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July 12, 1999

The Rising Impact of Open Source

“You say you got a real solution
Well you know
We'd all love to see the plan
You ask me for a contribution
Well you know
We're doing what we can”
     -Revolution, The Beatles

Perhaps the most powerful movement in the software industry today is the continuing rise of “open-source” development--producing such successful applications such as the Linux OS and the Apache Web Server. Open source is a seemingly impossible development methodology where source code is developed and debugged by not one company or even one group of individuals, but rather by a fragmented and distributed workforce simultaneously working toward a common goal. Believe it or not, these individuals are likely to have never met in person, and provide most of their efforts on a volunteer basis. Lastly, one caveat of the open source movement is that source code must be freely distributed to all customers and competitors alike.

Can this be real? Is it a fad? Can distributed volunteer developers really produce code that is reliable? Can open source impact the software industry at large? How can business models exist if all the code is exposed for free? Could open source impact my business? The answers to these questions may be surprising to you. What’s more, understanding the open-source movement may be important to all business executives, as the lessons learned may have applicability for every industry, particularly as we move toward an increasingly bit-driven economy. With that as a backdrop, we will now introduce six things that every business person should know about open source.

Open source works. If it seems unreasonable to believe that distributed volunteers can produce robust and complex software applications, then get over it. Open source works, and there is an increasing base of users for all types of open-source code--from operating systems to compilers to applications. This movement, which began many years ago, thrives on leverage. By distributing a task across a large group of “users,” the project as a whole can move faster than if the project were controlled by a single entity. Most successful open-source software projects rely more on distributed testers and debuggers than actual developers, but the result is nonetheless amazing. Previous “top-down” attempts to organize a group of like-minded engineers (such as Taligent or the PowerPC microprocessor) have a stigma of failure. However, the loosely affiliated, bottoms-up, organic model of open source appears to be working. Last October, a leaked internal Microsoft document (now known broadly as the “Halloween” document) outlined the strengths of open-source model and offered indirect credibility to the movement.

Open-source development can produce business-quality code. The most obvious testament to the business success of open-source code is the unwavering dominance of the Apache Web Server. According to Netcraft, Apache runs on more than 57% of the world’s Web sites, and has gained consistent market share, even during Microsoft’s aggressive attack on Netscape. The leading open-source operating system, Linux, is also gaining steam. According to Red Hat Software, there were 12 million Linux users at the end of 1998. Perhaps more importantly, IDC believes that Linux is now running on 17% of all servers, most impressive as the server market is considered more technically complex than the desktop market. Open- source allegiants believe that distributed testing actually leads to more reliable code than could ever be achieved within a single organization. Search the Internet for articles on Linux, and you will find many users that believe that open-source code is in fact “more reliable” than Microsoft’s Windows NT. And while Microsoft will vehemently disagree with this view, the fact that the argument exists at all is a testament to the obvious legitimacy of open-source code.

Open-source business models are emerging. Believe it or not, it turns out that you can make money of freely available software code. Perhaps the best example of this is Red Hat Software, a company that packages, distributes, supports, and more importantly brands a version of the Linux OS. As with any software product, users value consistency and trust, and Red Hat has done a wonderful job of packaging and distributing the Linux OS. Sure, you can download the code for free, but for many users, $50 is a reasonable fee for code that is easy to install, comes complete with documentation, and comes with the support guarantee of Red Hat. As a testament to the importance of Linux, Compaq, Oracle, Novell, and Dell all recently invested in Red Hat, and each company entered into an agreement to either distribute or build upon the Red Hat OS. Efforts are now underway to “commercialize” other open-source software code such as the Sendmail, Inc’s move into open source email server space.

Open source is a tough competitor. Competing with open source is a bit like fighting the invisible swordsman. For instance, in the case of Apache, there is no company as the code is maintained by a not-for-profit organization known as the Apache Group. What’s more, the software is available for free, which eliminates price as a competitive weapon. The pricing tricks used by Microsoft to attack Netscape are less effective against an already free solution. And while Microsoft has now begun to attack Linux as well as the legitimacy of the open-source model, they have painted themselves in a contradictory corner by holding up the success of Linux as a competitive threat to be considered by the DOJ. As variants of the open source model proliferate, more companies will be forced to adapt to this faceless and distributed competitive force.

Open-source models are emerging for content. While the open-source elitist will disagree with the specifics of the analogy, we are now seeing open-source models emerge for content in addition to software. Unquestionably, the most successful example is Netscape’s “Open Directory” initiative. Once dubbed NewHoo, this competitive directory listing to Yahoo is built by an army of distributed volunteers, much in the same way that Apache is built be distributed programmers. Additionally, the results of the directory are freely available on the Web for anyone to use, just as with open-source code. Open Directory proponents argue that no one company’s staff will be able to compete with its distributed volunteer base. In addition, the more sites that actually use the directory the more volunteer “editors” that will likely be sucked into the project. It is highly likely that the distributed open-source content model will be replicated in other fields, and as with open-source software, it may prove to be an agile competitor.

Open source as a defensive weapon. At the end of the day, open source may prove to be more of a defensive weapon that an offensive one. Consider the example of Netscape’s Open Directory project. By organizing and freely distributing the directory data, Netscape may have neutralized the directory as a competitive differentiator for portal sites. We may, in fact, see more and more companies “donate” certain intellectual property to the open-source community in an effort to commoditize a particular aspect of competition. As another example, it may be in AOL’s best interest to make sure that Netscape’s browser code is fully embraced and absorbed by the open-source movement. No single company is likely to challenge Microsoft’s increasingly dominant market share in browsers; however, a freely available browser that can be customized by ISPs, software vendors, and portals alike may actually gain momentum. With the rising awareness of the potential for Microsoft to use the client as a control point for access to the Internet, a true open-source browser initiative may be just what the doctor ordered.

Open source as a production model should be appreciated in the same light as Henry Ford’s assembly line or Demming’s Just-In-Time manufacturing process. By taking advantage of the electronic communication medium of the Internet as well as the distributed skills of its volunteers, the open-source community has uncovered a leveraged development methodology that is faster and produces more reliable code than traditional internal development. You can pan it, doubt it, or ignore it, but you are unlikely to stop it. Open source is here to stay.

Posted by Bill Gurley on July 12, 1999 at 08:00 AM | Permalink | Comments (0)

DISCLOSURE: The information contained Above the Crowd has been obtained from sources believed to be reliable but is not necessarily complete, and its accuracy cannot be guaranteed. Any opinions expressed herein are subject to change without notice. The author is a general partner of Benchmark Capital, a venture capital firm in Menlo Park, Calif. Benchmark Capital and its affiliated companies and/or individuals may have economic interests in the companies discussed herein. © J. William Gurley 2005-2006. All rights reserved.