7 ms·

Why Open Source Startups Fail

167 points by simas 11y ago

shadeless 11y ago
This article made me realize that I don't know of any open source startup which got acquired for a significant sum of money. Can you name some that did?
- kriro 11y ago
  MySQL, 1 billion USD (2008).
  - stevewilhelm 11y ago
    By Sun Microsystems http://web.archive.org/web/20110718044718/http://mysql.com/news-and-events/sun-to-acquire-mysql.html http://web.archive.org/web/20110718044718/http://mysql.com/n...
    - giancarlostoro 11y ago
      They bought it out yes, but the guy forked it and now develops MariaDB, which a few OS' have switched to after the Oracle take over. I'm sure he's enjoying still working on his project.
      - M8 11y ago
        A valuable lesson to those buying OSS companies.
        rbanffy 11y ago
        It's a lesson for those who want OSS companies for the wrong reasons. I am quite sure had Oracle agreed to fund the development of MySQL into the Oracle RDMS killer it may eventually become, the fork would not happen. If I were Monty, I'd try to sell MariaDB to Larry Ellison for a billion dollars.
      - DonHopkins 11y ago
        A valuable lesson to those buying OSS companies with the intention of destroying the competition to their core product.
        giancarlostoro 11y ago
        There's another side: IF the company does a great job, the OSS project becomes much more fruitful, however, if it doesn't do much of a great job, well you end up with MariaDB vs. MySQL and LibreOffice vs. OpenOffice (not sure they haven't bothered to merge). At least the GNU does what it was intended to do, stop companies from hijacking / buying out a software product and getting rid of it entirely.
        rbanffy 11y ago
        I hope they never learn that lesson. Phineas Barnum was right and we can use the money better than Larry Ellison. At least, we can use it to build nice things for everyone to enjoy.
- onion2k 11y ago
  That's a very limited definition of "fail". If a company opens it's product, runs successfully for years, builds something people actually use, and eventually shuts down leaving a legacy of a piece of useful software, then that isn't really a failure. The investors would probably consider that business to have failed, in the sense that their gamble didn't pay off, but that's their problem. We don't have to think like investors.
  - danielweber 11y ago
    It's a failure if any founders or employees took equity in lieu of significant salary. Within the past year I had the experience of "oh, you wrote X? We used that all the time at my last company!" "So will you hire me." "No."
- sigi64 11y ago
  www.gluster.org - https://www.redhat.com/promo/storage/press-release.html https://www.redhat.com/promo/storage/press-release.html - $136m
- cozzyd 11y ago
  Look at what RHEL acquires
  - celebdor 11y ago
    RH acquires non open projects very commonly. It's after they start the acquisition that the closed products go open source.
- edwinnathaniel 11y ago
  JBoss by Redhat, $400m. SpringSource by VMWare, $382m. SuSE Linux AG by Novell, $210m. Trolltech (Qt) by Nokia, $153m.
- boulos 11y ago
  JBoss; acquired by RedHat for $420M in 2006 (http://en.m.wikipedia.org/wiki/JBoss_%28company%29 http://en.m.wikipedia.org/wiki/JBoss_%28company%29)
- bch 11y ago
  Cannot speak to the $$, but CUPS was purchased by Apple[1] [1] http://iphone.appleinsider.com/articles/07/07/12/apple_acquires_cups_modular_printing_software http://iphone.appleinsider.com/articles/07/07/12/apple_acqui...
- declan 11y ago
  There was Cygnus Solutions, which I believe maintained GNU software (debugger, binutils) and contributed large parts of gcc. Cygnus was bought by Red Hat for $674M in 1999. HN folks may recognize EFF board member John Gilmore as the founder.
  - fulafel 11y ago
    Cygnus were the go-to company for GCC/GNU related work for hire, like doing compiler toolchain and support for your new embedded platform/new cpu. Even the name was a recursive acronym, like GNU: "Cygnus, Your GNu Support"
  - DonHopkins 11y ago
    And also Michael Tiemann (now at RedHat), and David Henkel-Wallace (now at Technical Illusions, making CastAR). Their slogan was "We make free software affordable". (In answer to the anti-slogans: "Free software: more expensive than money" and "Linux is only free if your time is worthless".) I asked David if they named the company "Cygnus" after grepping /usr/dict/words for "gnu". He answered no, because if they'd thought of doing that, they would have named it "Wingnut".
    - juliangregorian 11y ago
      Funny, but "wingnut" doesn't actually appear in /usr/dict/words
      - DonHopkins 11y ago
        The funniest thing is that David shot that back without missing a beat, with a perfectly straight face, and a somber tone that suggested he deeply regretted the missed opportunity. Did you know that the word "gnullable" wasn't in /usr/dict/words either?
        juliangregorian 11y ago
        Yup, because I took 0.2 seconds to actually grep /usr/dict/words for "gnu" just recently.
- ifdefdebug 11y ago
  The problem here might be that those startups, at the time they got acquired, were not perceived any more as startups.
- cageek 11y ago
  $2.7 Billion dollars: snort -> sourcefire -> Cisco http://www.networkcomputing.com/careers-and-certifications/cisco-buys-ips-specialist-sourcefire-for-$27-billion/d/d-id/1234312 http://www.networkcomputing.com/careers-and-certifications/c...
  - danielweber 11y ago
    Sourcefire significantly clamped down on the openness of Snort. Pushing out new versions with less-free licenses, and changing the alert format regularly. NB: I'm not saying they were wrong for this, because they've got to make money.
- nullrouted 11y ago
  XenSource --> Citrix $500 million Zimbra --> Yahoo $350 million Sleepycat --> Oracle Revolution Analytics --> Microsoft
kluck 11y ago
This could be simplified: A company needs something that cannot be dublicated using a significant effort. A company that releases their source code to the public really _has_ to build up some knowledge in their domain (because the public source can be easily dublicated), while another closed source company gets away with just selling their product.
- hyperpallium 11y ago
  Bit of a tangent, but I think most closed source products are pretty easy to copy. What can't be copied is the headstart. If they keep on advancing, they'll retain it. And if customers want those advances - not overshooting - then they'll win most sales. (Though your point still stands, because open source gives away the headstart.)
- plantbased 11y ago
  "I want to believe." ~Poster on Mulder's wall. You can interpret "get's away with" as "makes better business sense". On a slight tangent - in the infosec space those with closed source products (e.g. WAF's) laugh at those with open source products when it comes to the numbers of embarrassing and business-damaging zero-days reported. Closed source rocks if you're a capitalist. Those who sell closed source love that open sourcers are so distracted by singing-it from the mountain. ~From a guy who runs a not-that-small open source biz.
  - Tiksi 11y ago
