A classic Morecambe and Wise comedy sketch from the 1970s sees Andre Previn criticizing Eric for playing all the wrong notes while attempting the Greig Piano Concerto. Morecambe responds that he is in fact “playing all the right notes. But not necessarily in the right order.”

I was reminded of the sketch this morning while reading BusinessWeek’s article on the potential perils facing open source vendors today. It seems to ask all the right questions, but not necessarily in the right way.

The report suggests that while industry giants such as IBM, HP, Oracle and Intel stand to benefit from open source software, investor impatience could spell trouble for open source specialists such as Red Hat, Novell, and other smaller vendors.

Among the interesting questions asked in the report are whether Red Hat might be an acquisition target for VMware, whether Linux vendors can persuade netbook vendors to pay for support, and whether investors will run out of patience given the time it takes open source vendors to mature.

These are all interesting questions. Unfortunately asking them all in one very short report paints a highly negative and unbalanced picture of open source software vendors. In particular the netbook question is only a problem if vendors are relying on it to generate revenue, which few of them are.

The report also relies on an outdated view of how open source specialists generate revenue from open source software.

“What’s ailing open source? Vendors often lack access to a broad array of distribution channels. Their business is typically based on selling tech support rather than offering unique, must-have technology that customers will keep craving even when budgets are tight,” it says.

In reality most open source vendors have some kind of ‘unique, must-have technology’ that is only available via commercial license or subscription, although it is true that many open source specialists are still defining their value add and working to strike the right balance between open and closed.

BusinessWeek also states that Red Hat “has yet to crack $1 billion in sales, despite proffering Linux for well over a decade” and points out that MySQL took 13 years to go from start-up to $1bn acquisition, adding that “many investors won’t wait that long.”

This is definitely a ‘glass-half empty’ look at the world. Although I have previously noted that open source vendors need time to thrive I believe the VCs that understand open source software are well-aware of this and have placed their bets accordingly.

The report also states that “only a handful of open-source acquisitions the last two years have netted investors at least 10 times their money.”

That may well be true, but we have only recently seen serious M&A activity involving open source vendors. That “handful” is actually a decent proportion of the total number of M&A deals done so far, some of which have returned much much more that 10 times the money to investors.

As for VMware as a possible suitor for Red Hat - the report states that “former VMware CEO Diane Greene… had set up meetings with Red Hat in part to position VMware as friendly to open source and possibly as a prelude to a buyout discussion.”

This is an intriguing suggestion although it is hard to imagine what VMware would gain from such a deal, other than a substantial customer base. The lack of explanation on this point is a flaw for the report, as is the mention of SpikeSource without reference to the fact that the company’s model has evolved to address both open and closed source software.

BusinessWeek concludes that “If the open-source movement, now in its second decade, is to realize its promise for vendors and investors, more of its purveyors will need to get the message soon” and realize that a pure services business is not the answer.

The question that most open source vendors face is not how to evolve beyond a services-led model but what balance of open and closed software enable them to maximize the benefits of open source development and distribution and turn widespread interest into paying customers.