The Open Road

In May, I reported on the rising fortunes of Funambol, Mozilla, and other open-source companies. Signs of "green shoots" notwithstanding, the economy doesn't seem to be getting any better, but open-source companies continue to log impressive growth as open source pervades the enterprise, as Forrester analyst Jeffrey Hammond (@jhammond) recently noted.

Importantly, according to Hammond, while open source starts as a cost-saving exercise, it often morphs into something far more strategic:

[O]rganizations tend to start [with the goal of saving money with open source]. And then what tends to happen is the more that they become comfortable with using open source, and the more that they apply it successfully, the more they start to realize that there are benefits other than cost savings that they can take advantage of. And that's when you start to see them turn from open source opportunists into open source advocates.

Those "advocates" are funding the payrolls of a range of open-source companies. Here are just a few examples of those benefiting from this enterprise shift to open source:

• The VAR Guy (@thevarguy) reports that both xTuple and Sopera are profitable. While he doesn't comment on how much they're doing in sales, profitability is, in itself, a significant achievement. (Alfresco, my company, is also profitable, and I'm sure there are others. Please let me know.)
• Likewise, an open-source authentication and identity management company, announced that it is on track to record 100-percent sales growth in 2009. We'll call that a "pre-announcement."
• MuleSource, an open-source Service Oriented Architecture (SOA) company, reported "another record for the company, with a 140 percent year-over-year increase in quarterly bookings and over 100 percent growth for the year-to-date period."
• (Credit: MindTouch)
  MindTouch, not to be outdone, also issued a release highlighting its revenue growth (without giving any gee-whiz statistics but did us the favor of providing a pretty graph). More interesting, however, is MindTouch CEO Aaron Fulkerson's (@roebot) review of the various things the company has done right and wrong in commercializing its open-source collaboration project (Spoiler: favoring an enterprise build over a "community build" via stability and support is a bad idea).
• Meanwhile, though not financial reports, it's encouraging to see Kuali adoption take off in earnest within higher education. "The colleges involved say they have the potential to achieve millions in savings while gaining more control over technology systems that are essential to the smooth functioning of their institutions." Nice.
• Also, a member of the Perl community looks to Canonical's Ubuntu in search of a solid revenue model for Perl. Interesting read, though I'd probably look to foundations that have proved their financial mettle like Mozilla and Eclipse before I'd emulate Ubuntu, however much I may respect what Canonical is doing with Ubuntu.

Unfortunately, most open-source companies are private so the "earnings" reports are somewhat self-serving and mostly unverifiable. Still, it's good to hear of growth in the midst of a weak economic climate.

Disclosure: I am an adviser to MindTouch and MuleSource. I'll gladly report on other financial successes in the open-source world if you care to send them to me....

Follow me on Twitter @mjasay.

Oracle doesn't want to own Linux. Oracle just wants Linux to be cheap.

That's the insight an analyst shared with me the other day as we discussed why Oracle hasn't made a move to acquire Red Hat (recently, anyway). According to this source, who is familiar with Oracle's Linux plans, Oracle wins eight of 10 deals where the operating system is Linux, and only wins five of 10 where the OS is Windows, a win rate that continues to drop as Microsoft's SQL Server gets better.

Oracle's Enterprise Linux strategy is therefore not so much about neutralizing a threat from Red Hat as it is establishing its own threat against Microsoft, a thought that others have highlighted.

Indeed, Oracle's Wim Coekaerts has declared that if Red Hat Enterprise Linux were free, Oracle would exit the market for Linux entirely.

Red Hat isn't likely to drop its pricing for RHEL anytime soon, at least, not for Oracle, but the reality is that Oracle already has a way to offer a popular, enterprise-quality Linux distribution for free, or close thereto. It's called Ubuntu.

The only thing Ubuntu lacks, as I've written, is the blessing of a major enterprise software vendor. Oracle could grant that blessing. All it would need to do is start offering Ubuntu as part of its certified stacks.

