Why did Citrix not become the “new Red Hat” in the virtualization market? Part 1
When I wrote my last post about how my attitude towards Xen changed, I remembered that back in 2007 (after Citrix bought XenSource ), the question was being discussed that Citrix could become “a new Red Hat in virtualization”. Indeed, there were all the prerequisites for this - Citrix is a long-time and well-known player in the corporate market, and XenSource was a young and ambitious OpenSource-company founded by participants of the Xen project.
But Citrix did not become "new Red Hat in virtualization." Why? The article by Peter Levine, who served as CEO of XenSource just in 2007, during the sale of the company, will help answer this question. In the second part of the article I will write what, in my opinion, Peter Levine is right and what is not. Well, you have the opportunity to speak about it in the comments immediately after reading the article. ;-)
Open Source (Open Source) is the driving force of the world of information technology. Over the past 10 years, we have seen how it confidently comes to most areas of information technology. Without Open Source, there would be no Facebook, Google, Amazon, or many other modern technology companies. Thanks to the amazing community of talented programmers, open source has become the basis for Cloud, SaaS, NoSQL, software for mobile devices and much more.
However, at the same time with this success, we can hear the loud voices of those who predict the defeat of open source from competitors from the proprietary software camp. They argue that the future of Open Source is unpopular software and niche projects. What exactly proprietary software will always trust critical tasks and the processing of really important data.
')
So who is right? After all, we can observe, on the one hand, the success of technology companies using open source software, and on the other, an obvious failure of open source in the field of critical application solutions. Both points of view are correct, but not for the reasons that supporters of the open and closed software development model would like to believe. The reason for the success or failure of open source is not the software itself, but the underlying business model.
It all started (and ended) with Red Hat.
Red Hat is a company that is known for its distribution of the Linux operating system, and an open source technical support business model that is at the origin of the business model. Red Hat allows you to use your software for free, and receives income from those who turn to it for technical support, advice, service, and training. As soon as Red Hat began to receive a steady income, many companies began trying to develop open source alternatives to various proprietary software categories and earn money on technical support, in RedHat-style. Among such attempts were MySQL, XenSource, SugarCRM, Ubuntu, and Revolution Analytics.
Red Hat is an amazing company, it is a pioneer in the successful commercialization of open source. However, almost all attempts to build a business like Red Hat turned out to be a failure. Judge for yourself, the “open-source support sales model” has been around for about 20 years, and apart from Red Hat there is not a single public and independent company that could offer an alternative to proprietary counterparts. When you compare Red Hat’s market capitalization and revenue with Microsoft, or Amazon, or Oracle, even Red Hat’s success doesn’t look so impressive. Linux's success is a great achievement for the Open Source community, but commercially it is not proportional and disappointingly small (even for Red Hat).
There are many reasons why the Red Hat model does not work, but the main “weak link” of this business model is that there is no way to invest enough in long-term development. A consequence of the open development approach is the minimal difference between a product and its competitors (if they are on the same code base). This leads to limited pricing opportunities and, accordingly, to a lack of profit. As can be seen below, the open-source support sales model provides only a small part of what can be obtained with the “license model”. For this reason, it is almost impossible to invest enough money in product development, product support, or sales channels, as Microsoft, Oracle, or Amazon can.
And if what I said above is not convincing enough, I will tell about other factors that play against “real” open source companies. Software development plans in open source projects and requirements are generally available to the entire development team. But if the company does not hire most of the developers of this open source product, then there is a high probability that the project will never be able to gain the desired pace of development. In addition, the risk is that another company may decide to fork your product. And one more argument - for a small distributed team of developers, it is very difficult to determine the line between code stability control and active development.
The situation is aggravated by the fact that the more successful the open source project is, the more large companies want to manage the code base themselves. I myself faced this when I was the CEO at XenSource - many of the major players in the IT market borrowed our code base, and we did not get any benefit in return. We made the product so easy to use that no one turned to us for technical support, and so important that no one wanted to share their work with competitors. This situation is very convenient for those who borrowed our code, but not so good for our business.
If you think that all this is in the past and is no longer relevant now, I will tell you that I see a similar situation happening today with OpenStack, and this probably happens with many other successful open source projects. As an open source company, you are competing not only with proprietary IT solutions, you are competing with the Open Source community itself. It looks like some kind of absurdity.
If you are lucky and you have a successful open source project, then maybe a large company will pay you a few dollars for each call to technical support, or ask you to adapt something for your IT systems. If you are super-lucky (as we did with XenSource), you can be bought as a “strategically important” asset. But, the majority of open source companies do not fall out of such fate, the chances of entering the stock exchange with their shares and creating a large independent corporation are damn low.
Even with all these circumstances that are emerging against companies developing open source software, we still see entrepreneurs who position themselves as “Red Hat's next ...”. This is a problem with understanding the market situation: in 20 years of attempts, not a single “new Red Hat” has appeared. This does not mean that we will never see companies that would successfully clone the Red Hat model, but the chances are minimal, this is a long way and it is littered with “corpses” of those who tried to make money on this model.