    > in the infosec space those with closed source products (e.g. WAF's) laugh at those with open source products I would imagine open source has more reported zero days because, well, the source is open and auditable. I do see a lot more closed source in the info/app sec space, but I suppose if you know that space well enough, the source code is just a bonus to seeing how the program works, not a requirement.
  - shmerl 11y ago
    > in the infosec space those with closed source products (e.g. WAF's) laugh at those with open source products when it comes to the numbers of embarrassing and business-damaging zero-days reported. Because no one reports theirs? It's not a good reason to laugh if you think of it.
firasd 11y ago
This is a good article but I think the focus on “the IP-based product playbook” vs “the ecosystem-based services playbook” exposes an issue without making it explicit: that these are very different kinds of businesses. Maybe the swing-for-the-fences returns VCs are looking for are not possible in businesses that have such a large services component because of the inability to scale up quickly.
ralmidani 11y ago
I am working on a Free Software startup. What I think makes it unique is it caters to an underserved market, and customers in that market usually don't have the resources to implement our solutions themselves. Of course, respecting our (potential) customers' freedom and not withholding knowledge means we have to be innovative in areas other than technology such as marketing, sales, and support. And if we cannot keep customers happy, another company can eventually come in and compete with us by offering better service and/or lower prices. Edit: fixed a typo.
- davidw 11y ago
  > means we have to be innovative in areas other than technology such as marketing, sales, and support. And if we cannot keep customers happy, another company can eventually come in and compete with us by offering better service and/or lower prices. Building a company is hard enough even if things are "simple" in that someone pays for a good or service. It becomes much harder if you have to innovate in multiple ways. That is why it is so difficult to do open source companies.
  - ralmidani 11y ago
    Paul Graham advises companies to do things that don't scale: http://paulgraham.com/ds.html http://paulgraham.com/ds.html Respecting your customers and building meaningful relationships with them can, in some industries, be disruptive. For a company truly committed to user/customer Freedom, the respect part should come naturally. And if you view Freedom-respecting technology as being part of an ecosystem rather than something developed in a silo, it is easier to overcome the apparent efficiency and simplicity of the proprietary business model.
    - davidw 11y ago
      "Doing things that don't scale" is great advice for people whose first inclination is to automate everything with code, and not do 'people' stuff. Ultimately, though, you've got to be able to work "on" the business, and not in it, as they say. And that means doing things that "scale" in some sense. If you aim to keep the business small, it means doing things that let you remove yourself from the day-to-day operations of the company.
agibsonccc 11y ago
We're going with the open core model ourselves. In our case focusing on commoditizing our competitors by giving away the algorithms while at the same time enabling companies to build their own solutions. One interesting aspect of open source is the pitch for enterprise. It aligns your business model with the consumer's needs and if it's close to data (storage or analytics) the risk of a company going under or getting acquired doesn't leave them in the dust (ala apple/foundationdb) Open core (like cloudera worth 4x horton) allows for the best of both worlds where you don't leave your customers locked in but you can still get licensing fees for added layers on top. Edit: Let me clarify a bit. Open core is for company's who just want to pay for solutions also allowing them to serve companies who want to build their own infrastructure. There's some amount of lock in with open core, but if the core infra is open source it still allows the customer an easier migration path. In our case we went with an apache license for the core tech and sell a layer on top that allows for easier deployments. While open source startups are rare I think it's critical for core infrastructure to be open source.
deleted 11y ago
[deleted]
rushabh 11y ago
Along with building customer engagement it is important to build a brand. The brand becomes a gateway to other services like certification, training and consulting. For an open source OEM, a brand is obvious, but for a community player, it is not so intuitive. The brand is built by focusing on contribution, good writing (blogs, articles etc) and showing visibility on the forum. Like the OP mentioned, you cannot be too invested in the IP as a non-core player.
- agibsonccc 11y ago
  That's been huge for me as well. Speaking at conferences and writing my book over the past year has been a great entrance in to getting business. It's really paying dividends.
velox_io 11y ago
You could switch "open source" with "zero-revenue business model" (not quite as catchy). This is something unique to startups, who can raise huge sums of money (with insane valuations), yet have no revenue model. Having no revenue stream can (and has worked) for many startups, but it is incredibly risky. How long you can keep going until the money/ luck runs out is massive uncertainty (there's enough uncertainty as it is).
- bonzini 11y ago
  The obvious answer would be that you are not trying to raise money, but you are building a one-off "work of art" that will sell for million dollars. That gives an idea of why such a a zero-revenue business model makes some sense, but also gives an idea of why it's incredibly hard to make it work.
- Udo 11y ago
  Fundamentally open source companies and no-revenue model companies are very different, I think it's a mistake to lump them together. The defining trait of a no-revenue company is the investors' confidence that massive revenues or at least a bombastic acquisition will come further down the line. This model does not work for open source companies, because the "figuring out how to make money later" step typically can't happen without a massive pivot (whether it's all that likely to happen with your typical no-revenue company either is open to debate). Maybe the break-even point in open source companies tends to come at a later point, but the path to revenue needs to be baked in from the start. Typically, switching on a revenue generator later will require more than just putting some ads up on the company site, so if massive changes are required to make that happen you must include those plans in your DNA from the start. Open source and zero-revenue companies share the assumption that reach and influence can be translated into money, but when running an open source company the nature of that reach has to be designed more carefully.
MCRed 11y ago