Oracle wouldn't need to pay billions for Red Hat, only to undermine the value of that deal by cutting the price of RHEL. Oracle could pay exactly $0.00 to establish a partnership with Canonical, the company behind Ubuntu, and Ubuntu's already significant traction--both in personal computers and in servers--would do the rest.

If Oracle wants to beat Windows, it needs to get Windows-like distribution. Its applications help drive its databases, but if it wants a bottom-up distribution strategy to complement its sales force, it couldn't do better than Ubuntu, the leader in community Linux.

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Walk the halls of any open-source conference and you'll see a large percentage of attendees with ironically un-open-source Apple laptops and iPhones. I've commented on the reasons for this before, but a new thought sprung to mind while reading Matthew Thomas' excellent (and old) "Why free software usability tends to suck."

Open-source advocates like good design as much as anyone, but the open-source development process is often not the best way to achieve it.

Thomas now works for Canonical, the company behind Ubuntu, which arguably offers the industry's best Linux experience for personal computers. I got a sneak peek at a future Ubuntu release while at dinner with Canonical founder Mark Shuttleworth Wednesday night, and it was gorgeous. Mac freak I may be, but the day Canonical releases that version of Ubuntu is the day my devotion to Apple will be severely tested.

Yes, it's that good.

But it's "that good" because there's a company behind it, a company dedicated to making Linux usable for average consumers. As Thomas writes,

Every contributor to the [open-source] project tries to take part in the interface design, regardless of how little they know about the subject. And once you have more than one designer, you get inconsistency, both in vision and in detail. The quality of an interface design is inversely proportional to the number of designers.

This, coupled with the fact that experienced interface designers tend to be rare in open-source projects and, even when present, "they are not heeded as much as they would be in professional projects precisely because they're dedicated designers and don't have patches to implement their suggestions," as Thomas writes, means that many open-source projects are technically brilliant...and abysmal to look at.

In the short term, proprietary products are generally going to win because they can more tightly control inputs and output and, intriguingly, it is likely that the most proprietary products will win. Why? Because in new markets, control is crucial to delivering a complete experience. Clayton Christensen, the Harvard Business School professor and author, notes:

Companies must be integrated across whatever interface drives performance along the dimension that customers value. In an industry's early days, integration typically needs to occur across interfaces that drive raw performance--for example, design and assembly. Once a product's basic performance is more than good enough, competition forces firms to compete on convenience or customization. In these situations, specialist firms emerge and the necessary locus of integration typically shifts to the interface with the customer.

Hence, Apple reigns in smartphones because it's a comparatively new market and Apple can control the complete design of the product. Microsoft and Google, on the other hand, will struggle to compete because they are only delivering software, and depend heavily on the device manufacturer. (It's likely that Apple is also exercising significant influence over AT&T and the other wireless carriers, influence that Apple's competitors likely lack.)

Against this backdrop, I wouldn't expect open source to win in new markets unless a company or other committed organization (e.g., Mozilla with Firefox) is dedicated to making it succeed. But in the long run, it's fair to expect open systems to win. As Mozilla CEO John Lilly articulated to me in response to my post "Is Apple 'open enough' to rule the next decade of mobile?":

In the long term (10 years +), I think that open systems will almost always win, because the systems will be better understood from end to end, there will be more places for individual innovations to happen, more commoditization, and [more need for] the diversity and variety of an open ecosystem.

I agree. The key, however, is learning to tweak open systems in the short term to be competitive, too, and that, I believe, requires a "cathedral+bazaar" approach to open source. It's great, for example, that Red Hat has successfully helped to commoditize the Unix operating system market, but many of us don't want to have to sit around for decades waiting for an industry to tire out, thus ripening for open-source commoditization.

We want to innovate. We want to compete. And we want it now.

For that, you need a little more than open source, it seems, to make products usable. You need control, and control doesn't always jibe well with open-source development. This is one reason that we're seeing the emergence of the Open Core licensing model for open source.

It's why I think we need a lot more such activity if we want open source to dominate new markets, and not merely clean up the scraps of old markets.

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Linux has been growing in importance for years in the darkened server closets. In the server world, Linux's cost and performance benefits have trumped its early weaknesses (Ease of use, etc.), making Linux the heir apparent to the Unix throne.

