OS3G - Open Source, 3rd Generation

A (humble) attempt to publish news from the trenches where Free/Libre/Open-Source Software is brought to the mainstream -- and Francois Letellier's blog, too

Wednesday, September 14, 2005

Open Source Bubble Ahead?

While discussing with a consultant recently, I told him a little about the recent history of some projects in the open source middleware realm. I was struck by an recurrent trend, something he called a "pattern". Yep, this is a business [design] pattern.

I'll refrain from mentioning names so to avoid frustrating people. People frustrated from NOT getting the names can always try to drop me a line, but with no guarantee.

The pattern is roughly the following:
  1. identify a software technology that cumulates: emerging standards + fragmented commercial marketplace + few existing open source projects (enough to make sure there's some interest, not enough to make the technology outdated or commoditized)
  2. make yourself a name in an open source community. Start a project targeting the technology that you selected. Become the lead of the project, make sure you have friends at key committer positions (beer required)
  3. when you have sufficient grassroot control over the project, start up a company. Choose one of the well-documented business models to build a business case for your company
  4. Leverage your control over the project to convince VCs. Inject funding in PR and make your company well hyped
  5. when the company has burnt almost all its cash, find someone else to buy it (suit and tie, no beer). Alternately, go public.
Deja vu? Similarities with the .com era are striking. But although this pattern is not really new, but it has a couple of rather interesting specificities:
  1. grassroot communities are used as a springboard for individuals. This means that the better the community is known, the more successful the operation. "Fascination with the brand" is likely to be an unwanted effect in the medium term
  2. for the VC / investor, the situation is rather uncommon. Usually, investors are fond of buying the company and firing all the management team after a while. The deal is different if the management team is made of key committers that are well connected in the community. Better buy them a life insurance and never let them all fly on the same plane
They might make the difference, they might not. I will not jump to any conclusion so far...

posted by Francois Letellier @ 7:22 PM  

4 Comments:

  • At 10:36 AM, September 15, 2005, Anonymous Anonymous said…

    There's a big big difference. You can't start an open source company around a project that doesn't exist and have a decent community. Also, once your company goes bust, the code will still be there. So, while some VCs may lose money on bad businesses, at least at the end of the day, all the true value that was created will still be there.

     

  • At 11:08 AM, September 15, 2005, Blogger Francois Letellier said…

    Hmmm... I must admit I suspect such "differences" -- and this is why I din't jump to conclusions. Some argue that the true value is not in the code, though, for several reasons (which I agree with or nor, it's not my point here):

    - if value is in IP, where does it go when (c) proprietors either vanish or give away their rights under an OS license?

    - is value in code, or in skills? What is an OS project worth if no one is able to maintain it any more? The simple answer about "community" is a little deceptive. When the elader goes away, the community is likely to fall appart.

    - is value in code, or in standards, or in services, or in documentation, or in innovation? Is a piece of code sufficient?

    This is not to say that you [M. Anonymous] are wrong, just to express the opinion that tracking the real value is tricky.

     

  • At 8:38 AM, September 18, 2005, Anonymous Anonymous said…

    I read this and immediately thought of the ex-Mambo developer's who started their own company (JamboWorks) then forked the Mambo codeset to create a new project they control completely with the name Joomla. Gee, I wonder if they are acquainted with this theory...??? LOL

     

  • At 5:11 PM, September 19, 2005, Anonymous Anonymous said…

    I have discovered a variant of the pattern you mention when AOL bought Time-Warner.

    Well, AOL was smaller than Time-Warner, but the first one bought the second one, not the opposite. Because AOL had a lot of money in its pockets. Well, may be not real money, but Wall Street gave it a lot of power with a high stock price.

    So, I identitied the following pattern: when you have the chance to have a lot of virtual money (e.g. high stock price), try ASAP to convert it something more real (e.g. buy another company while doing stock exchange). You must have the right timing to do so. Don't wait too long, otherwise, people will question how virtual your money is, and then, problems may arise.

    The stories, you describe Francois, look quite similar to AOL/Time-Warner. Just replace 'high stock price' with 'perceived high value' and replace 'buy another company' with 'be bought'. But size matters. This factor triggers if you buy another company or if you are bought.

    Following this pattern is just like travelling within a plane. Just take off with a good idea, and with marketing, luck and good timing, you will go up to the hype stratosphere. People will then whisper how marvelous it could be to be part of such a plane. Just sell tickets. And with money you can really make the people's dream come true, i.e. go real, while, for example, buying large and comfortable seats. Something successful business sounds like a self-fulfilling prophecy :-)

    Dominique

    PS : see also other interesting business patterns here: http://eclipsecon.org/2005/presentations/EclipseCon2005_Tim_OReilly.pdf

     

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