Open source is dead. Long live open source

BusinessWeek talks out of both sides of its mouth on Monday, on one hand carrying an op-ed piece from Collaborative Software Initiative's Stuart Cohen arguing that the "open-source business model is broken," while on the other hand talking up how enterprises are turning to open source to save money and drive productivity in tough times.

Which is it?

It's both, of course. Cohen is referring to a bit of a straw man when he claims open source is dead, referring to support-based business models that don't add "proprietary" value beyond the base, open-source code. All successful open-source companies have always had some value-add beyond the base code itself, whether that company is Red Hat, MySQL, SugarCRM, Zimbra, or IBM. We've just become more open about calling it out.

Cohen is therefore right to declare:

Open-source code is generally great code, not requiring much support. So open-source companies that rely on support and service alone are not long for this world. The traditional open-source business model that relies solely on support and service revenue streams is failing to meet the expectations of investors.

So we need more efficient ways to monetize open source. Point taken. But customers aren't waiting. As E*Trade Financial Chief Scientist Lee Thompson tells BusinessWeek, the benefits of open source are too good to ignore, and go well beyond acquisition cost:

For some companies, the benefits of open source extend well beyond cost savings, to such areas as license management. "Your engineers spend less time on contract negotiation and more time on the technology, which is really what you want them to be doing," says E*Trade's Thompson.

The online trading company also says its systems have become more reliable under open-source software. On January 22, around the time of an interest rate move by the U.S. Federal Reserve, nearly 55,000 customers logged in at once to Etrade.com, the highest level in the past five years. The site performed at normal levels across all its trading and investing platforms, and the company says it fared much better than the competition.

Today, Thompson is considering expanding E*Trade's use of the Alfresco open-source content management system. He's also starting to use open-source techniques for internal software development, such as using smaller, more agile teams and breaking up software projects into modular pieces. "If you look at what's happened in the last year and you look at what happened in the dot-com era, there are some parallels," Thompson says. "A lot of people who are under a budget crunch like we were in 2001 will come to the same conclusion about open source."

There's no question that open-source adoption will accelerate. The question is whether companies can monetize that acceleration. I think we can, and in some cases I know that we already are.

This is a marathon, not a sprint. We just need to stop thinking sprint in terms of open-source business models, and think more like longer-term plays like SaaS, Google-like data aggregation plays, etc. The money isn't in support, and it's arguably not in the software, either. Rather, it's in the services that surround the software, some of which may be created from software, and some from people. But none of it looks like a pureplay support model, to Cohen's point.

Disclosure: I work for Alfresco. Los Angeles Times and E*Trade, both quoted in the BusinessWeek article, are customers. I have informally advised the Collaborative Software Initiative on occasion but have no financial interest in the company.