But that's the server, where geeks write software for other geeks. In the consumer world of personal computers and mobile devices, however, Linux hasn't fared particularly well precisely because the developers of Linux differ so markedly from the vast majority of the user population.

Linux developers, in other words, scratch very different "itches" from those plaguing most would-be Linux users.

It seems clear to me that, as Bill Weinberg astutely argues, the way forward for Linux is not in replicating Microsoft's desktop dominance, but rather in forging a new, consumer-friendly mobile Linux experience, one focused on the youth that are growing up mobile.

This "way" is being paved by Intel, Canonical, Novell, and other companies that have significant experience writing software for normal users, and not merely the alpha geeks of Linux. I've spent the past two weeks fiddling with different variants of Linux-based Netbooks, in particular the Linux Foundation's Moblin Beta 2 (Developed by Intel and Novell) and Canonical's Ubuntu 9.04 Remix for Netbooks, and I believe they are onto something.

The first thing that struck me when using Moblin is how it breaks new ground in defining a new personal computer experience, one designed for the narrow (hardware) confines of a Netbook but offering a limitless portal to social networking and a broad Web experience beyond.

This is perhaps why Acer has committed to Moblin in a big way, and why Canonical is joining up with Moblin, as are others.

As for Ubuntu, it's an even tighter user experience (though, to be fair to Moblin, it's still in beta and so many of its rough edges will be smoothed over by general release, I assume). This isn't surprising given Ubuntu's singular focus on usability. It doesn't require any specialized knowledge of Linux though it does give the user too much information on what's happening under the hood. The lay user simply doesn't care. We just want it to work.

The experience hasn't been without its difficulties. My experience with Ubuntu, for example, was plagued by constant nagging to install yet another package to be able to play proprietary codecs. Steven J. Vaughan-Nichols suggests that this problem is going away, but it can't leave fast enough. It's asking way too much to expect consumers to have to work in order to watch a YouTube video.

We are users, after all, not developers.

Slowly but surely, however, vendors are getting the Linux experience "right" for Netbooks and other mobile devices. I've been leaving my Intel-loaned Acer Aspire One Netbook around where my kids, ages four through 12, will open it up and experiment. Each one has quickly managed to find the games in Moblin and Ubuntu, and my older children were quickly browsing the Web and even typing up school reports. In minutes. With no coaching.

To me, this suggests the path forward for Linux is in new, as yet underdeveloped markets like mobile, and for an as yet under-monopolized audience: youth. My kids have grown up with Macs, but they're hardly grown up yet. Their experience with computers has been as much about mobile phones as laptops.

They are the most mobile-inclined generation the world has yet seen, making them an ideal target for new Linux-based mobile devices. As the Bible notes in Proverbs 22:6:

Train up a child in the way he should go: and when he is old, he will not depart from it.

Children's conceptions of what a computer must look like and feel like have yet to calcify into a Windows mold. They are the audience to win for those vendors interested in dominating the next decade of personal computing.

Old dogs strain to learn new tricks, making the Microsoft-conceived desktop a poor target for Linux vendors. The market is mobile. The market is children.

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In open source or in product development generally, one of the biggest mistakes is to take on a deeply entrenched incumbent on its own turf. Almost inevitably, if you play someone else's game, even if you're a little cheaper/faster/better, you're going to lose. Inertia favors the incumbent, and there's a whole lot of inertia involved in switching vendors.

For this reason, I agree wholeheartedly with Bill Weinberg's suggestion that Linux's opportunity in Netbooks is to focus on the mobile side of the market, rather than bringing a traditional, personal computer bent to the market.

Weinberg writes:

...(O)ne strategic error made by purveyors of Linux Netbooks was to covet the volumes of the global mobile telephony market while following the business models and channels of the legacy notebook marketplace. Linux fans--.orgs, Linux ISVs, and device OEMS--unfortunately approached the Netbook opportunity as a downward extension of the desktop and portable PC business, with volumes of 297M units in 2008 (IDC).

