Let the pollination begin

Open source software business is all rage these days.  It started with RedHat’s acquisition of JBoss and it was followed by SourceFire’s IPO.  Then there was the XenSource acquisition by Citrix, and most recently Yahoo’s agreement to buy Zimbra.  Though on the surface, these acquisitions may seem to be limiting open source software choices to consumers, they can end up being the beginning of a very important cross pollination trend.

Users of open source software have been talking, and writing about the death of proprietary software model for a very long time.  Their main argument has been that customers and enterprises were no longer willing to pay 100% astronomical prices for software that only offered 50% usable functionality.  It was also assumed that open source would have a better chance of being successful in non-innovative and mature markets.  The first point about customers unwilling to pay high prices for enterprise software still holds true.  However, the recent acquisition news and an IPO turned this argument on its head.  JBoss, SourceFire, XenSource and Zimbra were deemed successful because they brought innovation into their respective product categories.  In relatively short amount of time, they proved that open source is and will be the successfully innovative model of the 21^st century.  With the help of their communities, they delivered to their customers just the right amount of functionality for the right price. 

Matt Asay wrote a great blog detailing the recent acquisitions and comparing their sticker prices to their overall revenues.  You will find that the multiples that Zimbra and others are receiving are more attractive than the ones received by proprietary vendors.  One such example is Opsware which was acquired by HP for $1.6 billion on revenues of $100 million.  Are Yahoos and Citrix’ of the software industry just paying too much money?  Or are they on to something here?

My argument is that Yahoo and Citrix are two companies that realized, earlier than others, the future of successful software development being tied to open standards which are supported by narrowly focused communities while fueled by collaboration for speed to value.  They also realized the earlier they acquire these companies, the less they will have to pay for this innovation and the further ahead they will be from their competitors.  It seems to me like the old guard is force pollinating them selves to find that innovation that can only come from youth and endurance in this new economy.