Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Adapt or die--the choice facing the open source movement

Posted by Tom Foremski - February 17, 2006

. . . a potential solution to the acquisition of the commons.

By Tom Foremski for SiliconValleyWatcher

Open_Source.jpgCan Larry Ellison be stopped? By which I mean could Oracle shut down the fledgling open-source software movement through a series of acquisitions??

Consider this: This week, (not) coincidentally with the open source conference at the Argent Hotel in San Francisco, Oracle announced the acquisition of Sleepycat, an up and coming open source database; MYSQL said Oracle tried to buy it; and industry insiders are saying the acquisition of JBoss by Oracle is imminent.

In one fell swoop, Oracle has drawn a square around the most active and interesting parts of the open source movement--the databases and tools. These are the platforms for applications. Applications are just skins on the database--if you own the database (Oracle) or access to the data (Net Apps) you are in the sweet spot.

Oracle isn't going to lose its customer base to challengers such as MySQL or Sleepycat. But it will lose some of the new IT business. And there is some new IT business out there--but it is all heading for open source. Become.com for example, a very successful shopping comparison web site--all runs on open source. And I cannot tell you how many startups have told me: All our IT is open source we don't pay a penny in license fees to anybody.

If you don't have a legacy requirement to run Oracle, you won't. It's as simple as that; and it's why Oracle wants to remove this option. Because it's not just the startups, it is also enterprise IT departments, that are now comfortable with using open source. That's a huge chunk of lost business if even a small number of Oracle's enterpise customers choose open-source equivalent products.

Oracle could lose tens of millions of dollars in new business from just a handful of large customers in a single quarter. It costs less than that to acquire these small, privately held companies.

Even if Oracle paid a very high multiple for one of its open source challengers--it would still be ahead of the game. The ROI on paying a few tens of millions to acquire an open-source company would be stunning. Oracle would make its ROI in just months--because its potential loss of business would easily outweigh its acquisition costs.

It is a no brainer for Oracle. In fact, Oracle would be negligent in its fiduciary duties to its shareholders--its legal duty to maximize its profits and value--if it did not pursue such an obvious strategy. Oracle's duty is to defend itself against disruptive innovation.

However, I think there is a way that the open source movement can protect itself from the last gasp Darwinism of the 20th century.

To save the open source movement from acquisition by commercial interests I propose that open source companies adopt a Grameen Bank-type organisational structure. It is a corporation with a Not-for-Loss charter in which all customers are automatically shareholders, and also the developers within the open source communities that develop these products become shareholders.

I don't know what the right mix of shareholder rights and awards would be but it would prevent the selling off of the open source movement, imho. The shareholders would never agree to a commercial aquistion by default.

And it is not as if the geeks and customers will get rich by being shareholders--they won't--because it prevents a market from forming in the M&A open-source sector. If you don't have a market you aren't able to sell out.

If there is no effective M&A defense, then it will become very difficult to recruit a developer community. Without a developer community you have none of the open-source benefits.

So all you VCs thinking you can invest in open source companies and sell them to Larry--think again. No developer wants to work free for Larry--which is a very real future scenario.

Work hard now and then Oracle acquires the project? No way, it ain't going to happen. Where is the glory of working on an open source project when eventually Oracle reaps the benefits?

I'll say it again: In one fell swoop Oracle drew a square around the open source movement and unless it can prove that it can remain independent--it is a dead movement. Unless the open source movement reorganizes to meet this challenge it will dwindle and become an interesting footnote in the history of the computing industry.

But if it can meet the challenge, then the open source movement has the potential to become one of the jewels in the crown of humankind--it has the potential to become one of the most valuable collective projects since the pyramids, the industrial revolution, and now: enabling the collaborative revolution.

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Here is some more of my reasoning . . .

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