Open Source: Broken Model Or Breaking The Mold?Open Source: Broken Model Or Breaking The Mold?

Much of the analysis of open source business models seems schizoid: it's either the greatest thing since sliced bread or the worst thing since ... you get the idea. The truth is, of course, somewhere in the middle, but in what form?

In a piece for BusinessWeek, "Open Source: The Model Is Broken", OSDL CEO Stuart Cohen lays out his take on the limits of businesses that use open source as their revenue stream:

From what I've seen, the open source business folks who do get it -- the Red Hats and the SugarCRMs -- have had that mentality for a long time. It's just plain old business savvy; it's not some magical fairy dust sprinkled on top of the business. The PC industry deals with its wafer-thin margins in a whole slew of ways -- maintenance plans, preloaded software sales, services, and so on. Open source is no different in the abstract, although it can sure seem different.

Another thing to keep in mind is that most businesses, period, will fail no matter what their revenue model or product. If they sold and supported open source, they may well have failed for reasons that have nothing to do with that fact, or how well they did that specific thing.

Then I glanced back up at the article's tagline: "The open-source business model that relies solely on support and service revenue streams is failing to meet the expectations of investors." Emphasis on the last word is mine, since it shows what the gist of the whole article is really about: the suitability of open source companies as investment targets.

I never imagined using open source would lead to blockbuster business. I did imagine, though, that you could make a respectable profit from it, which for most people is more than enough to keep them busy.  One of the big ongoing lessons from all this is how "success" doesn't have to be defined by the sheer size of the enterprise -- something most of us have realized by now after even the most cursory glance at the latest financial headlines.

Follow me on Twitter: http://twitter.com/syegulalp