But there is a model that works.
Sale of open source software as part of the service.
A reliable earnings model for Open Source is obtained by turning the traditional approach “upside down”. Those. if you sell not an additional service to open source software, but vice versa - any service, but open source as an integral part of it. When packing open source into a service (as in cloud and software-as-a-service) or as part of a software or hardware solution, companies can monetize open source using a more profitable and flexible model.
Today, many new, successful companies use an ecosystem of standard open source components that are usually reused and updated throughout the IT industry. Companies that use these open source components as the foundation blocks for their business (for example, for cloud and SaaS) are much more willing to contribute to their success.
Depending on the IT segment and product, a company can combine in different proportions the development of open source software specific to their business and their proprietary software. Amazon, Facebook, GitHub and many others have mixed open source components with their own proprietary code, and now sell this combination as a service.
This recipe - a combination of open source c service or the sale of open source software as part of complex products - gives amazing results in the software development segment. New approaches in the use of Cloud and SaaS are implemented much faster than the deployment of new software in their own data center, and open source can become the main tool for implementing these transformations.
But I would like to see in the IT industry other models (besides Cloud / SaaS) of reliable monetization of open source software.
So what are you waiting for?
Build a big business, building on or around a successful platform. Add something of your own, which is also an integral part of this platform and differs from it. For an example, look at the intercity road system. If you consider them as a kind of transportation and transportation platform, you will see the foundation for a completely different business, which exists precisely because of the existence of the platform - from postal shipments to gas station networks and roadside cafes. One of the services of organizing group trips built his business in this way - on the one hand, relying on the intercity road platform, and on the other hand, on Amazon's AWS IaaS platform.
If you look at the situation from a platform point of view, you’ll understand that Red Hat’s “tech support sales model” is a very small part of the market. Like selling a slightly better part of the road in the above example (in the case of Red Hat, creating a slightly better distro of the Linux operating system), in a situation where it (the road and the Linux operating system) is already good enough for most people.
So, when you start a business that is built on open components, you might want to be like Red Hat. But if everything goes well, you start thinking about an approach that more closely resembles Facebook, GitHub, Amazon, or Cumulus Networks to become some kind of valuable “layer” on top of a large platform and deliver this layer as a service or as part of an integrated solution. Becoming “the next Red Hat” is a great goal, but when you look at modern IT trends, it might be Red Hat that you should consider becoming the next Amazon.
Translator's afterword: As you can see, Citrix's approach is to use Xen as a platform (remember, I wrote about this last post) and build my products around and above it. Do you think the Citrix business would be better off if it used the “sales tech support” approach, like Red Hat does? How to get around those "pitfalls" of open source business, which are described in the article? Write in the comments, let's discuss.
But Citrix did not become "new Red Hat in virtualization." Why? The article by Peter Levine, who served as CEO of XenSource just in 2007, during the sale of the company, will help answer this question. In the second part of the article I will write what, in my opinion, Peter Levine is right and what is not. Well, you have the opportunity to speak about it in the comments immediately after reading the article. ;-)
Open Source (Open Source) is the driving force of the world of information technology. Over the past 10 years, we have seen how it confidently comes to most areas of information technology. Without Open Source, there would be no Facebook, Google, Amazon, or many other modern technology companies. Thanks to the amazing community of talented programmers, open source has become the basis for Cloud, SaaS, NoSQL, software for mobile devices and much more.
However, at the same time with this success, we can hear the loud voices of those who predict the defeat of open source from competitors from the proprietary software camp. They argue that the future of Open Source is unpopular software and niche projects. What exactly proprietary software will always trust critical tasks and the processing of really important data.
')
So who is right? After all, we can observe, on the one hand, the success of technology companies using open source software, and on the other, an obvious failure of open source in the field of critical application solutions. Both points of view are correct, but not for the reasons that supporters of the open and closed software development model would like to believe. The reason for the success or failure of open source is not the software itself, but the underlying business model.
It all started (and ended) with Red Hat.
Red Hat is a company that is known for its distribution of the Linux operating system, and an open source technical support business model that is at the origin of the business model. Red Hat allows you to use your software for free, and receives income from those who turn to it for technical support, advice, service, and training. As soon as Red Hat began to receive a steady income, many companies began trying to develop open source alternatives to various proprietary software categories and earn money on technical support, in RedHat-style. Among such attempts were MySQL, XenSource, SugarCRM, Ubuntu, and Revolution Analytics.
Red Hat is an amazing company, it is a pioneer in the successful commercialization of open source. However, almost all attempts to build a business like Red Hat turned out to be a failure. Judge for yourself, the “open-source support sales model” has been around for about 20 years, and apart from Red Hat there is not a single public and independent company that could offer an alternative to proprietary counterparts. When you compare Red Hat’s market capitalization and revenue with Microsoft, or Amazon, or Oracle, even Red Hat’s success doesn’t look so impressive. Linux's success is a great achievement for the Open Source community, but commercially it is not proportional and disappointingly small (even for Red Hat).
