Big Money and Open Source May Not Compute

SAN FRANCISCO — For more than a year now, there has been an ongoing debate among bloggers and industry observers over one simple question: ‘Where are the open source billionaires?’ Why have we not seen a GPL Bill Gates or Larry Ellison?

The view here Monday at the CommunityOne conference, an open source gathering in advance of Sun’s JavaOne confab, is that the industry is still young and has not yet reached its earnings potential.

Until it does, the open source community is living off mom and dad. In this case, that would be Google, IBM, Sun, HP and other vendors that keep most open source programmers employed. Even Red Hat (NASDAQ: RHAT), the largest of the open source vendors, is dependent on Tier One hardware vendors, particularly IBM (NYSE:IBM). Of course, so was Microsoft in its early days.

Indeed, it’s been that way for a while. Linux creator Linus Torvalds first worked for chipmaker Transmeta, and now is with the Linux Foundation, which is funded by IBM, HP and others. Sun has hired Ian Murdock of Debian fame, snapped up JRuby and Python developers, and bought MySQL.

Take away the contributions of IBM, HP, Sun, and SGI, and Linux suddenly loses a lot of enterprise-level features.

And the community really owes Google (NASDAQ:GOOG) multiple debts of gratitude. The company is built on open source software, but makes its money from ad and search revenue, not the sale of open source software. Still, Google gives back in many ways. The search giant employs a large number of open source developers, who are able to work on their projects while gainfully employed in a company that, to put it mildly, faces no imminent financial danger.

Also, Google is the single-largest source of income for the Mozilla Foundation because it buys placement via the Mozilla startup page. According to Mozilla Foundation records, 85 percent of its $66 million in 2006 income came from Google.

So how much longer will the open source community need to lean on the likes of Google/IBM/HP/Sun? A while, some open source advocates admit.

“We have an ambition to be completely free and open source and at the same time, we have an ambition to stay in business,” said Marten Mickos, senior vice president of the database group at Sun and former CEO of MySQL, during a morning roundtable at CommunityOne.

An industry ‘just out of college’

There have been some arguments that there will never be “open source billionaires,” but there will be firms built on open source that achieve great success — Google arguably being a prime example.

But there may never be another Microsoft or Oracle because stand-alone, independent software vendors seem to be falling out of favor, at least among the venture funds. Sun CEO Jonathan Schwartz told that there is no interest in standalone ISVs from the venture firms lately. Instead, the emphasis is on platform companies like Facebook.

For companies in open source, many think they are still in the early stages of development.

“We’re just out of college as an industry, as far as lifespan goes,” Neelan Choksi, chief operating officer for SpringSource, said later during a lunchtime conference. “We’re not going to reach our full earnings potential until we get into our mid-thirties, figuratively speaking.”

Part of the problem is that open source companies simply don’t live for the high margins that made closed source software companies grow so rich. “We’re the fastest growing database in the world, but we’re still one of the smallest and we don’t have [Oracle’s] margins,” Mickos said. “It can be done, we can grow to their size but it will take longer.”

A lot of open source firms have asked users of the software to give back with either “code or cash,” as Mickos put it, and many chose code. That’s great for the software but doesn’t pay the office rent.

So the relationship with bigger, profit-driven companies will continue for the near future. “If that means working with commercial companies, we will do it,” said the former CEO whose company was just bought by Sun for $1 billion. He compared open source firms working with commercial companies to using salt in food; salt is good for flavor but not healthy to live on.

Update clarifies Linus Torvalds’ current employment and adds comments from Schwartz.

News Around the Web