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Wednesday, April 27, 2005

Commercial open source: a magnet for venture money (part 2)

I read an interesting article this morning on CNET that complements a story I posted earlier this month. Here are some highlights to take away from it:
  • It confirms that open source is driving the creation of start-ups that are attractive to VCs and the space is getting hotter by the day.
  • It warns readers that it’s not all that rosy, we’ve seen in the past open-source companies go belly up and burn huge amounts of money. In 1999 and 2000, according to VentureOne, venture capitalists invested $714 million in 71 open-source companies. Most of those projects collapsed. A big difference between then and now is the increased adoption of open-source software by corporate users. In addition to that successful companies like Red Hat (with $125 million in revenue in 2004 and a market capitalization around $2 billion) bring some credibility and peace of mind needed to help the adoption of open source stacks in Fortune 2000 organizations.
  • Marc Fleury (CEO of JBoss) is a bit worried that so many companies are getting funded without necessarily having a serious business; he said "I cringe a little bit when I see some of the companies that are getting funding. I worry it will give us all a bad reputation in a 1999, 2000 way."
  • One of those companies is SugarCRM which offers a model like Salesforce.com with a free open source CRM system as well as a professional version for $249 a year per user. SugarCRM convinced 100 customers to sign up for the professional version. It would be interesting to see where they are in 3 years and if they threaten the Oracle and Siebel of the world (at least for small and medium businesses).
I have one observation related to Fleury’s comment. I am not sure what he meant by that. I personally see most open source based businesses no different from commercial vendors. There are good ones and there are bad ones. So many commercial software start-ups die everyday without necessarily affecting Oracle or IBM’s reputation? What do you think?

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