Subject: [Fwd: Re: Free Software vs. Disruptive Change]
From: "Jonathan S. Shapiro" <>
Date: Tue, 02 Jul 2002 00:49:44 -0400

Sorry - this should have gone to the list.

-----Forwarded Message-----

> From: Jonathan S. Shapiro <>
> To: Kragen Sitaker <>
> Subject: Re: Free Software vs. Disruptive Change
> Date: 02 Jul 2002 00:48:58 -0400
> On Sun, 2002-06-30 at 21:19, Kragen Sitaker wrote:
> > I seem to recall that Red Hat made money on operations for several
> > years before it became publicly traded.  I know Cyclic made money on
> > its operations, because it published its books, but it didn't make
> > enough to keep its primary employee (and owner) from being hired away
> > by Cygnus.  Peter Deutsch has told me Aladdin has made him quite rich.
> > I assume, also, that Sleepycat, Troll Tech, and Crynwr are profitable,
> > or at least breaking even, but I don't have their books.
> We need to define "economically successful" here. For my purposes,
> economically successful means a compound ROI of roughly 35% a year. This
> is the usual litmus test for venture investing.
> If RedHat has ever hit this, I would be very pleased to hear of it.
> Cyclic certainly never reached this. I don't know about Crynwr, but note
> that none of Aladding, Sleepycat, Troll Tech are using a pure open
> source model -- in each case they either dual license or hold a
> proprietary version for a period of time.
> There is little question in my mind that a hybrid licensing model can be
> made to work. I'm trying to work out whether we can do the pure model.
> Finally, note that ROI of 35% on $<small> initial investment isn't hard,
> but when the investment goes north of $30M it's a whole different story.
> > > In fact, the only company *I* can think of that has made money on
> > > development was Cygnus.
> > 
> > That's true, but was the rearchitecture that created gcc 2.0 an
> > "incremental improvement"?  All I know is what I hear on the list and
> > read in _Open Sources_, but I thought it was a lot more like "basic
> > new design work".
> It certainly was, and much of it was customer funded. This is one of the
> noteworthy cases of innovation being successfully funded in an open
> source company. That said, Cygnus wasn't in the software business; they
> were in the contract development business. Margins in the business are
> generally lower than in the software business, and (from my dim memory)
> Cygnus could never have gotten a >$30M investment in round 1.
> > > 1. We cannot identify a single, highly successful open source software
> > > company (i.e. a company in the business of selling packaged software and
> > > associated products such as service) that paid for its own *initial*
> > > engineering as part of its startup costs. ...
> > 
> > Well, look, you can't run a free software business on a proprietary
> > software business model.
> I agree, and I'm not arguing that you should try. I'm trying to figure
> out if anybody has a story for an investable ROI at the kind of scale
> that EROS will require. Services won't do it.
> > For example, if you ported the Apache core and a few popular modules,
> > most of Perl, and all of Python to EROS, then wrote some nifty
> > administrative tools, you'd have a killer secure virtual hosting
> > environment.
> The problem is that you wouldn't. To have a killer virtual hosting
> environment, you also need a SQL server, an LDAP server, a fairly clever
> IMAP server, and a bunch of other tools. It's certainly not as bad as
> porting OpenOffice and all the client side tools, but the database in
> particular is a swamp.
> > In the Unix world, it has often been much easier to rewrite programs
> > from scratch than to partition old programs into mutually untrusting
> > parts; for example, popa3d, Postfix, qmail, and vsftpd were all
> > from-scratch rewrites.
> This is correct, and it's an excellent illustration of the problem.
> Count the lines of code involved, do a naive translation of that into
> headcount. Pick a brown number as salary and add 50% for overhead. Then
> do the compounding on the ROI. It's a *lot* of money to do this!
> shap