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Businesses Open Source The Almighty Buck

The Way VCs Think About Open Source: Mostly Wrong (infoworld.com) 102

An anonymous reader writes: In an epic smack-down, Simon Phipps examines a recent article by some VCs with an apparently strong track record in open source startups and finds the way they see the world makes them plain wrong about Red Hat, OSI licenses, Apache and probably everything else they talk about.
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The Way VCs Think About Open Source: Mostly Wrong

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  • Ok, what's a VC? (Score:3, Insightful)

    by jfdavis668 ( 1414919 ) on Thursday February 11, 2016 @01:38PM (#51487993)
    Even reading the article I'm not sure what they are referring to.
    • Re:Ok, what's a VC? (Score:5, Informative)

      by Jason Levine ( 196982 ) on Thursday February 11, 2016 @01:42PM (#51488043)

      Venture Capitalist - aka a rich guy/company who gives money to startup companies in the hopes that said startup with strike it big and they (the Venture Capitalist) will get more money back.

    • Re: (Score:2, Insightful)

      VC = Venture capitalist

      TLDR: It's quite possible to build a business selling services people don't need on top of open source codebases (e.g., the Red Hat model) because corporations will happily pay for "commercial support" of critical systems, even if no one actually ever uses it.

      • by Ravaldy ( 2621787 ) on Thursday February 11, 2016 @01:59PM (#51488237)

        because corporations will happily pay for "commercial support" of critical systems, even if no one actually ever uses it

        This critical system support you speak of is why people still buy MS and equivalent competitors. Large businesses that depend on their systems to operate require their suppliers to be accountable. Open source without a support plans = no accountability. For you at home installing OSs because it's fun, that's fine but critical business is exactly that. So the Redhat model is fine. Not all companies can afford to have a top notch Linux Kernel expert, a software developer and whatever else the company needs on staff.

        • This is exactly right and the "open source community" needs to understand this or they will get nowhere. Even if the MS support is poor (and I assure you, it's generally terrible, even enterprise "platinum"), *nothing at all* or "go ask someone one a message board" is a complete non-starter.

  • by JoeMerchant ( 803320 ) on Thursday February 11, 2016 @01:41PM (#51488037)

    VCs who miss the point of open source shouldn't fund it

    False, absolutely false. VCs view investing like a trip to the casino: bet on 20 longshots, hope to manage at least 1 of the 20 to a 100:1 win. Overall ROI: 500%

    Fundamental understanding of the technology behind the business is not required - estimating its chances in the marketplace is.

    Anybody who is seeking VC funding and also believes that the VCs will help them further some ideological agenda is either completely misguided, or attempting to further the ideological agenda that "greed is good."

    • These VCs in question are actually spreading harmful misinformation about the state of OSI approved licenses. Read the article and you'll see the problem is deeper than just that they're funding it. The real problems are to do with what they're saying and doing *while* funding it, and who is believing their flat-out lies.

      • What I read in the article seemed to be a case of not knowing the specifics of the companies being named, but rather attributing generalities to them. Of course, the article is correct in the specifics regarding what the Apache organization is, how RedHat operates, etc. But... at some point in the past, there have been business models selling Apache support - nothing that's going to generate an attractive 100:1 ROI, so that's why the VCs yawn. Also, they speak of open source models which allow authors to

    • by reanjr ( 588767 )

      OK, but if you read the whole article, it really sounds more like he's arguing that you - as a develop and creator - should not take money from a VC. VC's bring money, but they also bring hidden costs. They are completely inappropriate if you actually care about your business. They are looking for an exit. If you're not, then don't behold yourself to people who disagree.

      • I have worked with two "principles" who got tens of millions in VC investment, both of them were ~40 years old, in good health and of youthful appearance when it happened. Five years after "round A" both of them looked ~60 years old and had some serious tales of woe. One got a multi-million payoff after about 10 years, the other got a check for $0.01, but the personal costs of the VC money were equally high for both.

    • The devil is in details http://www.ycombinator.com/faq/
  • So ... what? (Score:2, Insightful)

    by gstoddart ( 321705 )

    Greedy VCs with no concept of open source fund open source so they can ignore principles of open source and make money? So, people who want to make money don't understand something set up to be given away for free?

    Don't get me wrong, the article is interesting in that it's refuting an article written by some VCs without a clue ... but that VCs don't have a clue about open source doesn't surprise me.

    I pretty much expect the VCs and MBAs to be clueless on this topic, because they can't reconcile "free" with

    • but that VCs don't have a clue about open source doesn't surprise me

      I've met my share of VCs. I myself have been a VC (on much smaller projects) and I can tell you this: Your VC is only as knowledgeable as the people advising him (usually those getting funding). It's the same as your relationship with your utility. You trust the company to deliver it based on promises made in a contract between you and the utility.

      I'm going to back track a bit. VCs aren't all made equal. Some are pioneers in their fields or have a large baggage of knowledge and experience. Really good VCs i

      • I'm sorry, if one group says "we're going to make some awesome software and it's going to be open source", and the other group says "we're gonna be fucking rich and have patents and licenses and subscription models" ... you can't really reconcile those two.

