The business behind Open Source

A few days ago, I sat down with Quentin Hardy of The New York Times to talk Open Source. We spoke mostly about the Drupal ecosystem and how Acquia makes money. As someone who spent almost his entire career in Open Source, I'm a firm believer in the fact that you can build a high-growth, high-margin business and help the community flourish. It's not an either-or proposition, and Acquia and Drupal are proof of that.

Rather than an utopian alternate reality as Quentin outlines, I believe Open Source is both a better way to build software, and a good foundation for an ecosystem of for-profit companies. Open Source software itself is very successful, and is capable of running some of the most complex enterprise systems. But failure to commercialize Open Source doesn't necessarily make it bad.

I mentioned to Quentin that I thought Open Source was Darwinian; a proprietary software company can't afford to experiment with creating 10 different implementations of an online photo album, only to pick the best one. In Open Source we can, and do. We often have competing implementations and eventually the best implementation(s) will win. One could say that Open Source is a more "wasteful" way of software development. In a pure capitalist read of On the Origin of Species, there is only one winner, but business and Darwin's theory itself is far more complex. Beyond "only the strongest survive", Darwin tells a story of interconnectedness, or the way an ecosystem can dictate how an entire species chooses to adapt.

While it's true that the Open Source "business model" has produced few large businesses (Red Hat being one notable example), we're also evolving the different Open Source business models. In the case of Acquia, we're selling a number of "as-a-service" products for Drupal, which is vastly different than just selling support like the first generation of Open Source companies did.

As a private company, Acquia doesn't disclose financial information, but I can say that we've been very busy operating a high-growth business. Acquia is North America's fastest growing private company on the Deloitte Fast 500 list. Our Q1 2014 bookings increased 55 percent year-over-year, and the majority of that is recurring subscription revenue. We've experienced 21 consecutive quarters of revenue growth, with no signs of slowing down. Acquia's business model has been both disruptive and transformative in our industry. Other Open Source companies like Hortonworks, Cloudera and MongoDB seem to be building thriving businesses too.

Society is undergoing tremendous change right now -- the sharing and collaboration practices of the internet are extending to transportation (Uber), hotels (Airbnb), financing (Kickstarter, LendingClub) and music services (Spotify). The rise of the collaborative economy, of which the Open Source community is a part of, should be a powerful message for the business community. It is the established, proprietary vendors whose business models are at risk, and not the other way around.

Hundreds of other companies, including several venture backed startups, have been born out of the Drupal community. Like Acquia, they have grown their businesses while supporting the ecosystem from which they came. That is more than a feel-good story, it's just good business.

Comments

Lior Kesos (not verified):

I totally agree and feel this on our own open source project - http://mean.io .
monetizing in the "as a service" isn't that hard once you have volume and developer intrest and passion.
We're growing fast (just passed meteor.js and strongloop in generic interest and we aren't even funded) and the business applications just jump out from the woodwork.
The business models are pretty solid - paas and hosting (acquia) , appstores (wordpress, magento) and subscription to services (redhat, acquia, mongo).
It just like ballmer said "developers developers developers" - their excitment and passion and our ability to harness that power is what will fuel the next wave of open source companies.

July 24, 2014
Jingsheng Wang (not verified):

Open Source also transforms the economy of monopoly to the economy of ubiquity.

In the old days, a player wins by protecting competitive advantages, keeping competition entering the market and manipulating equilibrium.

Nowadays, a player like Acquia or Google offers the products (Drupal or Android) for free, in other words, fully opens the core competence, hence ubiquitously available to the world. On the other hand, the player also takes in the innovation or the completion to the product to further descreses the incentives of divergence. Then, the player wins by the scale.

July 24, 2014
Jeff Thomas (not verified):

I agree the NY Times writer seemed to think that "open source" is synonymous with "Freeware," which is not. Our company, http://www.se-eng.com, is also heavily involved in open source (firmware in this case), much on the RedHat model, and, yes, you can build proprietary product on open source code.
The author also seemed blind to the fact that almost all of the big-time hardware companies -- Intel, AMD, HP, IBM -- are all looking at ways to free up their hardware to open source coding and applications.
Course it labeled an opinion piece, I guess I just have a much different opinion.

July 24, 2014

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