San Jose Mercury News: Open-source vendors at risk of being priced out

From: Arthur Keller <voting_at_kellers_dot_org>
Date: Tue Oct 31 2006 - 02:35:43 CST

Posted on Mon, Oct. 30, 2006

Open-source vendors at risk of being priced out

By Ryan Blitstein
Mercury News
Larry Ellison knew Oracle needed its own
operating system, and the Redwood Shores software
company had a choice: Build it or buy it.
But Ellison told attendees at last week's
Oracle's OpenWorld conference that he'd found a
third way -- take an operating system from
another business.
Oracle's Unbreakable Linux will be almost exactly
like Red Hat's version of the operating system,
but Oracle will strip out the Red Hat trademarks,
then offer support services such as bug fixing at
about half of Red Hat's retail price.
The announcement sent Red Hat's stock plummeting
30 percent Thursday, although it rebounded 5
percent Friday, and left Silicon Valley
open-source software companies wondering whether
this could happen to them. Some are hatching
plans to fend off a similar maneuver.
``This is a hostile takeover in the open-source
world, and that is bound to happen again,'' said
Mark de Visser, chief marketing officer of Zend
Technologies, a Cupertino open-source PHP
software company. ``What we're learning here is
that the rules of capitalism apply as much to the
open-source world as they do to the rest of the
Open-source software is publicly available,
non-proprietary software code that can be
modified by anyone. Companies that offer
open-source software add pieces to the code, then
sell licenses to run it or services that support
What Oracle did wasn't without precedent, but it
crossed a line that some parts of the open-source
community saw as violating the spirit of the
technology. The service businesses of technology
giants such as IBM and Hewlett-Packard have
offered support for Red Hat's and Novell SUSE's
Linux distributions for years, though not at
prices less than the vendors'.
Many open-source projects have been ``forked,''
which occurs when a group creates a ``fork in the
road'' that breaks away from the established
version of the software and founds a new one that
may slowly evolve into totally different software.
No major proprietary software company had ever
done this to an open-source vendor, although it's
not clear how different the Oracle version will
be from Red Hat's.
``This is a fundamental shift of vendors
competing with vendors on their own technology,''
said Raven Zachary, a senior analyst for 451
A scenario might happen like this: Big company X
has a small-but-growing open-source direct
competitor nipping at its heels. Company X starts
offering low-priced services to support its
competitor's product, then forks the competitor's
code and lures away its customers.
If it makes sense, company X might also swoop in
and buy the open-source competitor at a
now-depressed stock price -- something analysts
think Oracle might try with Red Hat. The same
process might be initiated by a company looking
to expand its product portfolio at a low cost.
To be sure, big software companies will probably
move forward with plans like this only if Oracle
is successful with its Linux strategy.
``It's a lot for Oracle to take on,'' said
Richard Yen, a principal at Blueprint Ventures
and investor in San Jose's Teja Technologies, an
open-source development platform for
multiprocessors. ``Forking is a very serious
undertaking. You're signing up to handle
maintenance and bug fixes. You're moving away
from the community, and making a slightly
proprietary version of the open-source code
It's only worth it for Oracle -- or SAP or
Symantec -- if the customer base is large, and
currently few open-source software applications
have achieved as much popularity with big
businesses as Linux. Yet companies such as
open-source database provider MySQL are growing
fast and pulling in big-name customers such as
DaimlerChrysler and Google.
If more companies such as Oracle move into
competition with open-source software providers,
the vendors that have the most to lose are those
focused on services.
Palo Alto-based SpikeSource certifies existing
open-source software, packages it together, fixes
bugs in it, then offers it to big businesses. The
company has developed three years' worth of
intellectual property in testing and building
those packages, but the applications within them
are still open source, and vulnerable to
competition from any company that decides to
become an open-source integrator.
``Those are much more commodity plays, and
there's more at risk there,'' Zachary said.
Nevertheless, SpikeSource Chief Executive Kim
Polese is confident that her company's existing
work couldn't be copied quickly.
``If a company wants to have an open-source
application or Linux offering, they can do that.
There's nobody preventing them,'' Polese said.
``Anyone can choose to compete with us in doing
that, but they have a lot of catching up to do.''
In fact, institutional knowledge of a project's
code base might deter competition. ``We're on the
verge of an open-source talent war, with large
companies picking up expertise in specific
projects,'' Zachary said. ``I would find ways to
do incentives for core contributors to stay on
board with the vendors. Give them stock and make
them very happy.''
Internally, companies are looking at their
pricing to make sure they won't be undercut by
outsiders (although Red Hat's actual prices are
lower than Oracle claimed).
``It will only happen if these companies are
taking their eye off the ball in terms of
delivering value. If Red Hat would've been more
aggressive in their pricing over a long period,
then it would've been much harder for Oracle to
do this,'' said Zend's de Visser, a former Red
Hat vice president of marketing.
Whatever their strategies, open-source software
companies are waking up to a new competitive
``If you're not innovating and not managing your
community and supporting the project
exceptionally well, its going to get forked,''
said John Roberts, chairman, chief executive and
co-founder of Cupertino open-source software
company SugarCRM.

Contact Ryan Blitstein at or (408) 920-5715.

2006 and wire service sources. All Rights Reserved.

Arthur M. Keller, Ph.D., 3881 Corina Way, Palo Alto, CA  94303-4507
tel +1(650)424-0202, fax +1(650)424-0424
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Received on Tue Oct 31 23:17:09 2006

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