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The impact of licensing choice
Matthew Aslett, February 29, 2008 @ 12:19 pm ETTim Bowden published an interesting post earlier this week about the impact that the choice of open source license has on the potential valuation of an open source vendor. Taking the MySQL and PostgreSQL databases as an example, Bowden wrote:
“When it comes to takeovers and valuations, I think the role of GPL as a strategic weapon is often under appreciated. If you’re top vendor dog in a GPL project, other players have a very hard time unseating you. That may sound counter-intuitive given world + dog has the code, but I don’t believe it’s such an advantage for competitors as most assume. Your lesser competitors in the same space have to share their plum developments with you. Sure, the top dog has to share his plums too, but when you’ve got the top plum growers in your own yard (to push a metaphor too far), you get to go to market with the best solutions first. If you can keep your plum growers happy, and can do your business execution right, you’re in a very strong position.
“With BSD projects on the other hand, solution providers tend to go to market with proprietary solutions. You can’t force your competitors to share their plums. You don’t share your own (at least, not till they’re getting a bit old and withered). The competitive maneuvering follows a more traditional proprietary model. Being top dog doesn’t stop the competition accruing some distinct proprietary advantage. Sure, it’s rarely easy winning from behind, but if you’re a second tier vendor and have to give away your best produce to the market leader when you go to market (like with GPL’d projects) surely it’s so much harder again.”
If you look at the history of open source databases, there is an argument that the BSD license not only makes it easier for smaller vendors to challenge incumbents, but also for more difficult for the first-to-market to establish anything near a position that could be considered ‘top dog’. PostgreSQL is a prime example of an open source project that has never been successfully commercialized on a global basis, despite all its good qualities.
While regional support players such as Command Prompt and PostgreSQL Inc in the US, Credativ in Europe and Software Research Associates, Fujitsu and NTT Data in Asia provide support services for PostgreSQL, global players have come and gone. Illustra was subsumed into Informix, and Great Bridge failed to generate enough funding, while Pervasive and Red Hat more or less gave up (although PostgreSQL – Red Hat Edition is still available).
PostgreSQL’s success in the academic and scientific community has had something to do with the lack of global commercialization opportunities, but it does appear that the use of a license that enables proprietarization has actually reduced the opportunities for commercialization.
For more on this see Further thoughts on the impact of licensing choice.
Comments (9) Categories: Licensing,M&A,Software
GPL license better than BSD, business wise?…
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[...] The impact of licensing choice [...]
[...] the451group [...]
Matthew, I suspect you’re right to push the argument further. I have neither the time nor inclination for it, but I’d love to see some numbers on large successful businesses based on GPL and BSD licenses.
I expect that open source projects that start as commercial operations would almost all be GPL’d. The most telling metric though, would be with businesses that build on existing open source projects.
Are the commercial vendors successful because they used the GPL or did they use the GPL because they wanted to be commercially successful? Off the top of my head I’m struggling to think of a successful commercial company built around a BSD project, though. It’s worth further research, as you say.
[...] mars 7, 2008 I’m still kicking around the ideas suggested by Tim Bowden’s post, which suggested that the GPL is a better licensing choice than BSD for vendors establishing commercial dominance around an open source project. If you were to draw up a list of the most successful commercial open source vendors, I believe they would all be based on either the L/GPL or the MPL. Certainly, taking Tim’s central point about M&A valuations for open source vendors as the yard stick, then the largest open source M&As have all involved copyleft licenses (although Ian Skerrett believes this has as much to do with trademarks as it does license, and of course the brand is significant). With community-led projects, vendors more often that not face a choice of two business models: support services (Covalent) or proprietary extensions (EnterpriseDB). Both models enable commercial businesses to flourish, although neither does so as quickly as the captive model has done via dual-licensing (MySQL) or mandatory subscriptions and copyright control (Red Hat Enterprise Linux). The dual licensing approach, in particular, gives the open source vendor control over the ‘open market’ for support and services around a captive open source project, and has proved popular for customers concerned about the implications of adopting GPL software. Meanwhile Red Hat’s model is as close as you can get to a dual-licensing approach in a community-led GPL project. Arguably it is these models, rather than the license itself, that has enabled the vendors to establish dominance in a particular market (although more research is needed into the difference between captive GPL projects created by commercial operations and commercial operations that have emerged from community GPL projects). Meanwhile, earlier this week I met up for a chat with Gianugo Rabellino, the CEO of Sourcesense, during which he made the point that what is good for the vendor is not necessarily good for the customer. As an ASF member and Apache committer, Gainugo leans towards community- rather than captive-open source software and points out that for every MySQL there will be several open source vendors that don’t make it. The failure of open source start-ups is an aspect of the industry that open source has not yet had to face up to. There have been isolated incidents of vendors falling by the wayside, and it is likely there will be more, although most investors will look to get some return from their investment, rather than just letting it dwindle away. So far M&A activity around open source vendors has been driven by the value extant in the open source model (although you could argue about XenSource) but what happens if and when open source vendors are acquired by a vendor in order to kill an open source alternative or to take advantage of dual licensing to take a project proprietary? It is certainly theoretically possible for the dual licensing approach to be used to remove the freedoms and flexibility that attracted customers to open source software in the fist place. While the original code would remain GPL, unless a community springs up to support it, it is effectively moribund. Of course the BSD license specifically allows this situation to occur, but the fact that projects are community-led rather than captive enables them to survive and thrive while vendors come and go (see PostgreSQL). According to Gianugo, if an open source vendor shake-out occurs, the potential advantages of community-led projects will come in to play for customers. The community-led project arguably offers a better model for ensuring the long-term availability of code and the creation of a contestable market for support and services. If customers find that the dual license approach isn’t the safety net they thought it was, the argument goes, they could migrate towards community-led projects. [...]
[...] One such that has been picking up steam of late is that open source licensing is less important than commonly assumed. Reacting to a piece from the 451 Group, Eclipse’s Ian Skerrett makes the case that trademarks are the real strategic weapon. Tim O’Reilly, for his part, has famously declared that “open source licenses are obsolete,” largely due to their irrelevance (the Affero and such licenses presumably excepted) to those – like Amazon, Google, et al – that do not distribute software in the traditional sense. [...]
[...] post today that relates to a couple of posts I’ve written about recently, particularly The impact of licensing choice and Is FOSS heading for an identity [...]
[...] of licensing choice Matthew Aslett, March 7, 2008 @ 6:48 am ET I’m still kicking around the ideas suggested by Tim Bowden’s post, which suggested that the GPL is a better licensing choice [...]