Muschamp Rd

Unanswered Questions regarding Open Source software

July 9th, 2011

Although I took the time to write an entire blog post on open source software, I realized I posed several questions, which I didn’t bother answering.  They weren’t exactly rhetorical, they were examples or at least indicative of the questions I’d been asked regarding open source software in job interviews.

Remember I’m still unemployed!

Despite that, this has been a busy week, so busy that things like blogging have been put off.  I’m still in limbo regarding my most recent job interview, but I’ve found some other positions for which I appear to be a ‘good fit’.  Now that the weekend has arrived I can feel less guilty about taking some time to update my personal blog.

This week I actually volunteered considerable hours helping the W2 Media Cafe finally open the cafe part of their operation.  It still is not open, but I believe they have chosen the last of their vendors and once the final equipment gets installed, they should have a soft launch sometime this month.  This week has also seen some big news stories come across the wire.  The one that I’ve probably devoted the most time reading about is the public beta of Google+.  Civ World is also in public beta, but seems to be still a bit buggy.  I’m not a big believer in browser based gaming.  I spent time playing three Facebook based games this week and two of them crashed and the third doesn’t let me make enough moves IMHO.

I plan to write more about the games I’ve been playing, as despite stopping my play of Civilization and Warhammer 40,000 I still find time for some casual gaming around my job searching, volunteering, and excessive web usage.  I never set out to play some of these games, people invite me…  The trend towards invite only games and systems is good for advertisers and hopefully end users too.

Now about those unanswered questions…

  1. How open source software can be used by corporations, or how startups can make money leveraging open source software?
  2. What are your assets if all your company does is contribute to and work with open source software? How do you assign a value to such a company?

It would be hard to find a corporation that doesn’t use Open Source software.  Apache has the dominant share of the web server market. MySQL and PHP are also on most every webserver.  Lots of the programs and services that hold the web together and make it work are open source.  Startups, particularly those founded by Generation Y, can run most of their business with open source software or Software As A Service offerings.  Even servers are no longer necessary as you can lease storage space and processing power from the cloud.  Amazon is a leader in this field and several hot internet startups run on Amazon Web Services.

One of the best articles I’ve read on Venture Capital and the startup ecosystem came across my desk recently.  You should give it a read if you’re interested in technology startups and how they are funded.

Freed of hardware and software startup costs, new IT companies can concentrate on innovating, development, and the pursuit of paying customers.  Monetizing eyeballs is so 1990s, even if it is a much more viable business model now than back then.  Companies need to look beyond AdWords to marketing tie-ins, partnerships with larger companies, and premium services.  LinkedIn is an example of a company that has successfully made money in the social networking space, partly by offering premium services to individuals and organizations.  They also get revenue from traditional in browser advertising.

If your company gives away all its source code, what are it’s assets? Most large software companies contribute to open source projects, even Microsoft.  However they also keep a lot of their code, this is an asset and a potential competitive advantage.  This non-open source code is an asset in the accounting sense, but the biggest value is in a companies employees and the knowledge and expertise they possess.  IBM moved from a hardware company to a company that makes most of its money through consulting.  Red Hat is a company which generates the majority of its revenue providing support and expertise on open source software particularly Linux.  Analysts have no trouble assigning a value to IBM or Red Hat, their shares are publicly traded.

Valuing a startup is a bit different from valuing a more mature firm.  However a number of methods exist and those methods will work just fine for startups that leverage and contribute to open source software.  Funders are more sophisticated and willing to invest in startups leveraging open source technology rather than relying exclusively on proprietary systems which count as assets on their books.

Posts on Muskblog © Andrew "Muskie" McKay comments not necessarily so...
CFA Institute does not endorse, promote or warrant the accuracy or quality of Muskblog. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.