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Businesses Open Source Red Hat Software The Almighty Buck Linux

Why No Billion-Dollar Open Source Companies? 487

Glyn Moody writes "If open source is such a success, why aren't there any billion-dollar turnover open source companies? A recent briefing by Red Hat's CEO, Jim Whitehurst, to a group of journalists may provide an answer. Asked why Red Hat wasn't yet a $5 billion company, as he suggested it would be one day, he said getting Red Hat to $5 billion meant 'replacing $50 billion of revenue' currently enjoyed by traditional computer companies. If, as is likely, that's generally true for open source companies, it means they will need to displace around $10 billion of proprietary business in order to achieve a billion-dollar turnover. Few are likely to do that. Perhaps it's time for managers of open source startups to stop chasing the billion-dollar dream. If they don't, they will set unrealistic ambitions for themselves, disappoint their investors, and allow opponents of free software to paint one of its defining successes — saving money — as a failure."
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Why No Billion-Dollar Open Source Companies?

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  • by number6x ( 626555 ) on Friday June 11, 2010 @09:37AM (#32534534)

    Just ask Google.

    Why should your profits go to Adobe, Microsoft, IBM, Oracle and all those other closed source companies? Look at the .com companies that survived the 'dot bomb' era. They used open source.

    Using expensive proprietary solutions is a sure way to increase your expenses and decrease your profits.

    How do you become an open source billionaire? Ask Sergey Brin and Larry Page.

  • by Anonymous Coward on Friday June 11, 2010 @09:51AM (#32534710)

    Google gets it's money from it's proprietary search engine and ad platform.

    Built on their multiple open source projects. I say.. they ARE their bottom line.

  • by petes_PoV ( 912422 ) on Friday June 11, 2010 @09:53AM (#32534732)
    You can make a few $Mil on the basis of your own hard and honest work. However to get to the next step requires the "entrepreneur" to start exploiting people, using coercion, marginally honest (I'm being polite here) tactics, restrictive contracts - in short no longer being a "nice person".

    Once you get into the $Bns you become responsible for causing suffering, hardship, using litigation and loopholes, throwing your weight around, metaphorically "knifing" people in the back and being a nasty PoS. By then any of the attributes that attracted you to Open Source have withered and died.

  • Re:Pftt (Score:4, Interesting)

    by commodore64_love ( 1445365 ) on Friday June 11, 2010 @09:55AM (#32534762) Journal

    I think you'll find the same thing is happening in the Media industry. People's ability to download movies, songs, books for free is devaluing the time and wages of the creators. The media companies won't completely disappear - they'll just earn 10-20% as much money as they did before 1999.

    It appears to me the software industry is heading along the same path, and just like the RIAA, Microsoft is fighting it tooth-and-nail because they don't want to see their income reduced.

  • by Anonymous Coward on Friday June 11, 2010 @09:56AM (#32534776)

    on as comparatively little work as many of those companies who actually make billions do, you're exploiting a monopoly or otherwise gaming the market. They're NOT doing approximately a fair amount of work with regards to what they're paid.

  • Re:Pftt (Score:3, Interesting)

    by tthomas48 ( 180798 ) on Friday June 11, 2010 @10:03AM (#32534884) Homepage

    In my office we have Windows, Mac, and Linux machines. Pretty much evenly split between the OSes. We hired a support person for Windows. So in this case, Windows is both more expensive and requires more support.

    I don't know where you get your numbers.

  • Re:Pftt (Score:3, Interesting)

    by LWATCDR ( 28044 ) on Friday June 11, 2010 @10:09AM (#32534946) Homepage Journal

    So there is less of an incentive to produce easy to use and bug free software? My company doesn't pay support for many of the programs we use. They just work and do what we need them to do.
    Honestly this is a problem for FOSS development. In the long run I have to wonder if FOSS OSs only real chance in the consumer market is through hardware makers. By not having to pay for an OS and be dependent on an OS maker they can increase profits and control.

