Don’t fear the reaper. Why FOSS should not fear M&A by proprietary vendors

A couple of posts have been published recently worrying about the impact of more open source specialist vendors being acquired by proprietary vendors.

This is an issue that crops up occasionally. Usually when a major acquisition has been announced, and the current questioning seems to be driven by the ongoing saga of Oracle-Sun-MySQL, as well as the rumoured purchase of Zimbra by VMware.

While fear of the unknown is understandable, to my mind the concern about open source specialists being acquired by proprietary vendors is driven by parochialism and misplaced assumptions about the rate of acquisitions and the acquiring company’s intentions.

For a start the statistics suggest that acquisitions involving open source vendors have declined in recent years (contrary to our expectations to be honest). According to our preliminary figures there were 24 M&A deals involving open source vendors in 2009, compared to 29 in 2008 and 35 in 2007. Dave Rosenberg makes the case that we have seen less open source M&A than we might have expected.

There is always the fear, however, that a proprietary vendor could acquire an open source rival in order to shut it down. This is a theory we at The 451 Group investigated last year via a TechDealMaker service report asking “Could an open source project survive a hostile acquisition?” (451 clients can access the report here).

Looking at the history of M&A involving open source vendors we were unable to identify a single example of a proprietary vendor acquiring an open source project in order to kill it off.

Another significant fear involving open source acquisitions is that the acquiring company will suddenly change the licensing and/or pricing in order to generate revenue from users open source of the open source project.

To me this is a fear based on a false assumption that the only way to monetize open source is directly. If we look at the strategies used by proprietary vendors to generate revenue from open source (as we did oin our Market Insight Service report “How third parties generate revenue from open source“, which was itself adapted from our Open Source is Not a Business Model CAOS report) we find that they are more likely to do so indirectly via complementary products and services.

In contrast open source specialist vendors have no choice but to attempt to monetize the open source software directly, either through support or proprietary licensed add-ons, and we have observed that this creates an inherent tension.

There is also a false assumption that open source specialist vendors are more committed to an open source “philosophy”. Some are, to be sure, but some simply see open source as a means to an end – treating it as a license tactic that disrupts competitors and expends potential adoption. There is nothing inherently wrong with that, but it does mean that for a great many open source “projects” the idea of the development community is a myth.

As previously discussed, Matt Asay noted last year that “vendors that have proprietary selling points elsewhere don’t need to control open-source code.”

In fact, I would suggest that vendors with proprietary selling points elsewhere have more to gain from releasing control of an open source project. Dirk Reihle explained the financial benefits this week with his Economic Case for Open Source Foundations, including sharing development expenses, increasing profits per sale, increases sales, and expanding the addressable market.

The fact that proprietary vendors have proprietary selling points elsewhere means that they are also in a better financial position to trade control for community via a foundational approach, in contrast to open source specialists.

There may well be situations where the acquisition of open source specialists by proprietary vendors might give cause for concern, but I believe it is wrong to assume that the impact will be negative. While many open source specialists might have something to fear regarding increased M&A activity, in the broader context open source software has more potentially to gain from the increased involvement of proprietary vendors than it has to lose.

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#2 Tom Hanlon on 01.09.10 at 2:13 am

You state that you could not find an example of an open source project being acquired in order to shut it down.

Look harder…
I think camstudio is an example.

I used the open source product for screen captures, it was open source but it was a windows app so the source code in terms of a tarball was not always in plain site on the web. It was a great product, macromedia bought them, closed the source, and the previous source was very very hard to find.

Over time it did show up and was re-released but last I checked development was slow.

I would call that a case of an open source product being bought by a competitor and killed, hit the wayback machine and see what you can find if you are curious.

#3 Matthew Aslett on 01.10.10 at 3:40 pm

Hi Tom,

Thanks for the information. I’ve taken a look and it certainly fits the bill but it appears that it was eHelp that closed the source before the code vanished during subsequent acquisitions. It was overlooked thanks to the number of number of acquisitions involved.

Thanks again

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#6 Joe Bachana on 01.09.10 at 7:24 pm

Nice post, Matt.

We’re on new terrain in the marketplace, since the proprietary vendors are feeling their way into the OSS market more out of necessity and fear on their side. Of course, on the open-source side you’ve got the anger and mistrust built up from decades of community developers railing against ‘the man.’

While the risks are great as you and others point out, I think there’s a huge opportunity here. If the proprietary vendors can bring the discipline of ‘software assurance’ (24/7 support, product release management, training/reference materials, centralized resource management, etc) to the table without ruining the licensing model or even the community culture of decentralized ingenuity, I think this could be a big win for all parties involved.

As always, I remain excited by what’s to come…

#7 451 CAOS Theory » Save MySQL would not spare open source M&A on 01.20.10 at 7:21 pm

[…] of open source projects and code is certainly warrented and prudent, but I don’t believe the fear that punctuates the message of the ‘Save MySQL’ campaign makes much sense. This is […]