[image: Business Week Online] <http://www.businessweek.com/>
<javascript:self.close()> Close Window <javascript://> DECEMBER 28,
2005
News Analysis By Sarah Lacy
A Watershed for Open Source In 2005, the software movement finally gained
traction in Corporate America and saw a new influx of VC cash. How will 2006
shape up?
Open-source software isn't a new phenomenon. It has been winding its way
through the tech world for decades, starting with Richard Stallman's Free
Software movement in 1980s. But only in recent years have businesses warmed
to the promise of low-cost, openly available software. In fact, open-source
programs have become so popular, they now pose a legitimate threat to the
established software giants.
Looking back, 2005 will likely be viewed as a turning point. It was a year
when CIOs signed off on open-source projects, a big change from previous
years when that happened only after low-level engineers started such
projects on their own initiative. It was a year when venture capitalists
woke up to the new business opportunities of open source. It was a year when
open source was the word on the lips of not just early adopters but of an
early majority. According to a new study by consulting firm Opteros, 87% of
organizations are now using open-source software, somewhere.
BusinessWeek Online paused in the final days of 2005 to poll a dozen
experts, investors, early adopters, and entrepreneurs to get their take on
the five biggest open-source events of 2005 -- as well as what to expect for
2006. The following are based on their responses.
*1. Red Hat finally proves to everyone it can make money from free software.
* It took Red Hat (RHAT <javascript: void showTicker('RHAT')>), which sells
and supports a version of the Linux operating system for businesses, nearly
10 years to find its footing, but boy has it. On Dec. 22 it announced
stellar third-quarter earnings, with revenues up 43.6%, to $73.1 million,
and profits up 114%, to 12 cents per share.
Finally, the Linux movement has a pure open-source success story to point
to, and as practically the only vendor that's publicly traded, Red Hat has
become a hot commodity. The stock is trading north of $28 as of Dec. 27, up
from $13.06 at the beginning of 2005 -- a boost of more than 110%.
And Wall Street is bullish about next year. "Red Hat is one of the
best-positioned stocks in software and should be able to further capitalize
on the growing demand for open source," wrote Credit Suisse First Boston
analyst Jason Maynard in a post-earnings research note.
*2. Sun Microsystems open sources everything -- except Java.* One reason
Linux is becoming mainstream is the broad endorsement from just about
everyone who matters in techdom, whether it's Dell (DELL <javascript: void
showTicker('DELL')> ) or Hewlett-Packard (HPQ <javascript: void
showTicker('HPQ')> ), whose servers run Linux, or IBM (IBM <javascript: void
showTicker('IBM')> ), which is making a name in open-source support and
integration.
Enter Sun Microsystems (SUNW <javascript: void showTicker('SUNW')> ), which
made a bold move in late November to open-source almost all of its software
except Java. The move transformed Sun into one of the largest open-source
software players overnight. Yet critics have complained that what
open-source developers really want is Java.
Several experts expect that Sun might finally capitulate in 2006. "It took
them a long time to realize if you don't open-source and you're not a market
leader, you're dead," says Peter Yared, CEO of open-source startup Active
Grid and a former Sun executive.
Novell (NOVL <javascript: void showTicker('NOVL')>) is another company
trying to revive its business through open source. The results have been
mixed since it bought Red Hat competitor Suse Linux two years ago. Look for
2006 to be the year it gets its act together -- or gets a new management
team (see BW, 10/31/05, "Cold Realities for
Novell"<http://www.businessweek.com/magazine/content/05_44/b3957125.htm>).
*3. Motorola bets big on mobile Linux.* Linux is commonplace on servers and
is working its way onto many desktops around the world. But desktop- and
server-makers don't have to worry about details like battery life.
Wireless-phone manufacturers do, and that's Linux' next great frontier. Open
Source Development Labs, a nonprofit group that governs and advocates for
Linux, formed a Mobile Linux Initiative in October to address these
problems.
Even more exciting for penguin lovers, Motorola (MOT <javascript: void
showTicker('MOT')>), the second-biggest handset maker in the world,
announced that Linux would be its standard operating system for the bulk of
its future phones. If the OSDL makes progress on the code, other handset
makers could follow suit in 2006 (see BW Online, 11/8/05, "Linux Answers
Phone Makers'
Call"<http://www.businessweek.com/technology/content/nov2005/tc20051108_330003.htm>).
*4. Firefox goes mainstream.* The bulk of open-source strides have been made
in the business world, as most Linux phones are only sold in China, and
Microsoft (MSFT <javascript: void showTicker('MSFT')> ) still dominates the
desktop. Firefox is an important exception. The popular browser marked its
100 millionth download in October just before its first birthday, proving
how well a mass market can accept open-source software when done right.
"There was a question as to whether we [open-source developers] could do
user interfaces, and that's much less of a question now," says Bruce Perens,
head of developer relations for open-source startup SourceLabs. Perens and
some others think Linux desktop programs could gain steam among consumers in
2006, particularly in emerging countries in Asia and South America where
Microsoft's Windows hasn't gained dominance.
*5. Venture capitalists wake up to open source.* Industry estimates show
some $400 million was invested in open-source startups in 2005. Two types of
companies dominated the landscape: First, so-called application companies,
such as SugarCRM which makes customer relationship management software for
companies and aims to compete with Siebel (SEBL <javascript: void
showTicker('SEBL')> ) and Salesforce.com (CRM <javascript: void
showTicker('CRM')> ).
The other category is services companies, which play the middleman between
open-source projects and the info-tech departments at large corporations.
Companies such as SpikeSource and SourceLabs test and maintain applications
like SugarCRM for companies (see BW Online, 10/3/05, "Open Source: Now It's
an
Ecosystem"<http://www.businessweek.com/technology/content/oct2005/tc2005103_0519_tc_218.htm>).
There's a lot of skepticism about these newer entrants. A few are hits, such
as MySQL, which makes open-source database software and is said to be
closing in on $40 million in revenues this year. But not too many others are
showing much traction.
In 2006, they'll have to put up real revenues or shut down. "Half the
companies that raised venture money in 2005 won't be able to raise money in
2006," says Matt Asay who organizes the annual Open Source Business
Conference and is vice-president for business development at Alfresco, an
open-source document-management startup.
All in all, it has been a pretty great year for open source. And 2006 may be
even bigger and better.
------------------------------
Lacy <[EMAIL PROTECTED]> is a reporter for BusinessWeek Online in
Silicon Valley
[Non-text portions of this message have been removed]
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