Commercial open source comes of age

In case you missed it (ICYMI), the open source world is experiencing explosive growth. At xTuple we see this in the form of companies looking for enterprise resource planning (ERP) software solutions — integrated accounting, inventory, manufacturing and sales — migrating from proprietary solutions to open source xTuple ERP.

xTuple is at the forefront of a growing trend hitting the entire software industry. The maturation of open source solutions renders them generally accepted standards in many mission critical and broadly used areas. And the technology press astounds us with more open source success stories every day.

Open Source China, Open Source World [photo credit: J. Aaron Farr on Flickr]

This week, I read that the government of the third largest city in Spain after Madrid and Barcelona, [Valencia, completed migration to LibreOffice], replacing Microsoft Office on over 120,000 desktops! This will save them over €1.5 million a year (equivalent to nearly two million U.S. dollars)! That is a lot of money in the coming decades for the city to use for schools and other civic projects.

A few years ago, I had the misfortune of assisting a CIO attempting to make sense of Microsoft's Client Access License (CAL) to establish if the company was in compliance. WOW, multiple answers from Microsoft itself and the costs of the various components of the Microsoft stack was mind-boggling. In the end, the company was so frustrated with the licensing complexity — and restrictions — that they migrated, like so many others, to Linux servers.

Now, we don't even think twice that Google, NetFlix, Amazon and other massive server infrastructures — that touch are daily lives — are open source. Red Hat, promoted as the world's most trusted provider of Linux® and open source technology software, has a market capitalization of $10 billion — and given the lack of understanding of this new business model, it may be undervalued. I guess the old FUD (fear, uncertainty and doubt) about scalability and stability was proved wrong!

The open source movement is having success on both the desktop level and the server side. As noted, there are desktop solutions like OpenOffice/LibreOffice replacing Microsoft Office and ProjectLibre replacing Microsoft Project, which carries a sticker-shocking price tag of $999. The server side is seeing tremendous traction with Linux and even mission critical areas like Enterprise Resource Planning (ERP).

Open source software is now running accounting, inventory, sales and manufacturing all over the world; just ask us at xTuple with well over one million downloads worldwide. xTuple ERP runs companies that span small manufacturing or wholesale distributors to large, well recognized companies such as U-Haul and Nordic Naturals.

It’s not just the growth in open source usage that’s important; it’s the growth in the mission critical nature of the solutions. “Mission critical” has demanded the need for corporate support of these installations, or Commercial Open Source. It is really the best of all scenarios. The source code is still open and available to eliminate inflexible, proprietary lock-in and allows for cost effective integrations/extensions.

For companies running software like xTuple, that powers mission critical functions, there is a safety net of corporate support and extensions. In xTuple's case, there is the free and open source (FOSS) PostBooks and then a set of extended commercial open source xTuple editions. While the source code is open and available, users enjoy the comfort of a world-class organization of xTuple experts supporting their installation.

xTuple has been a Commercial Open Source pioneer for years. The accounting, inventory, wholesale distribution and manufacturing industries are thankful for this innovative approach. The resultant growth has been impressive.

Others are also succeeding as commercial open source companies: Red Hat (Linux), Acquia(Drupal), SugarCRM, and just this week the popular Nginx open source Web server project went commercial according to this article in ZDNet.

The genie is out of the bottle, according to this prognosticator:

• Commercial open source will continue to see explosive growth
• Technology industry will continue to undergo disruptive innovation
• More commercial open source companies will have IPOs (initial public offering) in the next 18 months
• World will see even more powerful shifts from proprietary to open source software.

This does not mean the end of the world for commercial interests in software. This is simply a better way to develop and integrate software — for the customer. Old thinking about monetizing software is being replaced.

There will continue to be success stories noted on a weekly, if not daily, basis. A good example: this week SugarCRM received a $44 million dollar venture infusion from savvy investment bank Goldman Sachs as it prepares for a future initial public offering. I predict that their stamp of approval, along with a few pending open source IPOs, will raise more attention to this new and better model. It benefits both the marketplace and commercial open source vendors.

Remember — while Red Hat software has a market capitalization of $10 billion, supporting Linux and other open source solutions, it is still open source and millions of users worldwide will choose to support, update and integrate their software without paying a penny. However, those that need the support now have solid experts to ensure smooth operations. Sounds like a win-win-win to me.