Several times I've seen VCs force the shutdown of consulting businesses in companies to make them "focus" on the product. This is an example of where VC's interests and the companies are not aligned and VCs are pursuing short term goals. Specifically, they often "request" this be done well before a term sheet. If the company complies then they start running out of cash, making them more dependent on the VC money and less able to negotiate terms. Further, it's a mistake. These companies were using the income from other companies they were consulting for to build out the product. It's like free development. You get your engineer time paid for, and make a profit on it, and much of the work goes into the product side of things. All you need is to take some of those profits and build up a separate team that is focused on productizing the core product. IF you do it right, you can bootstrap and never need to take VC funding. Either way, a successful consulting business extends your runway. The claim about lacking focus is BS. Because the consulting- if being done right-- is in the exact area where the product is being built. You know what takes focus away? Running the senior management team all over the country or the valley talking to VCs who are mostly going to waste their time because they don't have the balls to say "no"... looking for the 1 in 100 that will invest in the company. I've seen this many times. If you're able to secure consulting for your company and it's in the core area of what you want the company to do long term, do it.
- kluck 11y ago
  I agree. A good VC is in for the long term and building knowledge (the kind you can base a consulting business on) is definitely a long-term goal. Also I am all for bootstrapping and not beeing dependent on VCs at all.
  - rbanffy 11y ago
    I wouldn't marry a person who's in for a quick exit ;-)
- ig1 11y ago
  You're mistaken about why VCs want firms to focus on product rather consultancy, it's not for the short-term as you suggest but rather the long term. Time spent on consultancy today gets you revenue today but time spent on product gets you revenue tomorrow. Focusing on product rather than consultancy is the long-term play because you're focusing on what maximizes your value 5-10 years down the line rather than what pays the bill today. The big difference between consultancy and product based development is that with consultancy you're building what the individual customer needs rather than building what your product needs strategically in the long term (if they're both the same thing that great but doesn't happen that often in practice). There's also a distinctively different mindset between product and consultancy companies. At a consultancy the consultants are seen as the revenue generators and the product developers as a cost base; at a product company developers are seen as revenue creators. It's easy to underestimate the cultural impact that has on companies.
vgabios 11y ago
Some open source startups fail because they are non-scalable service companies deluding themselves that they are product companies. Furthermore, they do not own enough of any durable advantage (IP, talent, mindshare), and so multiple "product" companies pretend to not compete while offering similar services in a niche that does not have that much demand. Furthermore with FOSS, most potential customers are often politically incentivized to poach upstream code and talent, give nothing back and eschew overpriced "consulting" services entirely. So it's almost always the wrong business model, unless you dominate it. (I've plenty of enterprise FOSS consulting to realize there are easier ways to make much more $/time, like enterprise startups that are product companies. Also, PGs essays about "consultingish.")
- raincom 11y ago
  Yeah, you are right; look at companies in the hadoop eco system: cloudera, hortonworks, mapr. They are just burning the cash; most of the money comes from the services/consulting. This will succeed if one dominates the sector, the way Redhat does in the area of enterprise linux.
- Fomite 11y ago
  I think this is a big part of it (from someone who has considered a consultancy). These aren't necessarily hugely scalable, which isn't a problem unless you are looking to be a big hit...which is exactly what VCs are aiming for.
waterisnewcloud 11y ago
I worked at Cloudscaling for several years. It seems like this article simplified (actually complicated, read on) the issue too much by truncating it into its two "playbooks." I think the first thing that needs to be argued properly is why open source startups need to be analyzed differently from other startups. If you have a feasible (scalable, sustainable, etc) business model to make money with using open source software - say by deploying it and supporting it - then that business model can be judged by the same criteria as other startup's business models. The issue of productizing software which several OpenStack companies have attempted is part a basic part of their business requirement for scaling - because supporting dozens of heterogeneous deployments is impossible with reasonably sized engineering & support teams. This article implies that Cloudscaling used the first playbook. It did do the items listed on the first playbook, but it also did all of the ones on the second playbook too (though, while being a smaller startup didn't contribute as much code back to OpenStack as some of the larger companies/contributors). Creating new success formulas - like these "playbooks" - ignores what we know to be true about the success of many great startups in our midst. There are patterns behind that success which are consistent. These patterns and factors have been written about extensively by folks like Paul Graham, Eric Schmidt, and the like. They rarely synthesize new complexities or factors when talking about what creates success. What they do is go back to basic principles. However, the data to analyze failed startups well enough to determine which fundamentals were lacking is rarely available - so we make stuff up. Company culture is a big one - and it may or may not have had a significant impact on Cloudscaling.
waterisnewcloud 11y ago
I worked at Cloudscaling for several years. It seems like this article simplified the issue too much by truncating it into its two "playbooks." I think the first thing that needs to be argued properly is why open source startups need to be analyzed differently from other startups. If you have a feasible (scalable, sustainable, etc) business model to make money with using open source software - say by deploying it and supporting it - then that business model can be judged by the same criteria as other startup's business models. The issue of productizing software which several OpenStack companies have attempted is part a basic part of their business requirement for scaling - because supporting dozens of heterogeneous deployments is impossible with reasonably sized engineering & support teams. This article implies that Cloudscaling used the first playbook. It did do the items listed on the first playbook, but it also did all of the ones on the second playbook too (though, while being a smaller startup didn't contribute as much code back to OpenStack as some of the larger companies/contributors). Creating new success formulas - like these "playbooks" - ignores what we know to be true about the success of many great startups in our midst. There are patterns behind that success which are consistent. These patterns and factors have been written about extensively by folks like Paul Graham, Eric Schmidt, and the like. They rarely synthesize new complexities or factors when talking about what creates success. What they do is go back to basic principles. However, the data to analyze failed startups well enough to determine which fundamentals were lacking is rarely available - so we make stuff up. Company culture is a big one - and it may or may not have had a significant impact on Cloudscaling.
