Do I look ugly in this open-source license?

Open source may be faring well in a bad economy, but that doesn't mean you will, as Socialtext's poor first quarter suggests.

A bad economy is good for open source, goes the increasingly conventional wisdom. However, while it's undoubtedly a good time to be in the market with a low-cost, high-value alternative to proprietary software, there are tell-tale signs that the recession isn't blessing all open-source companies equally.

Ross Mayfield, co-founder of Socialtext

For example, at the Enterprise 2.0 conference on Tuesday Socialtext founder Ross Mayfield declared, in the words of a conference attendee via Twitter, that Socialtext's first quarter "sucked" and that its "pipeline collapsed." Socialtext, once described as a highflier in a "sizzling market," has apparently come down to earth.

Or has it? Is this a one-time blip for Socialtext? While Socialtext CEO Eugene Lee announced layoffs in April as the company looked to cut expenses, Mayfield on Tuesday declared that the company's second quarter looks strong. Even the best companies can slip in a brutal market.

Or perhaps Sociatext is fighting a weakness in enterprise collaboration ROI (return on investment) and demand, rather than open source?

If that were true, one would expect all companies in Socialtext's space to be hit equally, but this hasn't been the case. During this same first quarter, Socialtext competitor MindTouch experienced double-digit growth, while Microsoft's proprietary SharePoint product also continued to boom. (Disclosure: I am an adviser to MindTouch.)

I suspect Socialtext experienced a road bump, not a barricade. The difference is that, in true open-source style, Mayfield was candid about the slip up.

Open source remains alive and well. It's important to remember, however, that this doesn't mean every open-source company will do well.

Open source is not magic pixie dust that makes bad companies good. It's not a cure for the common recession. Companies still need to execute well, regardless of their licensing strategy. And, importantly, the wrong open-source licensing model can handicap a company, making it harder to profit from a project's popularity.

The recession, in short, will sift good companies from bad, whether open source or proprietary. As for Socialtext, its fate will not be decided by a single quarter. It's in a good market with a good model. It should do fine.


Follow me on Twitter @mjasay.

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