Thursday 28 August 2008


The romantic lore about the open source movement sometimes hides the fact that there are business models out there attempting to cash in on the freely available (and modifiable) software programs. The iffy state of the business side of the open source world was discussed in an August 18th article that appeared on the online service of Business Week magazine. Entitled "Open Source: An Open Question for Red Hat and Others," the article discussed a variety of points worth mentioning.

Since Red Hat is widely identified with the business side of the open source world, let's begin with it. The good news is that Red Hat saw a 32% increase in quarterly sales for the most recent period, to $157 million dollars. That translates into a 7% increase in profits. So why the bearish position of Wall Street analysts about Red Hat? According to the article, the bears on the Street continue to express concern about the slowing growth rate of the company.

At least two major reasons are cited for this sluggish growth. First, companies like Red Hat are more tech-support companies rather than purveyors of must-have technology. Second, brand awareness of their products remains low, apparently even so for a company supposedly as well-known as Red Hat.

So is anyone making out like a bandit in the open source space? Surprisingly perhaps, the article suggests that the winners are the traditional high tech goliaths--such as IBM, Hewlett-Packard, Oracle and Intel. Their success is based on taking advantage of the desire of companies to make increasingly lavish (and free) use of open source products by selling these companies complementary hardware, databases and consulting services to the open source products.

For instance, IBM sells billions (yes, billions) of dollars of hardware, middleware and services that are connected with open source programs. Oracle, the database giant, has made Linux a lucrative platform for its products. And the list goes on.

The bottom line here is the painful truism that, for open-source companies, just because their products enjoy large markets does not not mean they are currently enjoying commensurately large commercial success. Linux is free, IBM software is not. Guess who wins commercially, at least for the present. Investors and Wall Street are paying careful notice.

The bears on the Street are taking notice.

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