ig1 11y ago
Techcrunch is somewhat behind the curve here, ever since IBM started undercutting RedHat on support and stealing their customers open source companies have stepped away from having consultancy as their only form of revenue. Modern open source based business tend to be about network effect and building ecosystem business (Android, Github, Docker). (I wrote a blog post on this a while back http://blog.imranghory.org/open-source-business-models http://blog.imranghory.org/open-source-business-models)
- mpdehaan2 11y ago
  "ever since IBM started undercutting RedHat on support and stealing their customers open source companies have stepped away from having consultancy as their only form of revenue." This hasn't really been Red Hat's only form of revenue, generally it's been subscriptions + qualified builds, etc, they've had proprietary software from time to time too. Red Hat Network and "getting the bits quickly", also. Though it always seemed to me a large chunk of business revolves around banks, with major needs in areas like realtime, needing access and changes from some of the very strong kernel developers Red Hat typically employs. Smaller companies won't need support, banks are mandated to require it, and have very technical needs. This isn't "how do I chown", it's often very specific performance/timing/hardware related things. While things may have changed, I remember Oralce making some noise, but not really getting any traction, and I don't really think IBM was a big predator in any case. Customers would know they didn't have the specialization. Anyway, if I had to use a broad brush, Red Hat support is more key to Red Hat than consultancy - but yes, though they produce lots of products, they aren't a product company. I think Red Hat is somewhat unique in this regard, as they are one of the few that HAVE scaled that way. Nebula seemed to be a product company, but it may have been true that their products required too much hand-holding to scale.
- sytse 11y ago
  GitLab CEO here, regarding GitHub, hosting open source is not the same thing as being open source.
  - ig1 11y ago
    Sure but they're based around commercializing an open source product (Git).
mpdehaan2 11y ago
This article wasn't really so much about it's headline, but someone in the same industry saying "we are not also in bad shape". I suspect to answer the actual headline "The Real Reason Open Source Startups Fail", is pretty much why all companies may fail - PLUS the possibility that their paid component is not sufficiently compelling or that while their open source piece is compelling, they have trouble competing iwth their open source component or are becoming too services heavy, which can cut into margins. It seems the article tries to claim Nebula wasn't "operatioanlly excellent", which is something a competitor would naturally say, but Nebula was trying to make a proprietary "appliance" approach to wrapping OpenStack (apologies if I've mistranslated this) - which I think might have just been too weird. And that's a reason any company can crash - the product idea was perhaps not something the market wanted. OpenStack, increasingly, is one of those things large companies are interested in, and if you have a large team of people to wrangle OpenStack, you likely need more flexibility, and want to put the components together yourself. So were they making OpenStack for the little guy? Probably not, and OpenStack for the little guy is a bit of an oxymoron. It's pretty hands on. I can see where they'd have problems, and I also think it's likely is that there aren't a lot of OpenStack customers - but there are some very very large ones, so it's a huge fight to get someone to pay you - and not someone else - for something. But most of the time, there's nothing particularly interesting in OSS business models except finding the right line of how much you are going to give away. In fact, I'd say you have an advantage out of the gate in getting people to be interested in what you do, that makes some parts easier. I still think SaaS models (.com's, websites), etc, may be more easier though, to avoid the need to maintain that balance. But can you do that in systems software? Not so much, with a few exceptions for hosted monitoring. Anyway, it's possible to build a good product company on OSS bits - and a services company can be something a lot of companies don't want to build. You just have to find the right line, but I think this was really about product/market fit, and not about open source business model failure, per se.
falcolas 11y ago
The concept of a SV style startup is orthogonal to that of a consultancy. Consultancies face one major problem: scaling. The problem with growing a consultancy is that their growth is limited to the the number of a consultant's hours they can sell. If you can't scale your income exponentially to the number of man-hours you have available to you, you'll never be capable of evolving into a 100% + growth-per-quarter business. I can't say I'm surprised that VCs looking for the big winners would not want to invest in a consultancy.
spectrum1234 11y ago
What this is saying is that open source startups are just a PaaS. Act accordingly.
ericsink 11y ago
I think maybe the most interesting open source companies today are Couchbase and Mongo. AFAICT, everything Couchbase does is Apache Licensed. An old-school traditionalist could look at them and conclude that they have no proprietary IP at all. Mongo has perhaps a little more of a boundary because they use the AGPL (which will scare away more enterprise customers than the Apache license will). But still. AFAIK, both of these firms are paying the significant costs of developing their own software. Neither of them can be characterized as building their business model on low dev costs from the use of community-developed code. These firms have more funding than many open source firms get from an exit. Both of them seem to have significant and fast-growing revenue. Both of them seem to be on track to a successful IPO with reasonable expectations for continued growth thereafter. Even in today's open source world, what these two companies are apparently doing seems kind of amazing.
Tossrock 11y ago
It recently occurred to me, free open source project + paid enterprise service companies are the software world equivalent of freemium games.
- ralmidani 11y ago
  Not always. Some companies distribute 'open source' crippleware and try to sell proprietary extensions, just like 'freemium' games, but you seem to be talking about paid services, not proprietary extensions. If all of the product is released under a Free Software license, what is there to complain about? Not receiving free consulting services?

