The Strange Case of the Disappearing Open Source Vendors

"Is there any point to which you would wish to draw my attention?"
"To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time."
"That was the curious incident," remarked Sherlock Holmes."

--Sir Arthur Conan Doyle, Silver Blaze, 1894

Each year, in preparation for the Open Source Convention, I try to wrap my head around the current state of open source. What's the big story?

Back in 1998 when the term "open source" was coined, the story was simple: "Just because there's no vendor behind software, it doesn't mean it isn't important. The Internet runs on open source software (BIND, Sendmail, Apache, Perl), so any enterprise that depends on the Internet also depends on open source." As in the Sherlock Holmes story, Silver Blaze, the "curious incident" was the absence of the expected. The press, the analysts, and the computer industry as a whole ignored open source software because no one was paying for it. An industry whose measurements were focused on vendor market share had no way to come to grips with a market segment in which software could be adopted by end users without money changing hands.

But like the misdirection that often characterizes mystery stories, the first and most obvious conclusion may lead the investigation astray. Many people rushed to the conclusion that the answer was to monetize this market segment! Over the next few years, open source boomed along with the Internet, and we saw a huge influx of venture capital (especially into Linux) and several multibillion-dollar IPOs.

In the summer of 2002, though, the story is much more sober. The dot-com boom has ended, the VCs and the stock market are in retreat, and of all the much-hyped open source companies, only a few are left. Red Hat is still flourishing, but VA Linux Systems has taken "Linux" out of its name; Caldera, SuSe, Turbolinux, and Connectiva are joining forces; Eazel, Great Bridge, and Lutris are out of business, among many others. (Note: In addition to Red Hat, there are some quiet successes: Zope, ActiveState, and CollabNet all have continued solid growth. Disclaimer ((or should it be bragging rights?)): O'Reilly is an investor in all three.)

At the same time that many open source vendors have stumbled, though, the acceptance of open source has gone through the roof. And it is here that we can see the true significance of the Sherlock Holmes story with which I began this piece: the dog did nothing because it was the owner of the dog who came in during the night.

Open source is ultimately about empowering users, not vendors. Eric Raymond made this point convincingly in the third of his essays on open source, The Magic Cauldron (now collected as The Cathedral and the Bazaar), pointing out that far more software is written for use than for sale. In a section entitled "The Manufacturing Delusion," he notes:

"We need to begin by noticing that computer programs, like all other kinds of tools or capital goods, have two distinct kinds of economic value. They have use value and sale value.

The use value of a program is its economic value as a tool, a productivity multiplier. The sale value of a program is its value as a salable commodity.

When most people try to reason about software-production economics, they...have a strong tendency to assume that software has the value characteristics of a typical manufactured good. [This assumption is] demonstrably false.

Scanning the employment section of your local newspaper is an enlightening experiment that I urge the reader to perform for him- or herself. Examine the jobs listings under programming, data processing, and software engineering for positions that involve the development of software. Categorize each such job according to whether the software is being developed for use or for sale.

It will quickly become clear that, even given the most inclusive definition of "for sale", at least 19 in 20 of the salaries offered are being funded strictly by use value (that is, value as an intermediate good)."

It is the users of Apache and Perl and Sendmail, from dot-com sites like Yahoo, Amazon, and E*Trade, to ISPs and other Internet infrastructure providers such as UUnet, Rackspace, and Akamai, to thousands of small Web design firms and other service businesses, not to mention large end users like Wal-Mart*, that are making (or saving) money with open source.

(*Yes, I know that Wal-Mart shows up on Netcraft as running Microsoft IIS, but curiously, the operating system is Linux. So, it appears to be a case of the fairly common Apache hack, in which the Apache source is modified to output IIS as the server string. Mike Prettejohn of Netcraft assures me that the method used to find out the underlying operating system is less susceptible to modification in this way than the Web server signature.)

Bob Young, the former chairman of Red Hat, once remarked that what Red Hat actually sells is control, the power of end users to extend, modify, and service their own software, rather than depending on the whims of a vendor. He repeated this idea in a recent interview with ZDNet UK:

"...for the first time the customer was given control over the technology that you're asking them to invest in.... The beauty of open source software is that when you run into a bug you can get it fixed. You get source code and you get a licence that allows you to modify it. It's like buying a car with a hood that you can open, as opposed to the traditional model in the software industry where the hood is locked shut. If you can open the hood it means you can fix your car, but it also means you have access to 10,000 car repair shops across the U.K. Whereas if the hood's locked shut, and if your vendor denies that it's a bug, which is known to happen, you're completely stuck."

In many of its recent attacks, Microsoft has argued that open source is bad for business, but you have to ask, "Whose business? Theirs, or yours?" The answer to that question is very different if you're an end user rather than a software vendor.

If you look at the sessions at the upcoming O'Reilly Open Source Convention in San Diego, you won't see lots of software-vendor product pitches. Instead, you'll see open source being put to work by its owners. Lincoln Stein, Ewan Birney, and Jim Kent are deciphering the human genome. Robert Spier of Walt Disney Feature Animation and Milton Ngan of Weta Digital (the animation company that worked on the movie version of Lord of the Rings) are using Perl and Linux to make better movies. Jason Asbahr is using Python to develop the logic for games on the Sony Playstation and the Nintendo GameCube. Jeremy Zawodney of Yahoo talks about MySQL Optimization not because Yahoo sells MySQL but because it uses it to deliver its service. And of course, it's not just the speakers but the attendees at the conference who are using open source to improve productivity, cut costs, and drive innovation in the products and services that they do sell.

Some of the industries and well-known companies represented by attendees at the conference include aerospace (Boeing, Lockheed Martin, General Dynamics, Raytheon, NASA); computers and semiconductors (Agilent, Apple, Fujitsu, HP, Intel, IBM, Philips, Intuit Macromedia, SAIC, Sun, Texas Instruments, Veritas); telecom (ATT Wireless, Nokia, Qualcomm, Verizon Wireless); finance, insurance, and accounting (Barclays Global Investors, Morgan Stanley, Federal Reserve Bank, PriceWaterhouseCoopers, Prudential); media (AOL Time Warner, BBC, Disney, LexisNexis, Reuters, USA Today, Yahoo); and pharmaceuticals (GlaxoSmithKline, McKesson, Merck, Novartis, Pfizer).

(If this list (derived from a few minutes looking over the conference program and attendee list) isn't enough to convince you how widely open source is used in business, Chris DiBona, Jeff Bates, Karim Lakhani, and Robert G. Wolf will be doing a session on Open Source Demographics: Who They Are and Why They Do It. And Paul Pangaro and Elaine Coleman of Sun Microsystems talk about the changing relationship between business and developers.)

It may turn out that the observation that first triggered the wave of open source activism ("Just because there's no vendor behind software, it doesn't mean it isn't important") remains the touchstone of the movement. The "strange case of the disappearing open source vendors" doesn't reflect the weakness of open source but its strength. And the fact that open source may reduce the revenues of some software vendors does not mean that it reduces economic activity or economic success, but instead that it correctly allocates the profits to the developers of that software, its users.