Instead, the Linux ecosystem needs to envision Netbooks (and MIDs and tablets) as building on the worldwide mobile handset business, with its 1.28B annual unit shipments (Gartner) the most lucrative slice of which, smartphones, constitutes 14 percent (ABI) with 20 percent annual growth rates.

Microsoft owns the traditional personal computer market, and probably will forever. But don't lose hope: the best strategies going forward are disruptive, in the Clayton Christensen sense. Microsoft is weak in mobile. This is where Linux proponents should focus their "desktop" strategies.

Apple is gaining on Microsoft in personal computers as much because of its iPhone revolution as its beautiful laptops. If Linux wants to win in Netbooks, and it can, it must do so by undermining Microsoft, not by confronting its desktop dominance directly. Netbooks must be more "Net" than "book," just as mobile phones are more about "mobile" than "phone."

If this is true, Google's Android, which is targeting smartphones first and Netbooks second, may have the upper hand on Intel's Moblin, which aims at Netbooks first, and is largely designed as a Windows replacement.

Malcolm Gladwell recently reminded the world that David beats Goliath with a sling, not a sword. Linux-based Netbooks, playing David to Microsoft's Goliath, should approach the market with a mobile bias, rather than with a personal computer bias.

"Hit 'em where they ain't," said Willie Keeler, which is as true in hitting baseballs as it is in competing with Microsoft.

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Microsoft has achieved something of a Pyrrhic victory against Linux-based Netbooks: it now claims 96 percent of the Netbook market, but its earnings continue to be battered by the lower revenues and profits that come with the low-end Netbook phenomenon.

Even as Microsoft "wins" in Netbooks, it loses, as ZDNet's Larry Dignan writes. Microsoft expects "the overall spending environment to remain difficult," but it may not yet appreciate just how much worse it can get.

After all, Canonical, which develops Ubuntu, the world's leading consumer-focused, Linux-based desktop operating system, on Monday released a Netbook-optimized Ubuntu distribution, as IDG reports.

Better battery life. A nicer visual experience. An operating system tightly tuned for applications like e-mail, Web browsing, and office productivity. All for a price that is dramatically less than Microsoft Windows...even after Microsoft discounts.

Microsoft's love-hate affair with Netbooks is about to get worse. Competition does that to a company.

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Revolutions don't always roil and boil toward a noisy, violent fracas. Sometimes they don't even ripple the surface.

Such is the Ubuntu Netbook revolution, which makes waves in the Linux community--and really nowhere else. Not publicly, at least.

I was fortunate to spend two hours on Tuesday night with Chris Kenyon, head of Canonical's Ubuntu business for original-equipment manufacturing, or OEM. Kenyon, in addition to being a fellow Arsenal fanatic, is also Ubuntu's point man for its quiet, but nonetheless dramatic, Netbook revolution.

Kenyon, who appeared a placid, affable chap when we first met outside Arsenal stadium to witness a shattering of Hull City's FA Cup hopes, eventually let his competitive side out during the match, cheering the team and jeering the referee. Brilliant. It was then that I got a taste for what Canonical's competitors, and particularly Microsoft, might be in for when competing with Ubuntu.

In the Netbook market, Ubuntu is the clear winner, with Hewlett-Packard, Dell, and the other major hardware OEMs shipping Ubuntu-based Netbooks. But it's not yet clear what "winner" means. Microsoft, after all, still apparently claims 90 percent of all Netbooks shipped with Windows.

Therein, however, lies the seed of Ubuntu's revolution. Ten percent market share for Linux is pretty incredible. We rightly cheer Apple for its steady onslaught of Microsoft in the personal-computing market, and that's as Apple struggles toward 10 percent market share. Linux is already there in Netbooks, and Ubuntu claims the bulk of those installations.

There are indications that this could accelerate. I won't comment on the royalties Canonical currently earns on its Netbooks, except to suggest that its competitive price point must be extraordinarily expensive...to Microsoft. Manufacturers continue to ship Windows XP and pay Microsoft virtually nothing for the privilege due to discounts, rebates, and other incentives. With Ubuntu exerting downward pricing pressure, Microsoft doesn't stand to gain much in the growing Netbook market.