167 points by simas 11y ago

This article made me realize that I don't know of any open source startup which got acquired for a significant sum of money. Can you name some that did?

kriro 11y ago
MySQL, 1 billion USD (2008).
- stevewilhelm 11y ago
  By Sun Microsystems http://web.archive.org/web/20110718044718/http://mysql.com/news-and-events/sun-to-acquire-mysql.html http://web.archive.org/web/20110718044718/http://mysql.com/n...
  - giancarlostoro 11y ago
    They bought it out yes, but the guy forked it and now develops MariaDB, which a few OS' have switched to after the Oracle take over. I'm sure he's enjoying still working on his project.
    - M8 11y ago
      A valuable lesson to those buying OSS companies.
      - rbanffy 11y ago
        It's a lesson for those who want OSS companies for the wrong reasons. I am quite sure had Oracle agreed to fund the development of MySQL into the Oracle RDMS killer it may eventually become, the fork would not happen. If I were Monty, I'd try to sell MariaDB to Larry Ellison for a billion dollars.
    - DonHopkins 11y ago
      A valuable lesson to those buying OSS companies with the intention of destroying the competition to their core product.
      - giancarlostoro 11y ago
        There's another side: IF the company does a great job, the OSS project becomes much more fruitful, however, if it doesn't do much of a great job, well you end up with MariaDB vs. MySQL and LibreOffice vs. OpenOffice (not sure they haven't bothered to merge). At least the GNU does what it was intended to do, stop companies from hijacking / buying out a software product and getting rid of it entirely.
      - rbanffy 11y ago
        I hope they never learn that lesson. Phineas Barnum was right and we can use the money better than Larry Ellison. At least, we can use it to build nice things for everyone to enjoy.
onion2k 11y ago
That's a very limited definition of "fail". If a company opens it's product, runs successfully for years, builds something people actually use, and eventually shuts down leaving a legacy of a piece of useful software, then that isn't really a failure. The investors would probably consider that business to have failed, in the sense that their gamble didn't pay off, but that's their problem. We don't have to think like investors.
- danielweber 11y ago
  It's a failure if any founders or employees took equity in lieu of significant salary. Within the past year I had the experience of "oh, you wrote X? We used that all the time at my last company!" "So will you hire me." "No."
sigi64 11y ago
www.gluster.org - https://www.redhat.com/promo/storage/press-release.html https://www.redhat.com/promo/storage/press-release.html - $136m
cozzyd 11y ago
Look at what RHEL acquires
- celebdor 11y ago
  RH acquires non open projects very commonly. It's after they start the acquisition that the closed products go open source.
edwinnathaniel 11y ago
JBoss by Redhat, $400m. SpringSource by VMWare, $382m. SuSE Linux AG by Novell, $210m. Trolltech (Qt) by Nokia, $153m.
boulos 11y ago
JBoss; acquired by RedHat for $420M in 2006 (http://en.m.wikipedia.org/wiki/JBoss_%28company%29 http://en.m.wikipedia.org/wiki/JBoss_%28company%29)
bch 11y ago
Cannot speak to the $$, but CUPS was purchased by Apple[1] [1] http://iphone.appleinsider.com/articles/07/07/12/apple_acquires_cups_modular_printing_software http://iphone.appleinsider.com/articles/07/07/12/apple_acqui...
declan 11y ago
There was Cygnus Solutions, which I believe maintained GNU software (debugger, binutils) and contributed large parts of gcc. Cygnus was bought by Red Hat for $674M in 1999. HN folks may recognize EFF board member John Gilmore as the founder.
- fulafel 11y ago
  Cygnus were the go-to company for GCC/GNU related work for hire, like doing compiler toolchain and support for your new embedded platform/new cpu. Even the name was a recursive acronym, like GNU: "Cygnus, Your GNu Support"
- DonHopkins 11y ago
  And also Michael Tiemann (now at RedHat), and David Henkel-Wallace (now at Technical Illusions, making CastAR). Their slogan was "We make free software affordable". (In answer to the anti-slogans: "Free software: more expensive than money" and "Linux is only free if your time is worthless".) I asked David if they named the company "Cygnus" after grepping /usr/dict/words for "gnu". He answered no, because if they'd thought of doing that, they would have named it "Wingnut".
  - juliangregorian 11y ago
    Funny, but "wingnut" doesn't actually appear in /usr/dict/words
    - DonHopkins 11y ago
      The funniest thing is that David shot that back without missing a beat, with a perfectly straight face, and a somber tone that suggested he deeply regretted the missed opportunity. Did you know that the word "gnullable" wasn't in /usr/dict/words either?
      - juliangregorian 11y ago
        Yup, because I took 0.2 seconds to actually grep /usr/dict/words for "gnu" just recently.
ifdefdebug 11y ago
The problem here might be that those startups, at the time they got acquired, were not perceived any more as startups.
cageek 11y ago
$2.7 Billion dollars: snort -> sourcefire -> Cisco http://www.networkcomputing.com/careers-and-certifications/cisco-buys-ips-specialist-sourcefire-for-$27-billion/d/d-id/1234312 http://www.networkcomputing.com/careers-and-certifications/c...
- danielweber 11y ago
  Sourcefire significantly clamped down on the openness of Snort. Pushing out new versions with less-free licenses, and changing the alert format regularly. NB: I'm not saying they were wrong for this, because they've got to make money.
nullrouted 11y ago
XenSource --> Citrix $500 million Zimbra --> Yahoo $350 million Sleepycat --> Oracle Revolution Analytics --> Microsoft

kluck 11y ago

This could be simplified: A company needs something that cannot be dublicated using a significant effort. A company that releases their source code to the public really _has_ to build up some knowledge in their domain (because the public source can be easily dublicated), while another closed source company gets away with just selling their product.

