Open Source Smack Down (Backroomed for a reason. Abandon all hope, ye who enter here.)

Forbes ^ | June 15, 2005 | Daniel Lyons

[Golden Eagle]

NEW YORK - Marc Fleury is shocked--shocked!--that IBM would use the same tactics to attack him that he's been using to attack IBM.

"Frankly, it leaves us scratching our heads," he says.

For the past two years Fleury's company, Atlanta, Ga.-based JBoss, has been stealing business from IBM (nyse: IBM - news - people ) by giving away a set of open source programs that do the same work as IBM's WebSphere software. Fleury claims JBoss shipped more copies last year than IBM did.

IBM apparently has grown tired of having a freebie program eating away at its sales. So now it is going nuclear. In May the computer giant acquired JBoss's main rival, Gluecode, which also distributes a set of open source Web server programs.

Gluecode used to make money by selling some "closed source" programs that ran on top of its free open source stuff. No more, says IBM, which intends to release the source code for all of Gluecode's programs and distribute them for free. IBM also will slash prices on service and support, charging less than half of what Gluecode used to charge, says Scott Cosby, IBM's Gluecode transition executive.

The pitch to customers is this: You get the software for free and service and support at a bargain rate. And it all comes from IBM, a name you can trust.

Cosby says IBM is just responding to customer needs. He says he hasn't thought much about what IBM's acquisition of Gluecode means for JBoss.

Fleury has, however. He claims IBM is trying to put his privately held company out of business. He is furious, but also stunned: He says Gluecode could hurt sales of IBM's WebSphere as much as it hurts JBoss, yet IBM doesn't seem to care.

"Where does this all end? When the whole deck of cards, the whole software industry, falls apart? I find it arrogant on their part that they think they can control what they've unleashed," says Fleury, JBoss' chairman and chief executive.

Poor guy. Did he not get the memo? This is what open source software is all about: creating knockoffs and giving them away, destroying the value of whatever the other guy is selling.

What's new is that now open-source companies are turning on each other.

It's not just JBoss getting attacked by Gluecode. Red Hat (nasdaq: RHAT - news - people ), the leading Linux distributor, is besieged by knockoffs of its "enterprise" Linux: the one customers are supposed to pay for. It's starting to look like one of those Quentin Tarantino movies where a bunch of guys end up all pointing guns at each other.

Fleury, talking tough, insists he is not worried about IBM. He says his software is better than Gluecode, and that IBM doesn't know how to manage a software business.

But if Microsoft (nasdaq: MSFT - news - people ), for all its billions, is doomed by the open source movement, as many open source proponents believe, then what chance does Fleury's 130-person startup stand against IBM, a company that had $96.5 billion in revenue for 2004, aims to use software as a loss leader and can absorb losses for years?

Indeed, IBM's assault on JBoss raises big questions about whether stand-alone open source software companies can ever make enough money to sustain themselves. Because their code can be freely copied, these companies can't charge for their programs. Instead, they hope some users will pay for service and support.

Problem is, most people just take the free stuff and run. Only 3% to 5% of JBoss customers buy support contracts.

No wonder no one is making any real money at this. JBoss operates at a loss, as does MySQL, the open source database company. Novell (nasdaq: NOVL - news - people ), the No. 2 Linux distributor, is losing money. After a decade of losses, Red Hat earned $45 million last year on sales of slightly less than $200 million, but 40% of its profit came from interest income rather than operations.

These companies were built on the notion that they could make knockoffs of programs sold by giants like Microsoft and Oracle (nasdaq: ORCL - news - people ) and charge only a dime where the big guys charge a dollar. That's a pretty flimsy idea to begin with. But it looks even dimmer when others come along who are willing to sell for a penny.

Even proponents like Fleury admit the open source business model is not intended to produce powerful, wealthy, massively profitable software companies.

Yet people are racing into this business, and venture capitalists keep funding them, pumping $150 million into open source startups in 2004, triple the amount for 2003, according to VentureOne.

Sounds like the dot-com bubble, except that this time it's not just investors who will get burned. Customers are taking a risk too. Because when these open source software providers burn through their venture funding and go out of business, customers will need to either hire teams of expensive techies to maintain that orphaned code or pay someone to rip out the old stuff and replace it with something new. Either way, all that free software is suddenly going to look awfully expensive.

The good news, if you're a JBoss customer, is that IBM will be there to help you migrate.

[Golden Eagle]

Will open source software lead to the destruction of all US software companies? The open source proponents better hope not, since that's where a lot of them are "forced" to work, such as the founder of Gentoo Linux going to work for Microsoft this week. According to his close associate, it was "in order to feed his family".

[cmsgop]

[thoughtomator]

The industry is just going through the usual adolescent convulsions that any industry would go through. Remember, the software industry is brand new in historical terms. Eventually we'll get to a happy medium where if a programmer can make a good product, he can make a living off of it, and if he doesn't, he can't.

[kezekiel]

Poor guy. Did he not get the memo? This is what open source software is all about: creating knockoffs and giving them away, destroying the value of whatever the other guy is selling.

Drats! The jig is up on open source. Foiled again, damn yoouuuuuuuu!

[Golden Eagle]

Something you or others may be interested in.