Let's say Microsoft earns $8 per copy of Windows XP shipped, which might actually be high, at least with the larger OEMs. At that point, the price differential between shipping Ubuntu or Windows XP is slim. But once Microsoft eventually turns off the XP spigot and requires OEMs to ship Windows 7, will Microsoft be able to command a hefty premium on its brand alone?

I doubt it. Canonical has permanently reset the Netbook operating system price point in its favor, at a level where it can compete vigorously while Microsoft must compete reluctantly. Microsoft, in short, is now playing by Ubuntu's terms.

Now let's compound the problem for Microsoft. Taiwanese original-design manufacturers are actively deploying Ubuntu for their OEMs (HP, etc.). They are now gaining experience and expertise in testing and quality assurance for Ubuntu. The mechanics of shipping Linux, in other words, are beginning to be well-understood. This, coupled with consumers' growing comfort with Linux in the Netbook form factor, make it hard to justify the inertia of staying with Microsoft just because it's Microsoft.

Netbooks are disruptive, in part, because they define productivity in terms of the Web, not Microsoft Office. The more users want to spend time in a browser, or instant messaging, or e-mail, the less Microsoft Windows is required. The less Windows is a requirement, the less that OEMs are going to be willing to pay for Windows licenses. Microsoft suffers (indeed, it may already be suffering), OEMs gain (because they earn better margins on their Netbooks), and customers gain (all the functionality they need at an attractive price).

And, of course, Canonical gains. There's a revolution going on. It's quiet, but it's happening.

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While evangelists of Linux distributions built for personal computers (i.e., "Linux desktops") point to Netbooks as an indication of renewed life in their chances to compete for consumers, new data suggests that this may be a fool's hope.

Instead, such advocates would do well to follow the leads of Canonical and Red Hat, as they respectively extend the desktop with cloud services and deliver desktop functionality from the cloud.

Although it's true that roughly 30 percent of Dell Inspiron 9s Netbooks run Ubuntu Linux, it's equally true that about 90 percent of Netbooks run Windows, as Computerworld recently pointed out, while Linux had started with 30 percent of the Netbook market.

And while Dell is now saying that the return rate on Linux Netbooks is no longer four times that of Windows, as it was reported in October 2008, it's unclear how or why Linux will be able to take a greater share of the Netbook market, given that Microsoft has reduced its pricing to compete with Linux.

Sure, this means lower profit margins for Microsoft, but that's a hollow victory for Linux, isn't it?

Linux has a much better chance of succeeding on personal computers, if it starts from a position of strength, not weakness. Two areas of strength for Linux are mobile and servers. The mobile Linux market, however, remains somewhat fragmented, making it difficult to mount a near-term desktop challenge.

The Linux server, however, is ripe to creep down into the desktop, and that's precisely what Canonical (Ubuntu) and Red Hat are doing.

The two companies are going in opposite directions, but they end in similar positions. For Canonical, which, with Ubuntu, arguably has the strongest claim to innovation and leadership on "the Linux desktop," the trick is to move more personal-computing services into the cloud.

Canonical's Mark Shuttleworth told me last year that his Ubuntu desktop strategy would increasingly include cloud services. Recently, Canonical started to deliver on this vision by Amazon EC2 (Elastic Compute Cloud) hooks to its server edition, which has the added bonus of giving Canonical a compelling revenue model.

Red Hat, for its part, is starting with the server, where it's the undisputed market share and value leader. Recently, Red Hat told Computerworld that it plans to grow its so-called desktop footprint with a "desktop" that isn't: it's a virtual machine running remotely on a server and sitting side by side with Windows.

There may be flaws in this strategy, as some have pointed out, but as Red Hat CTO Brian Stevens told me on Wednesday, Red Hat's approach makes a lot of sense for CIOs who want to increase manageability of desktops while simultaneously reducing costs:

The target we are designing for is not the legacy model of thick Windows clients or terminal services. Open source is about driving innovation and new paradigms of use, not just to make a cheaper alternative to proprietary (software).