hyperpallium 11y ago
Bit of a tangent, but I think most closed source products are pretty easy to copy. What can't be copied is the headstart. If they keep on advancing, they'll retain it. And if customers want those advances - not overshooting - then they'll win most sales. (Though your point still stands, because open source gives away the headstart.)
plantbased 11y ago
"I want to believe." ~Poster on Mulder's wall. You can interpret "get's away with" as "makes better business sense". On a slight tangent - in the infosec space those with closed source products (e.g. WAF's) laugh at those with open source products when it comes to the numbers of embarrassing and business-damaging zero-days reported. Closed source rocks if you're a capitalist. Those who sell closed source love that open sourcers are so distracted by singing-it from the mountain. ~From a guy who runs a not-that-small open source biz.
- Tiksi 11y ago
  > in the infosec space those with closed source products (e.g. WAF's) laugh at those with open source products I would imagine open source has more reported zero days because, well, the source is open and auditable. I do see a lot more closed source in the info/app sec space, but I suppose if you know that space well enough, the source code is just a bonus to seeing how the program works, not a requirement.
- shmerl 11y ago
  > in the infosec space those with closed source products (e.g. WAF's) laugh at those with open source products when it comes to the numbers of embarrassing and business-damaging zero-days reported. Because no one reports theirs? It's not a good reason to laugh if you think of it.

firasd 11y ago

This is a good article but I think the focus on “the IP-based product playbook” vs “the ecosystem-based services playbook” exposes an issue without making it explicit: that these are very different kinds of businesses. Maybe the swing-for-the-fences returns VCs are looking for are not possible in businesses that have such a large services component because of the inability to scale up quickly.

ralmidani 11y ago

I am working on a Free Software startup. What I think makes it unique is it caters to an underserved market, and customers in that market usually don't have the resources to implement our solutions themselves. Of course, respecting our (potential) customers' freedom and not withholding knowledge means we have to be innovative in areas other than technology such as marketing, sales, and support. And if we cannot keep customers happy, another company can eventually come in and compete with us by offering better service and/or lower prices. Edit: fixed a typo.

davidw 11y ago
> means we have to be innovative in areas other than technology such as marketing, sales, and support. And if we cannot keep customers happy, another company can eventually come in and compete with us by offering better service and/or lower prices. Building a company is hard enough even if things are "simple" in that someone pays for a good or service. It becomes much harder if you have to innovate in multiple ways. That is why it is so difficult to do open source companies.
- ralmidani 11y ago
  Paul Graham advises companies to do things that don't scale: http://paulgraham.com/ds.html http://paulgraham.com/ds.html Respecting your customers and building meaningful relationships with them can, in some industries, be disruptive. For a company truly committed to user/customer Freedom, the respect part should come naturally. And if you view Freedom-respecting technology as being part of an ecosystem rather than something developed in a silo, it is easier to overcome the apparent efficiency and simplicity of the proprietary business model.
  - davidw 11y ago
    "Doing things that don't scale" is great advice for people whose first inclination is to automate everything with code, and not do 'people' stuff. Ultimately, though, you've got to be able to work "on" the business, and not in it, as they say. And that means doing things that "scale" in some sense. If you aim to keep the business small, it means doing things that let you remove yourself from the day-to-day operations of the company.

agibsonccc 11y ago

We're going with the open core model ourselves. In our case focusing on commoditizing our competitors by giving away the algorithms while at the same time enabling companies to build their own solutions. One interesting aspect of open source is the pitch for enterprise. It aligns your business model with the consumer's needs and if it's close to data (storage or analytics) the risk of a company going under or getting acquired doesn't leave them in the dust (ala apple/foundationdb) Open core (like cloudera worth 4x horton) allows for the best of both worlds where you don't leave your customers locked in but you can still get licensing fees for added layers on top. Edit: Let me clarify a bit. Open core is for company's who just want to pay for solutions also allowing them to serve companies who want to build their own infrastructure. There's some amount of lock in with open core, but if the core infra is open source it still allows the customer an easier migration path. In our case we went with an apache license for the core tech and sell a layer on top that allows for easier deployments. While open source startups are rare I think it's critical for core infrastructure to be open source.

deleted 11y ago

[deleted]

rushabh 11y ago

Along with building customer engagement it is important to build a brand. The brand becomes a gateway to other services like certification, training and consulting. For an open source OEM, a brand is obvious, but for a community player, it is not so intuitive. The brand is built by focusing on contribution, good writing (blogs, articles etc) and showing visibility on the forum. Like the OP mentioned, you cannot be too invested in the IP as a non-core player.

agibsonccc 11y ago
That's been huge for me as well. Speaking at conferences and writing my book over the past year has been a great entrance in to getting business. It's really paying dividends.

velox_io 11y ago

You could switch "open source" with "zero-revenue business model" (not quite as catchy). This is something unique to startups, who can raise huge sums of money (with insane valuations), yet have no revenue model. Having no revenue stream can (and has worked) for many startups, but it is incredibly risky. How long you can keep going until the money/ luck runs out is massive uncertainty (there's enough uncertainty as it is).

bonzini 11y ago
The obvious answer would be that you are not trying to raise money, but you are building a one-off "work of art" that will sell for million dollars. That gives an idea of why such a a zero-revenue business model makes some sense, but also gives an idea of why it's incredibly hard to make it work.
Udo 11y ago
Fundamentally open source companies and no-revenue model companies are very different, I think it's a mistake to lump them together. The defining trait of a no-revenue company is the investors' confidence that massive revenues or at least a bombastic acquisition will come further down the line. This model does not work for open source companies, because the "figuring out how to make money later" step typically can't happen without a massive pivot (whether it's all that likely to happen with your typical no-revenue company either is open to debate). Maybe the break-even point in open source companies tends to come at a later point, but the path to revenue needs to be baked in from the start. Typically, switching on a revenue generator later will require more than just putting some ads up on the company site, so if massive changes are required to make that happen you must include those plans in your DNA from the start. Open source and zero-revenue companies share the assumption that reach and influence can be translated into money, but when running an open source company the nature of that reach has to be designed more carefully.

