Can open source companies be successful?

Many open source vendors will continue to struggle, and some well-known vendors will shut down. This triggered some thinking on my side, as I hadn’t thought about this recently.

The question on whether companies can make money with open source has been discussed broadly and lengthy. And yes, there are many good examples of companies being able to make money and attract investors. We all know RedHat, JBoss, MySQL, SugarCRM, Alfresco, MuleSource to name just a few. Well, we do not know exactly how much money they are making, with the exception of RedHat of course. Many so called successful open source company actually just made money by selling the company.

Obviously it takes more than a couple of developers, ideally working for free, and a good idea to come up with a convincing business model. And the current recession will even more clearly point out who the winners and who the loosers are. What is clear is that pure services revenue don’t drive very high margins and don’t create the interesting multiples VCs are hot on. What is also clear is that combining the open source and the proprietary software product model is a challenge. And, what we have learned the hard way is that sales and marketing is expensive and difficult to get right, even if we leverage all the cleverness of modern marketing 2.0 techniques. So, stay tuned. In 2009 and 2010 we will most probably see a major shakeout in this space. Only the strong ones will survive, not that different to other markets.