Boldly Open

The web is full of pessimistic comments about Open Source at the soon to be Microsoft-owned Yahoo!. If you belong to the crowd of those looking for shelter, let me try to show why I believe there is a very slim chance that www.yahoo.com will 301 to default.aspx anytime soon. I'll start by stating loud and clear that if you even suspect the Yahoo! Open Source stance plays a role in this deal, a few more brain cycles might be in order. Consider how Microsoft is going to empty their pockets in buying Yahoo, as the 44B$ deal will make more than a significant dent in Redmond's bank account: going this far just to replace Yahoo!'s FreeBSD gear with Windows is something even Ballmer can't pull off in his sweatiest dreams.

What this deal does is marking a 180° turn in Redmond strategy: Microsoft is clearly struggling to find a spot in today's industry where software as such is getting less and less relevant. They know how late they are to the party, and they're desperate to find a clue on how to catch up and be a major player again. Whether they will succeed, that's an entirely different matter, but I'm sure they all realize they can't just stomp their feet and pretend they can make it without Open Source. Definitely not in the short term, most likely not even in a few years from now: their failed Hotmail Linux FreeBSD (thanks Christian!) migrations must have thought a lesson and left a few scars. Hadoop contributors on the Yahoo! payroll have little to worry.

It might actually be worth noticing how the acquisition of Yahoo! could be the greatest opportunity for Microsoft to become a significant player in Open Source. Nevermind Steve Ballmer, I really don't believe there is anyone in Redmond who hates Open Source with a passion: the Open Source strategy of Microsoft has been insofar guided by obvious business considerations. If you're the biggest provider of shrink-wrapped proprietary software, you have be defensive about the competitive and disruptive Open Source proposition. If your strategy shifts to the online advertising business, then Open Source can be your best friend. In any case, and as the ultimate bottom line, it would be downright silly for Microsoft to command Yahoo! into steering their technology and turn their .so's in .dll's: I don't think there's many silly people in Redmond. We will probably see much more embrace, and much less extend.

Zimbra vs. Exchange is possibly the one and only issue on the table, as it might be a nice side effect for Microsoft to control (one of) their Exchange competitor(s). Having said that, (a) I don't see anything happening at a fast pace  and (b) if Microsoft ever tries to crush Zimbra, that would be a fantastic opportunity for a new or existing player to come up with yet another Exchange alternative. To be honest, though, I believe that in the next few years most of the e-mail business will move online, so all that won't be much of an issue anymore. Not to mention that the Zimbra guys are probably perfectly happy already with the Yahoo! cheque, and there is little doubt their excellent staff will find a new and better venture anyways.

I'm not exactly throwing parties at the idea of Microsoft owning Yahoo, even though I think a serious alternative to Google might be worth a few struggles, but I don't think the sky is falling for Open Source if Microsoft even gets to raise their flag over Yahoo!'s HQ. Vigilant? Sure. Worried? Not from a big picture point of view. Pessimistic? Nope.

Gee… commenting Open Source acquisitions is turning into a full time job. I didn't have a chance to dump my thoughts when the SpringSource/Covalent merger hit the news as I was dashing through London like an headless chicken: a lot has been said already, which means I'll be the latecomer to the party and just add a few random notes for my memoirs.

First of all, let me extend my kudos to Mark Brewer and the Covalent crew: this is a very good opportunity to strengthen the Open Source support business model, and SpringSource looks like an excellent partner. I consider Covalent one of the best Open Source companies around, so it's really good to see them moving forward at a faster pace. It's no news I'm not exactly a fan of Rod Johnson's obsession for separation of IP creation and monetization (read: "no one outside of SpringSource is able to support the Spring framework", AKA "I want my cake, and eat it too"): I believe that there is more to Open Source than gating access to committership as a way to defend a business, but I guess that's just me and a bunch of others. As Covalent is bringing some great folks to SpringSource, there might be a good chance for them to bite Rod and friends with the Apache and Open Development bug, so we might end up with a closer bound between Apache and Spring, which is most definitely a Good Thing.

Having said that, I have to note I feel awkward when describing this deal as an acquisition: while the actual details of the transaction are private, we know about the 10M$ upper limit, that is what Rod Johnson milked from his round A from the deep pockets guys. The money changing hands has got to be much less: SpringSource got the funds last May, so it's safe to say most of it should be gone by now. On top of this, an undisclosed amount of shares went the Covalent shareholders' way. 

