#4: Creating OSS Value != Capturing OSS Value, Part I

Written by Joseph Jacks on Jul 11, 2018

In this post, I had planned to generically cover two distinct, often conflated and highly misunderstood/misinterpreted dynamics of creating and then capturing value with OSS in the commercialization context.

However, yesterday the following post was published by Adobe’s current Head of Developer Ecosystem Matt Asay in response to the 2nd Open Consensus post on Open Core:

Why you really don't want just one vendor running an open source project

So, let’s dig into Matt’s comments (assertion/response-form) then segue into examples of creating and capturing value.

I should say that it’s awesome to see Open Consensus exciting interest and conversation from industry experts like Asay. This is precisely why I decided to start this blog and I hope it continues!

Asay comment: There’s a lot of money to be made by controlling open source, but far more can be made with community-driven open source.

JJ response: There is certainly an unhealthy level of zero-sum thinking these days in the tech industry, but by no means do I mean to assert that “optimal” business models (open core being the predominant one, not broadly!) for commercial OSS also = that “most” money can be made this way. This is a highly nuanced topic and overfitting conclusions abound.

Asay comment: Calling Linux and Hadoop two multi-vendor open source communities that have “made commercialization of the technology extremely competitive and difficult” is nutty! (paraphrasing, but Asay did question what planet I live on… 😃).

JJ response: But it is true! MongoDB has a very healthy ecosystem, but a single major vendor. Hadoop also has a very healthy ecosystem, but many vendors. Competition drives commoditization which makes it difficult to capture value.

Asay comment: In arguing for single-vendor open source “communities” and their allegedly superior economics, Jacks unwittingly argued for (one) winner-takes-all when far more money is available in (many) winners-take-much markets.

JJ response: “Money is available” being the key phrase here. That is true, but my writings at Open Consensus are mostly pointed towards founders/creators of OSS projects looking to optimally commercialize and “Capture” some of the value they create. Single-vendor OSS companies succeeding does not prevent their OSS projects from having very healthy ecosystems and communities. The beneficial economic properties from centralizing commercialization curation are not allegedly superior, they are factually superior. There’s plenty of data to prove this. Tom Tunguz from Redpoint blogged a couple days ago about the “winner take most” dynamics of SaaS vendor categories — a tangentially similar post on Open Consensus as applied to commercial OSS companies is in order!

Asay comment: COSSCI purports to show Open Core vendors piling up $110 billion in value, with pure-play open source vendors netting a mere $30 billion.

JJ response: Small nit — ~$100B is what OC-based companies (25+ in top quartile, but NOT including many many others under $100M in revenue) have “captured” (by valuation, most of which I believe are actually conservative). That mere $30B is actually concentrated on basically one company: Red Hat.

Asay comment: Red Hat’s value is $24 billion, as that’s its current market valuation. Such a mechanism, unfortunately, only measures what investors think the company is worth, not what customers closest to the software may believe.

JJ response: This goes back to misinterpreting the context of my post. “Value” is highly subjective … value for users, value for companies, value for stakeholders, value for customers, value for employees, value for developers… all are different things with different meanings.

Asay comment: Jacks grossly overestimates most of the software vendors in his $110 billion estimate. All of them are at $100 million or more in revenue, yet virtually none of them have filed to go public (which strongly suggests they’re doing nowhere near $100 million).

JJ response: I stand by my data! Very happy to be proven wrong in specific areas, and when I am, I update the COSSCI. 😄

Asay comment: Jacks wants us to believe that the best model is the one that makes a single company filthy rich.. a far better model is one that makes many companies rich (filthy or no). And not simply software vendors. Take Linux. Red Hat got to $2 billion selling value around Linux (support, a hardened distribution, etc.). But while Red Hat made that money, a host of others, including Oracle, IBM, and many more made tens of billions selling hardware, software, and services around Linux. If we use Jacks’ calculus of company valuations to measure total value, Linux has driven multiples of that $110 billion valuation he gives to the Open Core crowd.

JJ response: I completely agree with this (the last part). I plan to write on this in the future, but: whether a single-vendor OSS vendor exists or multi-vendor OSS companies exist, both approaches will always be based on OSS project(s) which create/generate 100X+ more value than any commercialization model/implementation is able to capture. Herein lies the equitable beauty of OSS!

Asay comment: It’s not winner-takes-all, or even winner-takes-most. Such multi-vendor open source communities can generate many winners driving huge value for themselves and for their customers.

JJ response: Agree.

Asay comment: Is there money in tightly controlled, single-vendor Open Core businesses? Sure. But it pales in value and influence compared to true, community-driven open source projects.

JJ response: Disagree. Even the most well-controlled single-vendor OSS companies (Talend, MuleSoft, Pivotal, GitHub, etc) participate in value-flowing ecosystems that vastly exceed their own capitalizations.

Stay tuned for Part II of this post where I’ll go into more detail on various ways and approaches for creating and capturing value, and the orthogonalities therein.

#4: Creating OSS Value != Capturing OSS Value, Part I was originally published in Open Consensus on Medium, where people are continuing the conversation by highlighting and responding to this story.

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