Open Season On Open Source?

In 1999, Ethan Galstad was thinking about starting a business with a friend. Among other things on their to-do list was digging up software to monitor their network and flag any problems. They couldn't afford any of the programs on the market, however, so Galstad wrote his own. Almost on a whim, he posted it on an open-source Web site where geeks around the world browse code and download programs for free.

Galstad's original business idea never took off. But his software quickly became a hit. Some 50,000 companies downloaded the open-source project, called Nagios, and rely on it to monitor their networks. Galstad, now 31, works with other coders around the world to keep the software up to date and earns money by consulting. "It has really grown on its own, beyond anything I could have imagined," he says.

Galstad is one of the many true believers who have helped turn open-source software into a booming field. The highest-profile, open-source project is the free operating system Linux. Yet there are dozens of other projects to develop open-source versions of almost any software companies pay money for. The projects, whether organized by a company or by a nonprofit, are typically supported by an army of volunteers. Altogether, tens of thousands of programmers work together on open-source software, typically sharing their code with one another over the Net.

Their success has had a far-reaching impact on the tech industry. Linux has spread to more than 25% of the world's servers and has become a legitimate rival to Microsoft Corp.'s (MSFT) Windows. The open-source approach is compelling enough that IBM (IBM) and Sun Microsystems Inc. (SUNW) have become major supporters, utterly changing how they market software. There's even talk of taking the open-source method into semiconductors and tech hardware.

Yet in recent weeks the open-source community has been thrown into tumult. Software giant Oracle Corp. (ORCL) has acquired two small open-source companies and is in negotiations to buy at least one more. Many experts believe this is the beginning of a broader trend in which established tech companies scoop up promising open-source startups. While the validation is thrilling for Galstad and others in the community, it's also unsettling. Many young idealists who set out to create an alternative to the tech Establishment now find themselves becoming part of it. "When your main goal is to turn a profit, you start to lose some of the things that made open-source projects thrive," Galstad says.

The fear is that a round of buyouts could undermine the ethos of open source. Many coders volunteer their time, spending nights and weekends testing bugs and writing patches because they see themselves as part of an important, grassroots movement. Will that motivation remain if they're just helping to fill the coffers of Oracle or other tech giants?

Oracle, which has quickly become the most aggressive acquirer in the field, is undeterred. After striking deals for database companies Innobase Oy and Sleepycat Software, it's in talks to purchase JBoss, an open-source company that makes so-called middleware, for as much as $500 million. Sources close to Oracle say this is only the beginning of an open-source shopping spree. These companies, though they typically charge little or nothing up front for their software, bring in predictable and profitable subscription fees. "We are moving aggressively into open source," said Chief Executive Lawrence J. Ellison at a Feb. 8 investor conference. "We are not going to fight this trend."


For decades, the only people who cared about open source were the geeks who stayed up for all hours swilling Jolt Cola and writing code. But the movement has gone mainstream in recent years. IBM has been one of its biggest champions, pushing Linux and hiring some of its best engineers. The company has more than 900 software engineers working on open-source projects. Venture capitalists have rushed into the field, too, pouring millions into scores of startups.

The outside money has led to the creation of two parallel open-source worlds. On one side are the traditionalists who have been around longer and typically don't have outside investors. They tap into the worldwide community of coders to polish their software. Then there are the newcomers who took venture money to set up shop in the booming field. They don't engage much with the network of open-source coders, doing most development themselves. For them, open-source is less about community and more about marketing. As traditionalists are offered venture money, many are being pulled into the second group.

Galstad is one of the people feeling the tug. He says he has received dozens of unsolicited calls from venture capitalists interested in taking a stake in Nagios. But he isn't tempted. He figures that if he takes venture money he'll have to start looking for a way to cash the investors out, probably through a sale. That could drive him into the hands of a big software company, where he may not be able to pursue the projects he wants. "Once you incorporate, you get shareholders who want to see their investment turn a profit, and all of a sudden the goals and ideals of the project are going to change," he says.

He's in good company. Many open-source projects, such as Linux and the popular Firefox Web browser, are supported by nonprofit foundations that can't be sold. In addition, some of the most successful open-source companies are resisting outside capital, including Digium Inc., which makes low-cost telephone systems for small companies. Mark Spencer, Digium's 28-year-old CEO, has warned several peers about cashing out. "If you give up control of the company, either through percentage ownership or by giving up control on the board, you are effectively selling your company, not taking an investment," he says.

But others see outside cash as a huge help in getting their software into the hands of people who want to use it. Consider Teodor Danciu. Three years ago the Romanian coder wrote JasperReports, a business analytics program that several hundred thousand companies have downloaded. He was updating it on nights and weekends when its popularity became too much for him to handle. So he sold to a Silicon Valley startup, which renamed itself JasperSoft Corp. and hired him as part of the deal. He says it was the perfect opportunity for him to do what he loves: working on the code full-time while making money. Meanwhile, the business arm can invest more resources in support and training than he could on his own.


Coders such as Danciu have a powerful role model in Linus Torvalds, the Finnish programmer who wrote Linux in 1991. Torvalds strikes a balance between community and cash. He focuses on managing the Linux code while leaving the business aspects to companies such as Red Hat (RHAT) and Novell (NOVL) and the nonprofit Open Source Development Labs (OSDL), which organizes advocacy groups around the operating system. He and his followers haven't resisted commercialization. Torvalds draws a salary from OSDL, and many of his Linux contributors have day jobs at companies such as IBM and Oracle. Andrew Morton, Torvalds' top lieutenant, says such efforts have helped make the code stronger.

A big reason people such as Morton and Torvalds are sanguine is their belief that while open-source companies may be for sale, open-source communities aren't. If contributors feel that Ellison & Co. are taking the software in the wrong direction, they can balk and start up a new project, taking along any of the open code they want. That would hurt Oracle's open-source credibility and leave it with little to show for the millions it has spent. "If Larry thinks he can have his way in the open-source community, he's going to find he can't get any developers to work [with him]," says Bruce Perens, a key figure in the open-source movement.

By Sarah Lacy

The Good Business Issue
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