November 20, 2001 4:00 AM PST

Open-source approach fades in tough times

The ideological purity of the open-source software business is being diluted by a new era of pragmatism as start-ups adjust to the economic slump.

Open-source describes a collaborative method of developing software by freely sharing programming code, with no single company owning the rights. Volunteers work on myriad open-source projects, and in many cases companies hoped to harness that talent to compete better with software titans such as Microsoft, with the Linux operating system being the most visible example.

On the business end, companies typically seek customers with the free software and derive revenue by selling services and support.

But that's proved easier said than done.

Take the case of Sistina, which developed a file system that multiple computers can share, making it easier to harness their collective power as if they were a single machine.

"We felt we could generate more revenue off services and support," said David Sass, vice president of business development for Sistina. "As we went out, we found that wasn't a very sustainable business model for us."

Sistina changed course in August, switching to a closed-source license for version 4.2 and the imminent 5.0 release of Global File System.

Many other companies have followed a similar path, becoming increasingly protective of their intellectual property. The shift has parallels with the faltering Net economy, where scores of Web sites that offered information for free have resorted to charging or face extinction.

"Where is our business model if everyone else can copy it?" asked Holger Dyroff, former CEO and now director of sales for Linux software seller SuSE. "The question is where we can make money now. Nobody cared about profitability two years ago."

The new thinking often involves a proprietary product that has been built on top of an open-source foundation--a situation that could be considered the best, or worst, of both worlds.

"There are definitely market dynamics driving companies to focus on intellectual property on top of an open-source solution," said Giga Information Group analyst Stacey Quandt. "Service by itself is not going to lead companies to profitability."

A revolution triggered by Linux
The open-source movement--best exemplified by the Linux operating system and the General Public License (GPL) that governs it--features collaborative programming by all comers. In the case of Linux, participants include not only several companies that distribute Linux but also larger corporations such IBM and Intel, as well as volunteers all over the world. With so many developers cooperating on the same project, the argument goes, the software improves faster than with proprietary programming typified by Microsoft.

The Linux excitement blossomed in 1999 with the initial public offerings of Red Hat and VA Linux Systems and the arrival of Linux on servers from IBM, Dell Computer, Hewlett-Packard and Compaq Computer.

If it says Linux, investors want it Soon, entrepreneurs began building companies around other open-source projects--everything from e-commerce applications, databases, Java and instant messaging to e-mail, Web page delivery and programming tools. Linux companies such as Lineo, Turbolinux, LynuxWorks and Linuxcare raced to their own IPOs.

Better established companies tried to tap into the enthusiasm as well, hiring or trying to secure the endorsement of open-source luminaries. Apple, HP, Sun Microsystems, SGI and IBM strove to release software into the open-source domain so they wouldn't be perceived as so-called parasites that drew on open-source software but gave nothing in return.

Decline and fall
But the revolution ran out of steam, first as the Internet fervor collapsed and then as the economic slump tightened corporate budgets.

Ars Digita in April reversed direction, selling proprietary modules to its once fully open-source product for Web-based e-commerce software.

VA Linux Systems left the server sales business to focus on proprietary enhancements to its SourceForge collaborative programming site. The company also wants to drop Linux from its name.

Great Bridge had hoped to sell services for its version of the open-source PostgreSQL database program. The company shifted to a more product-oriented business but eventually expired. "We could not get customers to pay us big dollars for support contracts," founder Frank Batten Jr. said at the time.

And the terminology is shifting subtly. Lutris Technologies, whose application server e-commerce software competes with products from BEA Systems and IBM, has been modifying its image to reflect the new era. In March, Lutris described itself as "a leading open-source enterprise software and services company." Now the company talks first about the products it sells, adding later how it "leverages the worldwide open-source process."

Some feel the shift toward proprietary software was inevitable given the economics of the business.

"The development model of open-source software is wonderful. But let's not confuse a development model with a business model. Basic business principles were forgotten by some," said Turbolinux Chief Executive Ly-Huong Pham.

"It's interesting to see these companies coming around to what has been our business model since the very beginning," added Pete Beckman, Turbolinux's vice president of engineering. Turbolinux sells Linux in combination with proprietary software of its own and from partners like Oracle.

Companies such as Sendmail and Covalent Technologies that sell proprietary enhancements to open-source foundations--the Sendmail e-mail and Apache Web page delivery programs, respectively--are on more comfortable ground.

At least one company refuses to budge from its open-source stance, however: Red Hat, the top Linux company. "We believe the Red Hat brand stands for open-source," said Chief Technology Officer Michael Tiemann.

Tiemann, who was head of the open-source programming tool company Cygnus before Red Hat acquired it, warned that moving to a proprietary model is no miracle cure. A faltering open-source company shouldn't expect instant revenue by closing the source code in the next edition--an approach Cygnus tried but abandoned.

"I can't imagine why someone would want to buy a new proprietary system from a bunch of inexperienced people when you can buy proprietary systems from a bunch of very experienced people," Tiemann said. "We had hired people who felt proprietary software was going to help us leverage our open-source position. We were wrong, and we learned a lesson."

Tiemann also tried to distance Red Hat from competitors. "We can't apologize for the failures of the companies that have tried to run in our slipstream," he said.

The human factor
One key motivation said to drive volunteers to open-source projects--the prospect of leaving a lasting mark on the software world--has shown its limits. "I'm tired of people who complain loudly when something doesn't work but fall silent when asked to help in fixing it," groused Christoph Phisterer in his resignation from leadership at the Fink project to bring open-source and Unix software to Mac OS X computers. "I once thought sharing my knowledge, experience and time with the community was a good thing, but now I know better."

One advantage of the open-source model, however, is that the Fink project continues even without him.

Moving to a proprietary system also can spur ill will. Because of the freedoms afforded by the open-source movement, older versions of software may live on as competition. The Free Software Foundation, founded in 1984, continues to work to ensure open-source versions of programs live on as long as possible.

For example, the FSF has begun a project called Savannah that's based on VA Linux Systems' original SourceForge software. "It's time for people who value freedom to escape from SourceForge," wrote the FSF's Loic Dachary, who contributed to the Savannah effort but criticized VA for locking in programmers, providing no way to fully extract project information from the site.

An open-source group has also split off Sistina's file system software into a project that will go its separate way. "We think we have the skills to keep ahead of any project that will develop in the open-source" realm, Sistina's Sass replied.

 

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