There are many reasons why the Red Hat model does not work, but the main “weak link” of this business model is that there is no way to invest enough in long-term development. A consequence of the open development approach is the minimal difference between a product and its competitors (if they are on the same code base). This leads to limited pricing opportunities and, accordingly, to a lack of profit. As can be seen below, the open-source support sales model provides only a small part of what can be obtained with the “license model”. For this reason, it is almost impossible to invest enough money in product development, product support, or sales channels, as Microsoft, Oracle, or Amazon can.
And if what I said above is not convincing enough, I will tell about other factors that play against “real” open source companies. Software development plans in open source projects and requirements are generally available to the entire development team. But if the company does not hire most of the developers of this open source product, then there is a high probability that the project will never be able to gain the desired pace of development. In addition, the risk is that another company may decide to fork your product. And one more argument - for a small distributed team of developers, it is very difficult to determine the line between code stability control and active development.
The situation is aggravated by the fact that the more successful the open source project is, the more large companies want to manage the code base themselves. I myself faced this when I was the CEO at XenSource - many of the major players in the IT market borrowed our code base, and we did not get any benefit in return. We made the product so easy to use that no one turned to us for technical support, and so important that no one wanted to share their work with competitors. This situation is very convenient for those who borrowed our code, but not so good for our business.
If you think that all this is in the past and is no longer relevant now, I will tell you that I see a similar situation happening today with OpenStack, and this probably happens with many other successful open source projects. As an open source company, you are competing not only with proprietary IT solutions, you are competing with the Open Source community itself. It looks like some kind of absurdity.
If you are lucky and you have a successful open source project, then maybe a large company will pay you a few dollars for each call to technical support, or ask you to adapt something for your IT systems. If you are super-lucky (as we did with XenSource), you can be bought as a “strategically important” asset. But, the majority of open source companies do not fall out of such fate, the chances of entering the stock exchange with their shares and creating a large independent corporation are damn low.
Even with all these circumstances that are emerging against companies developing open source software, we still see entrepreneurs who position themselves as “Red Hat's next ...”. This is a problem with understanding the market situation: in 20 years of attempts, not a single “new Red Hat” has appeared. This does not mean that we will never see companies that would successfully clone the Red Hat model, but the chances are minimal, this is a long way and it is littered with “corpses” of those who tried to make money on this model.
But there is a model that works.
Sale of open source software as part of the service.
A reliable earnings model for Open Source is obtained by turning the traditional approach “upside down”. Those. if you sell not an additional service to open source software, but vice versa - any service, but open source as an integral part of it. When packing open source into a service (as in cloud and software-as-a-service) or as part of a software or hardware solution, companies can monetize open source using a more profitable and flexible model.
Today, many new, successful companies use an ecosystem of standard open source components that are usually reused and updated throughout the IT industry. Companies that use these open source components as the foundation blocks for their business (for example, for cloud and SaaS) are much more willing to contribute to their success.
Depending on the IT segment and product, a company can combine in different proportions the development of open source software specific to their business and their proprietary software. Amazon, Facebook, GitHub and many others have mixed open source components with their own proprietary code, and now sell this combination as a service.
This recipe - a combination of open source c service or the sale of open source software as part of complex products - gives amazing results in the software development segment. New approaches in the use of Cloud and SaaS are implemented much faster than the deployment of new software in their own data center, and open source can become the main tool for implementing these transformations.
But I would like to see in the IT industry other models (besides Cloud / SaaS) of reliable monetization of open source software.
So what are you waiting for?
Build a big business, building on or around a successful platform. Add something of your own, which is also an integral part of this platform and differs from it. For an example, look at the intercity road system. If you consider them as a kind of transportation and transportation platform, you will see the foundation for a completely different business, which exists precisely because of the existence of the platform - from postal shipments to gas station networks and roadside cafes. One of the services of organizing group trips built his business in this way - on the one hand, relying on the intercity road platform, and on the other hand, on Amazon's AWS IaaS platform.
If you look at the situation from a platform point of view, you’ll understand that Red Hat’s “tech support sales model” is a very small part of the market. Like selling a slightly better part of the road in the above example (in the case of Red Hat, creating a slightly better distro of the Linux operating system), in a situation where it (the road and the Linux operating system) is already good enough for most people.
So, when you start a business that is built on open components, you might want to be like Red Hat. But if everything goes well, you start thinking about an approach that more closely resembles Facebook, GitHub, Amazon, or Cumulus Networks to become some kind of valuable “layer” on top of a large platform and deliver this layer as a service or as part of an integrated solution. Becoming “the next Red Hat” is a great goal, but when you look at modern IT trends, it might be Red Hat that you should consider becoming the next Amazon.
Translator's afterword: As you can see, Citrix's approach is to use Xen as a platform (remember, I wrote about this last post) and build my products around and above it. Do you think the Citrix business would be better off if it used the “sales tech support” approach, like Red Hat does? How to get around those "pitfalls" of open source business, which are described in the article? Write in the comments, let's discuss.
Source: https://habr.com/ru/post/279577/
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