[ikka]

I am running on all-opensource software. Revenue increasing quarter by quarter. Uptake increasing too. What will happen is that there will be a huge amount of free stuff, but the money will be in services and recurring revenue streams, like equipment leasing, server configuration, and program customization. JBoss for instance is just a set of Java components, you still need to tie it together into a workable solution for your company.

BTW Oracle and others will probably be able to hold out for quite a while, since it takes a lot of work to produce a heavy-duty database system. Anything that requires intensive guru level design will of course take many years to be developed in open source.

[dfwgator]

The Open Source model is not different than the old Gillette model, "Give away the razor, sell the blades." In this case "Give away the software, sell the services."

[rdb3]

In this case "Give away the software, sell the services."

Or, give away the printer, sell the ink.

[kezekiel]

The Open Source model is not different than the old Gillette model, "Give away the razor, sell the blades." In this case "Give away the software, sell the services."

Sure, if it works. I actually believe more strongly in open file formats. Do I care if my word processor is proprietary? No, as long as they don't own the file format my data is in. I think I part company with open source ideologues on that point.

[ThinkDifferent]

Yep, it's all been downhill for the software industry since gcc and Apache and Perl.

[Golden Eagle]

The industry is just going through the usual adolescent convulsions that any industry would go through. Remember, the software industry is brand new in historical terms. Eventually we'll get to a happy medium where if a programmer can make a good product, he can make a living off of it, and if he doesn't, he can't.

I can't think of any other industry in history that was faced with the growing competition of something free, and backed by a radical worldwide movement that wants to see laws like our existing patent laws overturned to further their goals of making all software free. Maybe there will eventually be "a balance", but not if people like Richard Stallman get their way.

[Golden Eagle]

What will happen is that there will be a huge amount of free stuff, but the money will be in services

So instead of the age old "sales and service" model, the new plan is you make your money on "service only". I don't see any room for research and development in that model, not surprising, since open source clones are more about copying the work of others than coming up with anything original on their own.

[Golden Eagle]

The Open Source model is not different than the old Gillette model, "Give away the razor, sell the blades."

Really, you get free razors? I sure never have, could you tell me where I might could pick some up?

[Doohickey]

Novell (nasdaq: NOVL - news - people ), the No. 2 Linux distributor, is losing money.

Novell: Where good software goes to die.

[phoenix0468]

The major gripe directed at for profit software development firms is that they are not very proactive in terms of support for their products. For many software vendors the top concern is getting the next version out so that they can discontinue support on the grandfather version. This is a fact of commercial software companies and it is why the open source model is more efficient and fair to the consumer. If software development firms open sourced their software, they could create an entire new industry of third party support and services. Also, their are some open source models that can protect code that these firms develop. This would allow commercial vendors to focus on development rather than support and updates. We all know the story of MS's next OS being back roomed because of security and stability issues with XP.

Support and service could be much more reliable and much more effective if more companies used open source models. Heck, even Bill Gates relented a couple of years ago when some of the code for the NT kernel went public. Now there is a good deal of Windows NT code that is available. But, you won't see a third party version of Windows any time soon because their code is protected by copyrights and patents. I don't see that as a bad thing, as any company should have the right to protect their inventions.

But you don't see Ford, or Chevy, or Honda welding their vehicles hoods shut in fear that some upstart will reverse engineer their products. You can find automotive service stations in every town in America. Yet with your computer, specifically software, you can usually only speak to the vendor about issues. In some cases the support personnel are either uncaring or just plain ignorant of their product. I have had support technicians tell me, "just upgrade to the newest version and it will solve your problem." This is very counterproductive to any business.

Software vendors could benefit from the open source model. They could cut support and service costs by allowing third party vendors access to the code. They could also cut development costs because the stake in the company's software would be more valuable. The third party support and service vendors could have a better perspective of their clients needs and desires than a giant like Microsoft could. And this would result in more relevant updates to a newer version. It would also mean that the software you buy today may just still be in use several years from now, and not replaced every two or three years.

[Golden Eagle]

In this case "Give away the software, sell the services." Or, give away the printer, sell the ink.

Wow, so not only will I soon be getting free razors, free printers too! Just tell me where to pick one up, it should make a great father's day present.

[phoenix0468]

Man sometimes I think that jig is worse than the hotdog and bun manufacturer scam, LOL.

[proxy_user]

I thought the article was going to say they were opening up WebSphere.

Well, at least you can download it and learn it for free. One guy at my office has done so. He says it's simplicity itself compared to the Oracle 10g AppServer stack we're using at work.

[phoenix0468]

I have to agree with you on allowing code to be patented or even copyrighted. It is the hard work of either one very bright, or a large group of very bright individuals who's stake can be enormous.

Developers should have the right to protect thier products (applications) and inventions (source code).

One very valuable aspect of software design that laymen aren't aware of is the modular aspect of software design. A module from one application could be used in the development of many others. This makes some code modules much more valuable than others. It can be akin to aftermarket items for cars. With open source, you could buy an application from one vendor, then, if it is needed, you could add a code module from another vendor to enhance that application to meet your companies needs.

Open source has many more benefits than drawbacks.

[Golden Eagle]

"Give away the software, sell the services."

Wonder why the Gentoo Linux founder had to go to work for Microsoft this week "in order to feed his family" then? No profitable market for his services?