For the last few years, open source was one of the major disruptive factor in tech. Open source powers world’s leading tech companies. Tech giants like Google, Facebook, Amazon and many others would not exist without open source. The success of RedHat put a very optimistic business projection on the future disruption of industry by open source. Since then, we’ve seen many companies that started their business trajectory as “Red Hat of XYZ” with the objective to disrupt a particular industry segment. Many of them became very successful in what they do. However, what happened with their “open source” messages?
My attention was caught by two articles speaking about current trajectories of companies building their business model around Open Source software. Peter Levine, partner at Andreessen Horowitz started this conversation in his – Why There Will Never Be Another RedHat: The Economics Of Open Source and ReadWrite article was following TechCrunch article – Why Open Source Is Disappearing From Open Source Companies? Have a read – good articles with lots of interesting examples and data points. According to the Peter Levine, the main reasons why open source companies cannot compete successfully with their proprietary rivals are simple – money and inability to keep stabilized roadmap development. Here are two notable passages from TechCrunch:
There are many reasons why the Red Hat model doesn’t work, but its key point of failure is that the business model simply does not enable adequate funding of ongoing investments. The consequence of the model is minimal product differentiation resulting in limited pricing power and corresponding lack of revenue. As shown below, the open source support model generates a fraction of the revenue of other licensing models. For that reason it’s nearly impossible to properly invest in product development, support, or sales the way that companies like Microsoft or Oracle or Amazon can.
And if that weren’t tough enough, pure open source companies have other factors stacked against them. Product roadmaps and requirements are often left to a distributed group of developers. Unless a company employs a majority of the inventors of a particular open source project, there is a high likelihood that the project never gains traction or another company decides to create a fork of the technology. The complexities of defining and controlling a stable roadmap versus innovating quickly enough to prevent a fork is vicious and complex for small organizations.
ReadWrite article brings list of companies started as “open source” and moving now towards different messages.
In 2010, SugarCRM’s main landing page prominently advertised itself as open source. Today? Not a single mention. In February 2009, Alfresco declared itself “the open source alternative for Enterprise Content Management.” No mention of open source on the home page today. The same goes for Acquia, the Drupal company (see 2009 vs. today), and most every other significant company that sells support or software around an open-source project.
PLM industry has their list of open source companies. You can count several product today branded themselves as “PLM open source”. The most notable, Aras created innovative model called “Enterprise Open Source”. To core part of Aras was never open sourced. However, Aras developed significant community network of supporters implementing Aras Innovator software and building applications on top of Aras core platform. Aras keeps fairly large reference customer base supporting and advocating for Aras enterprise open source strategy. According to them, it brings predictable license cost model combined with open software platform, which differentiate Aras from other PLM companies.
TechCrunch article made me think what will be the future turn in development of PLM open source? Would “cloud services” become a future strategic exit for Aras and other open source PLM companies? According to Mr. Levine, SaaS and appliance business model can be a good match to Open Source projects. Here is a formula:
This recipe – combining open source with a service or appliance model – is producing staggering results across the software landscape. Cloud and SaaS adoption is accelerating at an order of magnitude faster than on-premise deployments, and open source has been the enabler of this transformation.Beyond SaaS, I would expect there to be future models for Open Source monetization, which is great for the industry.
What is my conclusion? There is no clear conclusion today. In my view, PLM industry is still waiting for big “disruption moment”. Will it come from cloud PLM alternatives, open source PLM provided as cloud services or just service projects using open source software? Time will show. It seems to me “value” and “maturity” are two main differentiations PLM companies need to focus these days. Just my thoughts…
Best, Oleg