MCRed 11y ago

Several times I've seen VCs force the shutdown of consulting businesses in companies to make them "focus" on the product. This is an example of where VC's interests and the companies are not aligned and VCs are pursuing short term goals. Specifically, they often "request" this be done well before a term sheet. If the company complies then they start running out of cash, making them more dependent on the VC money and less able to negotiate terms. Further, it's a mistake. These companies were using the income from other companies they were consulting for to build out the product. It's like free development. You get your engineer time paid for, and make a profit on it, and much of the work goes into the product side of things. All you need is to take some of those profits and build up a separate team that is focused on productizing the core product. IF you do it right, you can bootstrap and never need to take VC funding. Either way, a successful consulting business extends your runway. The claim about lacking focus is BS. Because the consulting- if being done right-- is in the exact area where the product is being built. You know what takes focus away? Running the senior management team all over the country or the valley talking to VCs who are mostly going to waste their time because they don't have the balls to say "no"... looking for the 1 in 100 that will invest in the company. I've seen this many times. If you're able to secure consulting for your company and it's in the core area of what you want the company to do long term, do it.

kluck 11y ago
I agree. A good VC is in for the long term and building knowledge (the kind you can base a consulting business on) is definitely a long-term goal. Also I am all for bootstrapping and not beeing dependent on VCs at all.
- rbanffy 11y ago
  I wouldn't marry a person who's in for a quick exit ;-)
ig1 11y ago
You're mistaken about why VCs want firms to focus on product rather consultancy, it's not for the short-term as you suggest but rather the long term. Time spent on consultancy today gets you revenue today but time spent on product gets you revenue tomorrow. Focusing on product rather than consultancy is the long-term play because you're focusing on what maximizes your value 5-10 years down the line rather than what pays the bill today. The big difference between consultancy and product based development is that with consultancy you're building what the individual customer needs rather than building what your product needs strategically in the long term (if they're both the same thing that great but doesn't happen that often in practice). There's also a distinctively different mindset between product and consultancy companies. At a consultancy the consultants are seen as the revenue generators and the product developers as a cost base; at a product company developers are seen as revenue creators. It's easy to underestimate the cultural impact that has on companies.

vgabios 11y ago

Some open source startups fail because they are non-scalable service companies deluding themselves that they are product companies. Furthermore, they do not own enough of any durable advantage (IP, talent, mindshare), and so multiple "product" companies pretend to not compete while offering similar services in a niche that does not have that much demand. Furthermore with FOSS, most potential customers are often politically incentivized to poach upstream code and talent, give nothing back and eschew overpriced "consulting" services entirely. So it's almost always the wrong business model, unless you dominate it. (I've plenty of enterprise FOSS consulting to realize there are easier ways to make much more $/time, like enterprise startups that are product companies. Also, PGs essays about "consultingish.")

raincom 11y ago
Yeah, you are right; look at companies in the hadoop eco system: cloudera, hortonworks, mapr. They are just burning the cash; most of the money comes from the services/consulting. This will succeed if one dominates the sector, the way Redhat does in the area of enterprise linux.
Fomite 11y ago
I think this is a big part of it (from someone who has considered a consultancy). These aren't necessarily hugely scalable, which isn't a problem unless you are looking to be a big hit...which is exactly what VCs are aiming for.

waterisnewcloud 11y ago

I worked at Cloudscaling for several years. It seems like this article simplified (actually complicated, read on) the issue too much by truncating it into its two "playbooks." I think the first thing that needs to be argued properly is why open source startups need to be analyzed differently from other startups. If you have a feasible (scalable, sustainable, etc) business model to make money with using open source software - say by deploying it and supporting it - then that business model can be judged by the same criteria as other startup's business models. The issue of productizing software which several OpenStack companies have attempted is part a basic part of their business requirement for scaling - because supporting dozens of heterogeneous deployments is impossible with reasonably sized engineering & support teams. This article implies that Cloudscaling used the first playbook. It did do the items listed on the first playbook, but it also did all of the ones on the second playbook too (though, while being a smaller startup didn't contribute as much code back to OpenStack as some of the larger companies/contributors). Creating new success formulas - like these "playbooks" - ignores what we know to be true about the success of many great startups in our midst. There are patterns behind that success which are consistent. These patterns and factors have been written about extensively by folks like Paul Graham, Eric Schmidt, and the like. They rarely synthesize new complexities or factors when talking about what creates success. What they do is go back to basic principles. However, the data to analyze failed startups well enough to determine which fundamentals were lacking is rarely available - so we make stuff up. Company culture is a big one - and it may or may not have had a significant impact on Cloudscaling.

waterisnewcloud 11y ago

I worked at Cloudscaling for several years. It seems like this article simplified the issue too much by truncating it into its two "playbooks." I think the first thing that needs to be argued properly is why open source startups need to be analyzed differently from other startups. If you have a feasible (scalable, sustainable, etc) business model to make money with using open source software - say by deploying it and supporting it - then that business model can be judged by the same criteria as other startup's business models. The issue of productizing software which several OpenStack companies have attempted is part a basic part of their business requirement for scaling - because supporting dozens of heterogeneous deployments is impossible with reasonably sized engineering & support teams. This article implies that Cloudscaling used the first playbook. It did do the items listed on the first playbook, but it also did all of the ones on the second playbook too (though, while being a smaller startup didn't contribute as much code back to OpenStack as some of the larger companies/contributors). Creating new success formulas - like these "playbooks" - ignores what we know to be true about the success of many great startups in our midst. There are patterns behind that success which are consistent. These patterns and factors have been written about extensively by folks like Paul Graham, Eric Schmidt, and the like. They rarely synthesize new complexities or factors when talking about what creates success. What they do is go back to basic principles. However, the data to analyze failed startups well enough to determine which fundamentals were lacking is rarely available - so we make stuff up. Company culture is a big one - and it may or may not have had a significant impact on Cloudscaling.

