If Citrix didn't buy into open source, it got $0 worth of value
Saying open source is incidental to Citrix's acquisition of XenSource is like saying one would buy Red Hat and not care much about its role in the Linux kernel. Yet Matthew Aslett and Raven Zachary both suggest precisely this.
I guess they're following the flawed reasoning that Savio Rodrigues uses. Namely, that if Citrix cared about Xen and not just XenSource's proprietary technology, it could just fork Xen for free. This would be true if it weren't false. Xen without open source is an emperor without clothes.
It's also the reason that Novell failed to entice XenSource into an acquisition when it was knocking on Peter Levine's door nine months ago. It tried the "fork" argument, and gave a low valuation as a result. Guess who acquired XenSource?
I'm not suggesting that Citrix has an open-source fetish. But I'm also not silly enough to suggest that anyone would give a Xandros for XenSource but for the open-source Xen project and for its wide dissemination through Linux. If you agree to this point, then ask yourself how much of a role open source played in making Xen widely distributed and heavily used?
Bingo. Open source matters a great deal.
The real question Citrix should be asking itself is whether XenSource has much impact on the Xen source, as Red Hat has with Linux. The buzz I always heard was that major enterprises were happy to be using Xen...and saw no need for a relationship with XenSource to extract value from the project. I think XenSource's tepid revenues (close to $0.00 in 2006 and on track to hit $8 million or so in 2007) reflect this. The company reports having 650 enterprise customers at an average deal size of $2,000 (shockingly low), according to The 451 Group. There's only one way to go from there...
Which may make Citrix quick bite on the hype premature...or a very wise bet. There's no doubt that its inflated price was driven by the VMware IPO. $500 million is very cheap compared to VMware. Citrix believes it can turn XenSource into a $50 million growth engine by next year. I think it's kidding itself, but it still may be a great bet over the long haul.
Still, it comes down to source of code. And that, my fellow open-source bloggers, comes down to open source. If all XenSource has is some proprietary software that helps to manage an open-source project, it's got nothing and, by extension, so does Citrix.
But if Citrix bought the keys to the open-source project, Xen, then it may well have $500 million worth of momentum. It's all about open source. We would never have heard of Xen if it weren't. Don't let anyone kid you otherwise, even people who I like and respect as much as those referenced above.
Matt Asay brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. You can follow Matt on Twitter @mjasay. 
The way I see it you are both right. Your point is accurate. I had a similar argument with a proprietary VP of engineering friend of mine about how much JOBSS would be sold for (pre Redhat). At the time I was following all the rumors of Oracle buying JBOSS. My friend said there is no way an open source based software company could get high multiples on an acquisition because the buyer would look at the fork option during the valuation as a counter balance. At the time I was in an embryonic stage of understanding this whole community thing (I am still only a child) and I could not explain why I thought he was wrong. Then Bingo 15x JOBSS sold to RedHat. There is no doubt, IMHO, that the community is what gets sold in these situations and thats all about open source. However, Raven and gang are also correct in that with this down tech market there is no way XenSource would have gotten those multiples if not for the Vmware IPO.
Just my thoughts?
John Willis
Johnmwillis.com
I said 2 things:
1. The XenSource multiple had much more to do with this being a virtualizaiton play than anything else. Hence, you shouldn't use the multiple to value the typical OSS vendor
2. I disagreed with your friend?s comment that the deal was about innovative technology (that large vendors couldn't match because they hadn't invested in R&D in the early part of the century). If it were only about technology, then Citrix could have forked the Xen project or spent significantly less than $500M to develop competing technology from scratch. Clearly, there was value in XenSource's brand and the fact that Xen is distributed widely. I just don't think the value is $500M
Savio
Open source is of course not incidental to XenSource's history to date, but I believe it is incidental to Citrix's acquisition and XenSource's future.
[http://Then Bingo 15x JOBSS sold to RedHat. There is no doubt, IMHO, that the community is what gets sold in these situations and thats all about open source.|http://Then Bingo 15x JOBSS sold to RedHat. There is no doubt, IMHO, that the community is what gets sold in these situations and thats all about open source.]
RHT bought brand, market-share, and $community$. The community is an important aspect. Watch what RHT did almost immediately... they applied the Fedora/RHEL model to JBoss. Why? You monetize a MUCH larger portion of your community that way. This is no different than what MySQL just moved on, and I suspect we'll see more of.
You community is your up-sell potential.
I think Citrix will be sorely disappointed in trying to separate XenSource's technology from the Xen community. I think there's much lower value in XenSource than in Xen, and Citrix should be looking for ways to expand XenSource's influence in the Xen community, not diminish it.
But apologies to Matthew and Savio for misrepresenting your positions. It wasn't intentional. I just had a bad morning.
- MarketShare vs. Community
- by royrusso August 16, 2007 12:17 PM PDT
- [In a situation like Jboss or XenSource aren?t the marketshare and the community the same thing?]
- Like this Reply to this comment
-
(7 Comments)Yes and No. Marketshare, to me, means how much of the market I've taken from rivals. Now, I haven't exactly monetized ALL of it. I may have 40% of the market and only get paid on 5% of that.
Now buy JBoss, apply the Fedora/RHEL model, and you're looking at an increased percentage of that 40% marketshare you actually make money from - say they increase their monetization rate to 30%, and the other 10% are "free loading". So the 5% market-share, $XM JBoss is now worth multiples more to RHT.
So when it comes to valuation, I doubt the buyer uses current revenue rates, but rather looks down the road to how much he can potentially mine the community for.
Hence, your community is your up-sell potential.