how you can buy our videotype seminar series. Try it at absolutely no obligation. If you follow the simple step-by-step instructions and, after three months you are not making $2000, $3000, $5000 a month, just send a letter to our PO box or call our disconnected phone line and we will cheerfully refund your money.

  • These open source startups don't need venture capital like they used to. Servers are nearly free on Ebay, most of the software they're using is open source and free as in beer. That leaves investors standing around with their cash in their hands, not knowing what to do. There's even talk of some giving the money back to investors. This is a supply and demand issue. Too much money chasing too few ideas.

    The only money to be made in open source is in hosting and consulting which really doesn't have a hec

  • Investor's Guide to Open Source (Score:5, Insightful)

    by salesgeek ( 263995 ) on Monday November 07, 2005 @03:40PM (#13972881) Homepage
    Three very simple rules will help you:

    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.

  • Pretty Tiny Bubble ---- $144 million (Score:5, Insightful)

    by hansreiser ( 6963 ) on Monday November 07, 2005 @03:47PM (#13972951) Homepage
    Considering the impact of free software on the industry, $144 million is pretty small stuff. If a bubble that size bursts, will anyone notice? People will notice if Google goes under with their $15 billion dollar valuation based on a free service, or if the "network" television companies go under as a result of the Internet. Calling $144 million a bubble of significance is just headline hunting.

    Free software is maturing and growing still. In ten years....

    Hans

    • People will notice if Google goes under with their $15 billion dollar valuation based on a free service,

      Google's service isn't free. They charge a heap of money for ad placements. They sell access to their search engine. They sell search appliances. By all accounts, they are profitable.

      Oh, you were talking about their publicly accessible search engine? That's a loss leader so they can sell their ads. It's the same model as broadcast television. Hardly an untested model.

    • I agree, it's hilarious to think that of all areas there might be a bubble, open source is the one to be concerned about. The market value of loser Gateway Computers alone is over $1 BILLION! If anything that should demonstrate how ridiculously overvalued tech companies are on the stock market. Those are the investment disasters waiting to happen. But of course the media wouldn't dare call tech companies overvalued or (heaven forbid) a "bubble" would they? Did you hear anyone mention a stock bubble before

  • Maybe... (Score:3, Insightful)

    by EXTomar ( 78739 ) on Monday November 07, 2005 @04:08PM (#13973175)
    Bubbles happen when people oversell something. The key thing everyone needs to realize is that Open Source isn't a 'magic bullet' or a 'plentacia'. Work, time, and money, in short capital, needs to be spent to use Open Source right along with every other closed source solution. I believe in the long run for various problems Open Source is easily better investment. There are other problems where Open Source will have a hard time showing return on investment. In either event, one should never oversell the technology.

    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?

  • No Bubble (Score:2, Interesting)

    by TheIndifferentiate ( 914096 )
    Are hysterical investors acting like there is some Open Source land-grab going on like they did when the WWW was picking up? Are they again willng to burn through billions of $$$ to try to gain some sort of elusive Open Source market share? Is the Dow Jones shooting up 150 points a day with commentators pointing out that Open Source tech stocks are behind the rallying? Are the idiots-that-be talking about gambling the non-existent U.S. Medicare "lockbox" funds on the stock market again due to the strengt
  • ...wouldn't it be a "Dot Org Bubble" ??

  • One Rule in Investing (Score:2, Insightful)

    by bmh129 ( 928163 )
    Ideologies don't matter. Business models don't matter. There is only one rule. Buy low; sell high. People that pay more for something than they should because of a particular ideology are what the rest of us call fools. Don't get me wrong. I think Novell is going to surprise everybody. But I'm not going to buy Novell stock because of Suse. I'm going to buy it because Suse is going to make them a ton of money.
  • As long as the OSS community is allowed to exist, then we will continue to see projects.

    If someday it becomes too hard ( politically, via IP suits or financially, via DRM entry fees ) to have a community, then major OSS projects will dissapear and we will be stuck with mostly $ software.
  • Yet more proof people do not understand open source, let alone the principles of free software. Software and computers are not just about business - they are not simply the functions of capital and labor flow. Software is changing the way people conceive of property and value, and open source is critical to that change. Business analysts would be the last people to get this point.

    Was the printing press just about selling more books?

  • investment in open source products
    open source business model
    increase in investment
    robust business model
    key to a financially successful open source project

    Up to here I would have easily won a round of bullshit bingo. There are two kinds of Open Source projects: Community projects that grew to useful software and those started by companies that could have done it as closed source but opensourced it for some reason.

    The projects that made Open Source what it is today belong to the first class. Everybod

  • Dot-com Bubble: Revenue without products
    Open Source Bubble: Products without revenue

  • It's more efficient! Since the product's already selling for zero dollars with a margin of zip, there's nothing to inflate and there's no bubble to burst! All money can do is distort the normal market forces that operate in the reputation-and-effort-based open-source economy. Maybe that distortion will be temporary and people will talk about an "open source bubble", or maybe it'll be permanent, but it's something that's happening outside the open source community for the main part.
  • Open source was around before heavy investment, and should that investment vanish, open source will still be around. Slower, and more part-time, but still around.

  • Twice? (Score:3, Insightful)

    by Nethead ( 1563 ) <joe@nethead.com> on Monday November 07, 2005 @05:10PM (#13973847) Homepage Journal
    They wouldn't do a .bomb twice, would they? They had to have learned the first time! Oh, yeah... G.W.Bush. Never mind.
  • People here aparently have short [yahoo.com] memories [yahoo.com].

    And don't forget Corel, which was at 4 in June of 2000, announce it's Linux distribution, shot up to 29 by December with all the other Linux companies, then fell down to 3 by June of the next year.

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