We have to remember Covalent was privately held, so all in all the deal is not that bad, despite landing at least couple of zeros behind what seems to be the standard nowadays. However, given the minimal amount of money and the potential role of shares, I can't stop wondering why SpringSource and Covalent decided to hit the press with an acquisition news, when the actual description of the deal looks so much more like a merger to me. Petty naming discussions aside, I believe that from a PR standpoint announcing the deal as a merger would have resulted in a much better perception of two leading companies in their respective spaces joining forces to hit the market as a bigger and better endeavor.

Marketing the transaction as an acquisition might strengthen the perception of SpringSource being tall and strong, but this comes at the price of somewhat diluting the value of Covalent which looks like the weak part of the deal, especially when you look at the numbers involved. As I have a passion for Mark and friends, there is a good chance I'm biased: most likely the Covalent folks are still recovering from hangover and are perfectly happy with the deal. Still, I believe the net effect of a  communication along the lines of a merger would have been easier to understand and a stronger proposition altogether. Nevermind this small gripe, I won't pass on any champagne left from the celebration, so here comes my virtual toast to SpringSource and Covalent for getting together and making Open Source a better place!

This just in from Matthew Aslett. A true must read if your business has anything to do with Open Source, as it clearly show how Open Source strategies can be a powerful marketing tool. Case in point: a unnamed company switching to an Open Source distribution model, with mind-boggling numbers about their first year of operations (emphasis mine):

In its first year using an open source distribution model the company saw:

• A 12X increase in ‘awareness’ (web hits, community engagement, media mentions, conference visits etc).
• A 13X increase in web site visits.
• A 17X increase in software trials.
• A 40X increase in qualified leads.
• An 8X increase in engagements.

[...]

• The company’s executives estimate that it would have cost in the region of $2m in marketing to get those leads if the company was not open source.

What's not to love? With Open Source being the ultimate marketing WonderBra, it's no surprise that everyone and his dog are dropping stuff on Sourceforge and friends. Numbers are strange beasts, though, and Matthew doesn't fail to recognize how a 40X increase in qualified leads brings to an 8X increase in engagements. Just read the numbers backwards to find the culprit: even assuming that the mean deal size was constant over the year (which in itself can be quite a leap of faith considering how Open Source is typically cheaper), the outcome is lead conversion being 80% worse with Open Source. While the term "qualified lead" would deserve a fair bit of discussion, performance of Open Source seems poor when it comes to what is actually paying the golf membership for the VP of Marketing. 

It looks like an happy problem, actually: any VP of Sales will at least consider trading her daughter for an eight-fold increase in engagements, yet there are at least a couple of issues to consider:

• sales aren't free. There is a considerable cost associated with closing a deal: phone calls, paperwork, travel, proofs of concept, prototypes and the like. Sales staff isn't cheap, and conversion rate getting 80% worse is a sure way to make costs skyrocket and margins nosedive at the same time.
• am I the only one seeing a problem with value here? I'm missing a few key figures here, but it seems that open sourcing is a great recipe to have 40X more people interested enough in buying something from you to get in touch and ask questions (that is my reading of "qualified lead", for the record). It seems, though, that a lot of these guys don't quite find what they're looking for, as the conversion rate isn't stellar. In a nutshell, even when you manage to get in touch with a customer in a direct way, there doesn't seem to be enough perceived value to move the conversation to the purchase department. Why is it so?

Having said that, I have a few takeaways from these numbers:

• tactically speaking, there is a clear need for streamlining the sales cycle. It's not a surprise that Matthew is using those numbers to prove that LoopFuse, a tool to monitor and increase lead conversion, can be a tremendous help in separating the wheat from the chaff and bring those sales costs down.
• a tool, no matter how nice, is still a tool and there is only this much it can do. Better sales conversion needs a comprehensive approach, working through general and market-specific issues. Such as being close enough to the customer in a global market, which is a big challenge for the average Valley-based Open Source shop: in the enterprise world, telemarketing and phone calls just don't cut it, yet a global sales force is difficult to attain. If you were wondering why Sourcesense has being forging so many partnerships, here is your answer: we hit the road day in day out, making customers and vendors meet. Open Source  is great at marketing, but still needs the channel to shine.
• we can't sweep the real issue under the rug for much longer: Commercial Open Source needs a solid value proposition. It doesn't take much to convince a user that freebies are a good thing: the difficult bit comes when trying to make customers pay for the very same free lunch. Or (even worse), pay for the whole meal just because they might be like some ketchup on top.

Last but not least, these numbers are great news for those who consider Open Source as a part of a bigger marketing strategy: if all you need is (co)marketing, Open Source can be the ultimate silver bullet. It doesn't really come as a surprise to me, but it's good to see some figures in print.