ig1 11y ago

Techcrunch is somewhat behind the curve here, ever since IBM started undercutting RedHat on support and stealing their customers open source companies have stepped away from having consultancy as their only form of revenue. Modern open source based business tend to be about network effect and building ecosystem business (Android, Github, Docker). (I wrote a blog post on this a while back http://blog.imranghory.org/open-source-business-models http://blog.imranghory.org/open-source-business-models)

mpdehaan2 11y ago
"ever since IBM started undercutting RedHat on support and stealing their customers open source companies have stepped away from having consultancy as their only form of revenue." This hasn't really been Red Hat's only form of revenue, generally it's been subscriptions + qualified builds, etc, they've had proprietary software from time to time too. Red Hat Network and "getting the bits quickly", also. Though it always seemed to me a large chunk of business revolves around banks, with major needs in areas like realtime, needing access and changes from some of the very strong kernel developers Red Hat typically employs. Smaller companies won't need support, banks are mandated to require it, and have very technical needs. This isn't "how do I chown", it's often very specific performance/timing/hardware related things. While things may have changed, I remember Oralce making some noise, but not really getting any traction, and I don't really think IBM was a big predator in any case. Customers would know they didn't have the specialization. Anyway, if I had to use a broad brush, Red Hat support is more key to Red Hat than consultancy - but yes, though they produce lots of products, they aren't a product company. I think Red Hat is somewhat unique in this regard, as they are one of the few that HAVE scaled that way. Nebula seemed to be a product company, but it may have been true that their products required too much hand-holding to scale.
sytse 11y ago
GitLab CEO here, regarding GitHub, hosting open source is not the same thing as being open source.
- ig1 11y ago
  Sure but they're based around commercializing an open source product (Git).

mpdehaan2 11y ago

This article wasn't really so much about it's headline, but someone in the same industry saying "we are not also in bad shape". I suspect to answer the actual headline "The Real Reason Open Source Startups Fail", is pretty much why all companies may fail - PLUS the possibility that their paid component is not sufficiently compelling or that while their open source piece is compelling, they have trouble competing iwth their open source component or are becoming too services heavy, which can cut into margins. It seems the article tries to claim Nebula wasn't "operatioanlly excellent", which is something a competitor would naturally say, but Nebula was trying to make a proprietary "appliance" approach to wrapping OpenStack (apologies if I've mistranslated this) - which I think might have just been too weird. And that's a reason any company can crash - the product idea was perhaps not something the market wanted. OpenStack, increasingly, is one of those things large companies are interested in, and if you have a large team of people to wrangle OpenStack, you likely need more flexibility, and want to put the components together yourself. So were they making OpenStack for the little guy? Probably not, and OpenStack for the little guy is a bit of an oxymoron. It's pretty hands on. I can see where they'd have problems, and I also think it's likely is that there aren't a lot of OpenStack customers - but there are some very very large ones, so it's a huge fight to get someone to pay you - and not someone else - for something. But most of the time, there's nothing particularly interesting in OSS business models except finding the right line of how much you are going to give away. In fact, I'd say you have an advantage out of the gate in getting people to be interested in what you do, that makes some parts easier. I still think SaaS models (.com's, websites), etc, may be more easier though, to avoid the need to maintain that balance. But can you do that in systems software? Not so much, with a few exceptions for hosted monitoring. Anyway, it's possible to build a good product company on OSS bits - and a services company can be something a lot of companies don't want to build. You just have to find the right line, but I think this was really about product/market fit, and not about open source business model failure, per se.

falcolas 11y ago

The concept of a SV style startup is orthogonal to that of a consultancy. Consultancies face one major problem: scaling. The problem with growing a consultancy is that their growth is limited to the the number of a consultant's hours they can sell. If you can't scale your income exponentially to the number of man-hours you have available to you, you'll never be capable of evolving into a 100% + growth-per-quarter business. I can't say I'm surprised that VCs looking for the big winners would not want to invest in a consultancy.

spectrum1234 11y ago

What this is saying is that open source startups are just a PaaS. Act accordingly.

ericsink 11y ago

I think maybe the most interesting open source companies today are Couchbase and Mongo. AFAICT, everything Couchbase does is Apache Licensed. An old-school traditionalist could look at them and conclude that they have no proprietary IP at all. Mongo has perhaps a little more of a boundary because they use the AGPL (which will scare away more enterprise customers than the Apache license will). But still. AFAIK, both of these firms are paying the significant costs of developing their own software. Neither of them can be characterized as building their business model on low dev costs from the use of community-developed code. These firms have more funding than many open source firms get from an exit. Both of them seem to have significant and fast-growing revenue. Both of them seem to be on track to a successful IPO with reasonable expectations for continued growth thereafter. Even in today's open source world, what these two companies are apparently doing seems kind of amazing.

Tossrock 11y ago

It recently occurred to me, free open source project + paid enterprise service companies are the software world equivalent of freemium games.

ralmidani 11y ago
Not always. Some companies distribute 'open source' crippleware and try to sell proprietary extensions, just like 'freemium' games, but you seem to be talking about paid services, not proprietary extensions. If all of the product is released under a Free Software license, what is there to complain about? Not receiving free consulting services?