    In the end I feel that there will always be both closed source programs and FOSS. Each will fill a need and I hope work well together.
    The zealots that say that all software must be free I feel are at best out of touch.

    Of course as far as Free as in Speech software goes I feel the real battle and enemy is NOT closed source software.
    It is software patents.
    Those must be stopped.

  • Re:Pftt (Score:2, Interesting)

    by Anonymous Coward on Friday June 11, 2010 @10:15AM (#32535048)

    Posting Anonymously for the obvious reasons... And we continue paying due to the *quality* of the support. The (mumble) millions paid annually to Redhat and Covalent is nothing compared to the (mumble mumble) millions paid to the other top ten largest software companies. It's not a fair comparison as the product categories are different, but the support from Redhat and Covalent is good and sometimes great, the support from the big guys is sometimes good and regularly worse than nothing because they waste our time.

  • by bernywork ( 57298 ) <> on Friday June 11, 2010 @10:39AM (#32535344) Journal

    Why not? There is enough government contracts and other stuff all over the world. You would end up being the size of MS to do it, but given enough time, it's plausible. As long as you don't screw up majorly and keep most of your customers happy, there is no reason why this couldn't happen.

  • Re:Pftt (Score:2, Interesting)

    by westlake ( 615356 ) on Friday June 11, 2010 @10:44AM (#32535396)

    People's ability to download movies, songs, books for free is devaluing the time and wages of the creators. The media companies won't completely disappear - they'll just earn 10-20% as much money as they did before 1999.

    What really happens is that production shifts to other markets.

    The P2P demographic is young adult male. Geek.

    Which means no more $200 million budgets for films like Iron Man and The Dark Knight.

    No more low-budget Sci-Fi in HD.

    No more Dr. Who. Battlestar Galactica. Babylon 5. Firefly.

    Disney and Pixar should make out just fine.

    The Incredibles and Wall-E have impeccable geek-cred. But more importantly a cross-over appeal that reached male and female audiences of every age.

    For the quick buck, Disney can always put out another "High School Musical."


  • Those are the same OS with different add-on bundles.

    As are Debian and Ubuntu and Easy Peasy and Mepis and Super OS. So how can the publisher of a Linux distribution make it worthwhile for companies to develop and market products specific to that distribution?

  • Re:Uh... No (Score:3, Interesting)

    by AusIV ( 950840 ) on Friday June 11, 2010 @12:13PM (#32536724)

    I disagree. I would argue that FOSS is the pinnacle of free market capitalism.

    In a free market, price is dictated by supply and demand. With software, supply is effectively infinite, so the price should trend towards zero. Only by introducing artificial barriers are companies able to profit by selling software. If you assume that the costs of development can be covered without charging for software (which FOSS demonstrates to be the case) the per-unit price of software should fall to zero in a free market.

    Also, I'm not sure I agree that the majority of people that do FOSS work do it unpaid on their own time. This may be true if you consider the sheer volume and variety of FOSS, but if you look at the most popular and widely used projects you'll see a different trend. The main contributors to the Linux kernel are paid by Novell and Redhat. The GNOME project is funded by the GNOME foundation, which charges for-profit corporations to be part of the advisory board. MySQL was funded by selling alternative licenses to customers who did not wish to be bound by the GPL. was developed primarily by Sun employees. Mozilla gets revenue from an ad deal with Google.

    I could go on, but I think I've gotten the point across. The large open source projects that typical end users interact with are funded by companies because it helps their bottom line. Certainly, there are projects run by volunteers, and there are volunteer contributors to the projects I've just mentioned, but I believe a significant portion of the work is done by paid contributors.

