Open Source Business Models

The previous post on Open Source reminds we that we have looked at Open Source business models several times in this blog. Here are a couple of case studies in why software became Open Source.

Apache Derby is an Open Source Java database with an interesting history. Cloudscape, was an early Bay area Java startup. Founded in 1996, Cloudscape came out with its first database product in 1997. In 1999 Informix, bought Cloudscape, and in 2001 IBM bought the database side of Informix, including Cloudscape. Under IBM, Cloudscape development continued, and it was used as an embedded database within several IBM Java products and middleware. In 2004 IBM contributed the code to the Apache Software Foundation as Derby where it has found acceptance.

IBM had acquired Cloudscape by accident when it had acquired Informix, and some time after that acquisition IBM had to decide what to do with Cloudscape. On the one hand, Cloudscape did not fit into IBM product hierarchy. They already had a mobile version of DB2, the database brand and did not need another one. Also Cloudscape did not generate enough revenue to support continued development or be an interesting business. On the other hand, Cloudscape had been adopted for use in many IBM middle tier Java projects. By many I mean at least 70 internal projects were using Cloudscape.

In the end, IBM decided to Open Source Cloudscape under the Apache organization with whom they already had a significant relationship. This solved several problems at once. Cloudscape no longer competed with the DB2 brand. A well established Open Source project would provide long term support for Cloudscape at less expense than doing it in house. A donation of valuable software would help with IBM's standing in the Open Source community and the Apache foundation with which it already had a significant relationship.

Eclipse BIRT (Business Intelligence and Reporting Tool) is an Open Source reporting application that is based on the Eclipse Java Open Source framework. I wrote about BIRT in 2006 about 18 months after the project was launched. In that post, I speculated on why Actuate had Open Sourced BIRT. Apart from the reasons that I gave then, all of which still stand, a couple more reasons come to mind.

On the positive side, an open source project could establish the BIRT and Actuate methodology for defining reports as a de facto standard. Standards create defense in depth from competition and and can provide great profitability for those who control them. On the other side, an strong Open Source project with a pliable license is the best possible way to suck the air out of the competitors lungs and prevent any new competitors from springing up.

Finally, releasing BIRT as open Source software has not harmed Actuate. Since the release, Actuate has not grown revenue significantly, but it has become profitable with strong cash flows. In its most recent quarter Actuate reported that BIRT contributed a respectable 12% of revenue.

In summary, there are a lot of reasons that software becomes Open Source. It can be a new home for old software that does not fit, or it can be weapon in the fight to the top of the business totem pole. Whatever reason, be sure you understand why the software is Open Source before committing to it.