Open Source Closed Minds

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    Open Source: Closed Minds? (Venture Capital)Story URL: http://www.vccircle.com/columns/open-source-closed-minds

    Pradeep Tagare, Investment Director, Intel Capital, India,January 11, 2011

    The basic idea is that all software should be available on a free-to-modify basis, but

    that does not imply that it has to be zero cost.

    Richard Stallman, one of the pioneers of the free software movement and the Founder of the FreeSoftware Foundation, once explained the concept of free software, saying, "Think free as in free

    speech, not free beer. The basic idea is that all software should be available on a free-to-modify

    basis, but that does not imply that it has to be zero cost.

    Free software, and another incarnation of that philosophy, open-source software (OSS), involves

    software that is developed in a completely open manner and made available for anyone to download

    the code and modify it as they deem fit with the expectation that the modifications are given back

    to the community to benefit everyone else. What started as an experiment in the 1980s quickly grew

    into a major movement, with thousands and thousands of free and OSS programs developed by the

    community.

    The functionality that these software programs offered was often as good if not better than the

    equivalent software developed under the traditional commercial license model. Examples of

    successful open-source projects include Linux, Firefox, Apache, MySQL, and Android, among

    thousands of others. OSS has completely changed the business and dynamics of the software

    industry. According to Gartner, more than 80 percent of commercial software will include some

    open-source software by 2012.

    Intel has been active in the OSS space through our Open Source Technology Center. This group

    works with open-source software developers to fast-track innovation. Personally, I have also been

    active in the OSS space for the past seven years. Intel Capital has invested in pioneering companiessuch as Red Hat, JBoss, MySQL, Zend, WSO2, and Sendmail, among others.

    Investing in free software may seem like an oxymoron to some investors, but exits such as Red Hat

    (market cap: US$9.1B), JBoss (US$420M), MySQL (US$1B), and SuSE (US$210M) prove that free

    speech does not imply free beer. In other words, these companies have developed innovative

    business models around free and open-source software. The simplest of these business models is

    based on development of an OSS project (with the help of a broader community of developers who

    do it for passion, fun, and learning), and selling consulting, support and subscription services to large

    and medium enterprises, enabling them to deploy and maintain the software on an ongoing basis.

    My initial assumption was that because of their familiarity with the services model, Indian IT

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    companies would jump on the open source bandwagon and, in fact, even lead the parade. The most

    logical evolution would be for Indian companies to move up the value chain from a pure services

    model to an intellectual property (IP) plus services model, even though the IP in question is open

    source. This model is far less risky than a pure IP play. So, what are Indian IT companies doing in this

    space? Well, other than taking open-source software for free not much, statistics suggest.

    Most Indian system integration (SI) companies have set up an open-source practice where they are

    building up proficiencies in various open-source projects. This is an addition to their core business of

    providing consulting around commercial software, such as Oracle and SAP. Statistics for one of the

    best-known open-source software projects, the Apache web server, suggest that few contributions to

    open-source projects come from Indian companies. In fact, if you consider Apache as a prototypical

    open-source software project, even Sri Lanka contributes more code than India.

    Unfortunately, if these statistics reflect dynamics in the broader open source community, Indian

    companies may be missing real opportunities in the open-source software industry. There are a few

    start-ups that made an attempt, albeit in niche spaces. There was, and continues to be, an incredibleopportunity for Indian companies to play a significant role in the evolving software eco-system. It

    would be a shame if Indian IT companies were to miss out on this opportunity because of

    short-sightedness, lack of passion for software; the lack of funding for new business models; or

    simply a lack of motivation because the core services business is still so good. The reality is that

    such drastic changes in such large ecosystems do not happen frequently. The result of missing this

    opportunity would be that in the rapidly changing world of software, Indian IT companies might be

    destined to have no place other than as outsourced service providers.

    In the US and a few other countries, open-source methodology is now being applied to

    non-traditional domains such as biotech, genetics, media and hardware. It is anybodys guess as to

    whether this will work. But if it does, large global companies within these domains will findthemselves competing with startups hopefully from India that have a disruptive business model

    based on open-source principles. And as we are learning from the software industry, open source

    competition can be daunting a classic innovators dilemma. I look forward to the next open-source

    revolution.

    (Views, observations and comments expressed by the author in this article are completely his own

    personal views and do not represent the views of the company in any circumstances.)

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