  • Re:Pftt (Score:3, Interesting)

    by samkass ( 174571 ) on Friday June 11, 2010 @01:29PM (#32538110) Homepage Journal

    Actually, the vast majority of their products are some combination of open and closed source. Their operating system kernel is completely open source, as is the core of their browser (which has since become the core of a large number of other browsers) and JavaScript engine. Their WebDAV and CalDAV implementations are rather nice and they've open-sourced those. They contribute quite a lot to LLVM and created clang as a front-end to it, thus giving the open source community a choice besides the gcc toolchain. They open-sourced their new "FaceTime" video conferencing implementation. Bonjour, Quicktime Streaming Server, Grand Central Dispatch (along with the blocks extension to C), and a zillion contributions to smaller projects.

    In general, Apple contributes more man-hours of development into open source than most companies that are given the "open source" label. But because they don't toe the FSF line and prefer BSD to GPL, a lot of the "free" software folks try to make it seen like Apple is some sort of draconian force in the FOSS community.

  • Re:Pftt (Score:3, Interesting)

    by dcavanaugh ( 248349 ) on Friday June 11, 2010 @01:44PM (#32538430) Homepage

    Very large companies need to have a disaster recovery plan in place, and contacts to call when downtime is costing money. Especially outsourcing or service providers.

    So far, so good.

    If you run linux in this environment, "my team knows linux" is not going to cut it.

    "My team knows Windows" is not going to cut it either.

    You want to be able to place the blame on the "vendor" as opposed to being responsible yourself.

    Wrong. You need to solve the problem. If you trust the vendors more than you trust yourself, go directly to fail. Even under ideal circumstances the "blame the vendor" excuse only works for about 15 seconds. Your employer does not view the vendor as the "last line of defense" -- you are. In the event of catastrophic meltdown, the vendor will probably survive (regardless of fault). Will you?

    So you don't modify the code, and you buy the support package.

    I wouldn't go rolling my own version of OpenOffice (or anything else). Fortunately, there is seldom any need to do this (on any platform). As for support, it's like prescription medication. If the doctor writes a prescription and the pharmacy gives you pills, maybe everything is fine. But not every health problem can be solved this way, nor is every IT issue resolved by vendor support. What happens then?

    Red Hat should be very profitable, given that, except Microsoft makes sweetheart deals with the big companies to keep them using microsoft tools. I have a full MSDN subscription, which would cost me piles of money but most likely costs my employer very little per head. I can download and use and develop with anything I want, for free. It only costs money because the production servers have to be fully licensed and legit.

    Microsoft is everywhere, so they can afford to give away freebies, charge for just the production installs, and still make boatloads of cash. If you take a look at the revenue compared to actual software usage, I wouldn't be surprised to find that Microsoft is giving away as much or more software than Red Hat. Direct end-user sales are just the icing on the cake - someone paying full price for Windows is very rare, it's usually OEM cost, which is approximately 10% of the cost.

    MS does a nifty job of shifting the cost to the end user desktop (CALs and MS Office), along with the server side (MSSQL, etc.) Agreed, the cost of MSDN is not all that much, but the maintenance on everything really adds up. Red Hat can easily undercut MS on price, as they have so many products that are created at no cost to them. MSDN freebies aside, the average Windows PC has about $500-$1000 of software on board: Windows, Office, CALs (Exchange, MSSQL, Windows itself). There is SOME money to be saved on open source licensing, but the real savings are elsewhere...

    So Red Hat's numbers are probably not far off Microsoft's numbers, it's just reported as software sales vs. support costs. And even that difference is a technicality - Microsoft still charges for support depending on what you need and where you got the software.

    Fundamentally, it's the same business model. Give lots of software away and make up for the sales losses with support charges - but with OEMs in the middle it's not transparent to the end users. Only the businesses see how the model truly works.

    To me, the final frontier is support [labor] cost. By that I don't mean the MS or Red Hat call center, but the local staff who take care of everyday operations. In many companies, an army of help desk technicians fights the daily fight with classic PC problems: user error, virus, spyware, Outlook, or (worst of all) helping users deal with the limitations imposed by the local IT department. I have worked in companies where an army of MCSEs is ready to pounce on every helpdesk ticket -- and yet downtime is a major issue on the server

The only function of economic forecasting is to make astrology look respectable. -- John Kenneth Galbraith