IBM pops bubble of open source business models

!20050617  IBM pops bubble of open source business models

I have argued that open source is an idiotic business model for two
reasons: the main GPL license is unenforceable legal confusion, and you
can't build a product business when you give away the goodies.  Combine
the two and all open source will do in the business world is concentrate
the business/profits in the big service providers like IBM and HP (who
have been quite successful Pied Pipers, putting their spells on children).
At least with a software patent you have a chance of some profits - but
with open source, forget about it.  Making Europe's attempts to foster
small software businesses by getting rid of software patents INSANE!!!!!

Case in point.  Forbes magazine online has a great article by one of its
writers, Daniel Lyons, reporting on how an open source company, JBoss,
is SHOCKED and SURPRISED that IBM is attempting to crush and steal its
market, after IBM has piped so many nice things about open source. IBM
must be laughing itself silly, watching volunteers and clueless venture
capitalists funding open source effforts that it can swoop in and take
for itself.  Talk about wise outsourcing of your R&D - another reason to
buy IBM stock.  But if you want some profits for yourself, get a software
patent.

                                      ====

Linux Open Source Smack-Down 

by Daniel Lyons, 06.15.05, 2:30 PM ET 
    www.forbes.com/2005/06/15/jboss-ibm-linux_cz_dl_0615jboss.html

Marc Fleury is shocked -- shocked! -- that IBM would use the same tactics
to attack him that he's been using to attack IBM. "Frankly, it leaves us
scratching our heads," he says. 

    [Note: the heads of children often contain lice]

For the past two years Fleury's company, Atlanta, Ga.-based JBoss, has been
stealing business from IBM by giving away a set of open source programs
that do the same work as IBM's WebSphere software. Fleury claims JBoss
shipped more copies last year than IBM did. 

IBM apparently has grown tired of having a freebie program eating away at
its sales. So now it is going nuclear. In May the computer giant acquired
JBoss's main rival, Gluecode, which also distributes a set of open source
Web server programs. 

Gluecode used to make money by selling some "closed source" programs that
ran on top of its free open source stuff. No more, says IBM, which intends
to release the source code for all of Gluecode's programs and distribute
them for free. IBM also will slash prices on service and support, charging
less than half of what Gluecode used to charge, says Scott Cosby, IBM's
Gluecode transition executive. 

The pitch to customers is this: You get the software for free and service
and support at a bargain rate. And it all comes from IBM, a name you can
trust. 

    [NOTE: Damn right - who do you think companies are going to go to
    to support their open source?  Remember the maxim - you can't get
    fired for buying IBM - sadly a maxim popular before many open source
    children were born.]

Cosby says IBM is just responding to customer needs. He says he hasn't
thought much about what IBM's acquisition of Gluecode means for JBoss. 

Fleury has, however. He claims IBM is trying to put his privately held
company out of business. He is furious, but also stunned: He says Gluecode
could hurt sales of IBM's WebSphere as much as it hurts JBoss, yet IBM
doesn't seem to care. 

    [NOTE: I know Richard Stallman lives in some lalaland of peaceful
    co-existence, but the software industry is highly competitive with
    many ruthless companies.  What did Fleury expect - for IBM to be
    biblical and turn the other cheek?  And is Fleury clueless to the
    common business tactic of hurting your own sales in the short term
    to hurt your competitors more so you prevail in the long run?]

"Where does this all end? When the whole deck of cards, the whole software
industry, falls apart? I find it arrogant on their part that they think they
can control what they've unleashed," says Fleury, JBoss' chairman and chief
executive. 

    [NOTE: Idiot.  The software industry won't end - just be concentrated
    if you keep on giving away products unprotected with impotent
    licenses like GPL.  You find IBM arrogant?  Welcome to the real
    world where big companies like to control everything.  What should
    IBM be - clueless about business strategy like Fleury?  They allow
    him to be a CEO?]


Poor guy. Did he not get the memo? This is what open source software is all
about: creating knockoffs and giving them away, destroying the value of
whatever the other guy is selling.  What's new is that now open-source
companies are turning on each other. 

It's not just JBoss getting attacked by Gluecode. Red Hat, the leading Linux
distributor, is besieged by knockoffs of its "enterprise" Linux: the one
customers are supposed to pay for. It's starting to look like one of those
Quentin Tarantino movies where a bunch of guys end up all pointing guns at
each other. 

    [NOTE: fun to watch while I help small software companies (working
    with their patent lawyers) to file patents on their innovation so
    they can try to avoid this mutually assused market destruction.]

Fleury, talking tough, insists he is not worried about IBM. He says his
software is better than Gluecode, and that IBM doesn't know how to manage
a software business. 

    [NOTE: Yes, the biggest software service business provider doesn't
    know how to manage a software business.  IBM may not be overall
    brilliant (they have some good patents, they have many bad patents)
    but Fleury is a fool if this is his strategy - to hope that IBM
    trips up undermining his business.]


But if Microsoft, for all its billions, is doomed by the open source
movement, as many open source proponents believe, then what chance does
Fleury's 130-person startup stand against IBM, a company that had $96.5
billion in revenue for 2004, aims to use software as a loss leader and
can absorb losses for years? 

    [NOTE: mathematicians in ancient India, circa 600, after much
    philosophical debate about JBoss (incredible that they could see
    so far into the future), came up with an answer to this question:
    ZERO]

Indeed, IBM's assault on JBoss raises big questions about whether stand-alone
open source software companies can ever make enough money to sustain
themselves. Because their code can be freely copied, these companies can't
charge for their programs. Instead, they hope some users will pay for
service and support.  Problem is, most people just take the free stuff
and run. Only 3% to 5% of JBoss customers buy support contracts. 

No wonder no one is making any real money at this. JBoss operates at a loss,
as does MySQL, the open source database company. Novell, the No. 2 Linux
distributor, is losing money. After a decade of losses, Red Hat earned $45
million last year on sales of slightly less than $200 million, but 40% of
its profit came from interest income rather than operations. 

    [NOTE: you know what other types of companies make a large amount
    of their profits from interest income and other non-manufacturing,
    non-service sources - old car companies, old manufacturing companies,
    etc.  Open source does innovate rapidly - going from spring chickens
    to dinosaurs overnight - talk about a patentable gene transformation
    capability.]

These companies were built on the notion that they could make knockoffs of
programs sold by giants like Microsoft and Oracle and charge only a dime
where the big guys charge a dollar. That's a pretty flimsy idea to begin
with.  But it looks even dimmer when others come along who are willing
to sell for a penny. 

Even proponents like Fleury admit the open source business model is not
intended to produce powerful, wealthy, massively profitable software
companies. 

Yet people are racing into this business, and venture capitalists keep
funding them, pumping $150 million into open source startups in 2004,
triple the amount for 2003, according to VentureOne. 

Sounds like the dot-com bubble, except that this time it's not just investors
who will get burned. Customers are taking a risk too. Because when these open
source software providers burn through their venture funding and go out of
business, customers will need to either hire teams of expensive techies to
maintain that orphaned code or pay someone to rip out the old stuff and
replace it with something new. Either way, all that free software is suddenly
going to look awfully expensive. 

The good news, if you're a JBoss customer, is that IBM will be there to help
you migrate. 

                              ====================


Yes Europe, continue to fight software patents and encourage open source.
IBM will help you to migrate your profits to their bank accounts.

Greg Aharonian
Internet Patent News Service