So the desktop target model we are designing for has several elements:

• Enable open-source solutions to help lower the OpEx costs of Windows environments by allowing Windows desktops to be virtualized within the data center;
• Open up the interoperability and technical advancement of the desktop remote-protocol space by open sourcing the Spice protocol for building VDI infrastructure on. This will have impact not just on virtual desktops, but also remote display of physical desktops;
• Through our ovirt.org effort, build an open-source implementation and reference architecture for building clouds, on which servers and desktops can be instantiated on demand;
• Bring virtualization to the client through our KVM technology, putting a hypervisor directly on the desktop. Enable the client to not just plug into VDI environments, but to be able to run desktops within the cloud or locally, seamlessly, and with full mobility;
• Through this new model, which enables multitenancy of desktop environments, enable a virtualization-optimized Red Hat Enterprise Desktop to be run from the same pane of glass as Windows.

In sum, Red Hat is not merely looking to join the Linux game for personal computers; it's also seeking to completely change the desktop market--Linux, Windows, or otherwise. This is an ambitious goal--one that Red Hat's Linux server strength puts it in a good position to deliver.

Linux desktop advocates should take a cue from two leading Linux companies, Red Hat and Canonical. The point isn't to replicate the Windows desktop. The point is to completely change the way desktops are delivered and their services consumed. Anyone still worried about Linux on Netbooks is fighting the wrong battle.

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I admit that I nearly got caught up in my former colleague James Urquhart's excellent analysis of Canonical's Ubuntu 9.10 release, code-named Karmic Koala. I saw the word "open" laced heavily through the post, and given Canonical's commitment to fully open-source Ubuntu experience, I played along.

Ubuntu in the clouds

(Credit: Ubuntu)

But something doesn't quite fit in Canonical's story.

It's called Amazon.com. Yes, Ubuntu 9.10 will give users an option to build its own Elastic Compute Cloud-style service, using open-source Eucalyptus (or another cloud provider), but the intent certainly seems to seamlessly plug users into Amazon's closed cloud:

Ubuntu aims to keep free software at the forefront of cloud computing by embracing the APIs of Amazon EC2, and making it easy for anybody to set up their own cloud using entirely open tools...During the Karmic cycle, we want to make it easy to deploy applications into the cloud, with ready-to-run appliances or by quickly assembling a custom image...Wouldn't it be apt for Ubuntu to make the Amazon jungle as easy to navigate as, say, APT?

Or is Ubuntu simply making it easier to navigate one's way into the Amazon jungle but not to get out of that jungle?

This isn't meant as a criticism. After all, I've increasingly seen that the best way to monetize open-source software is with the careful inclusion of proprietary software. I told The New York Times' Ashlee Vance that Mark Shuttleworth would eventually have to grapple with this same strategy, basing it on my own conversations with Shuttleworth about how to effectively monetize Ubuntu.

That strategy increasingly points to tethering an open server (and desktop) with closed cloud services. That's not a critique. It's a fact.

Unfortunately, it's also a fact that once Ubuntu hands off its customers to a closed cloud, it depends on that cloud vendor to offer open data policies. The delivery of such policies is out of its hands. It won't have much say in the matter.

It's ironic, in many ways, that the key to Canonical monetizing Ubuntu will be proprietary software. There's a very good reason that Canonical isn't leading with a link into open-source software like Eucalyptus: just as Red Hat depended on proprietary Oracle to drive its early business, Canonical's best chance of driving open-source revenue from Ubuntu is likely to be closed-source Amazon.

Amazon's service is popular. It's also proprietary. Depending on an open but weak cloud service would be futile; building bridges to proprietary Amazon will likely not.

Canonical, just as Google has done in search, is helping its users build habits. I am sure that there will be positive financial remuneration to Canonical, the more that Ubuntu users indulge their Amazon EC2 habit--a habit that Canonical therefore will have an interest in feeding.

Is this bad? No, it's business. Even Canonical needs to make money, and it's really, really hard to make a lot of money by giving everything away.

Some things need to be closed. In this case, it's the cloud that Ubuntu will feed.

Follow me on Twitter at mjasay.