        The starting premise is incompatible, which, as I read TFA, is what the author is saying.

        • Are assuming too much. You assume that people need to know everything about everything before getting into something. There are plenty of people that drive cars and don't know anything about them. Same goes for this. I can pickup some open source code, start writing on top of it without knowing I need to share it when all is done.

          • You don't need to share your code. Only if you distribute the binaries do you have to. And then only to those you distribute it to, if I'm not mistaken, and not even proactively, just when/if they request it. But, since they have the same rights to further distribute, not publishing it openly makes little sense.
      • by KGIII ( 973947 )

        I've considered some "VC" investments but haven't really opted in. I do, however, own some pieces of smaller businesses and I've loaned or given money to friends to help get them started. It's unfortunate that they've got such a bad name because they're not all bad and some of them can actually be helpful and seem to be good for networking.

        The biggest reason that I've not done it on a larger scale is because of the perception that people have (right or wrong) but nothing has really reached out and tickled m

    • I pretty much expect the VCs and MBAs to be clueless on this topic

      Then you yourself are pretty much clueless on the topic of VCs and MBAs. For example 1/3 or more of MBA are coming from a technical background, scientist or engineer. When the topic of open source comes up in an MBA classroom there is no shortage of software developers to explain what it is and why it is useful.

      An MBA program is not a finance/accounting program. It is an overview of all the major parts of an organization. Finance and accounting are just two of many topics covered. The point of an MBA is

  • Some licenses allow anyone to create derivative works that build on the original product, while others reserve that right only for the owners of the original product.

    Its pretty clear they're referring to the ability to make commercial works, not downstream OS projects.

    Those biases seem to arise from an outdated view of the market for open source software. Students of history know that pioneers of new markets are able to command profit margins approaching 100 percent as long as they can behave as monopolists. As their markets becomes subject to fair competition, margins fall. Expecting 90 percent margins is probably not realistic, yet the authors clearly do:

    He seems to be ignoring his own point from the next paragraph, most VC ventures fail. In order for them to see high returns they need the huge home run, if a business bunts into first and barely covers the investment they're still in the hole for the other 5 ventures that failed

    • Some licenses allow anyone to create derivative works that build on the original product, while others reserve that right only for the owners of the original product.

      Its pretty clear they're referring to the ability to make commercial works, not downstream OS projects.

      That and the fact that more copyleft licenses, e.g GPL, tend to have the requirement of providing information upstream when asked, even though the license itself doesn't directly state it. So it's hard to create even a downstream open source project or derived project for such projects.

      Those biases seem to arise from an outdated view of the market for open source software. Students of history know that pioneers of new markets are able to command profit margins approaching 100 percent as long as they can behave as monopolists. As their markets becomes subject to fair competition, margins fall. Expecting 90 percent margins is probably not realistic, yet the authors clearly do:

      He seems to be ignoring his own point from the next paragraph, most VC ventures fail. In order for them to see high returns they need the huge home run, if a business bunts into first and barely covers the investment they're still in the hole for the other 5 ventures that failed

      Agreed. Lots of respect for Simon, but he seems to miss some of the issues VCs tend to take - namely how they can recoup *their* money out of their investment. Or...

      But as Red Hat employee Harish Pillay pointed out, “RHEL has no Enterprise-only features. What is in RHEL is in Fedora.”

      Well, RHEL by itself may be the same as Fedora, but then if

  • by mark-t ( 151149 ) <markt@nerdflat. c o m> on Thursday February 11, 2016 @02:00PM (#51488241) Journal
    If they are still willing to invest in your business that you are able to make successful because of that, who cares what they think? What they may believe about Open Source, after all, does not change what it actually is.
    • What they may believe about Open Source, after all, does not change what it actually is.

      Ah! But here's the problem; what they claim to believe about Open Source does indeed change what most common people think Open Source is really about. When they mischaracterize the OSI, it strategically weakens the movement as a whole, and it makes Free/Libre Software advocates seem unethical to the vast majority of people who don't really know any better and will just think the richest guy they meet must be the one always right about everything.

      • by mark-t ( 151149 )
        There's a funny thing about belief.... you usually can't change people's minds if they already believe something, especially not just by telling them they are wrong.
    • by dbc ( 135354 )

      A good VC brings more than money. A good VC brings connections, advice, and savvy. A board that consists of nothing but "dumb money" is a disaster waiting to happen. Founders need to pick their VC's as carefully as VC's pick founders, and need to avoid taking money from the clueless and greedy. Yes, there are clueless and greedy VC's infesting Sand Hill Road. There are also smart, helpful, mentoring VC's on Sand Hill Road -- those are the ones to go with. There are also VC's that are still smart, but a

  • These guys didn't get rich by not knowing their ass from a hole in the ground. They got rich by using knowledge to strategically build on investment. I don't believe for a second that the misinformation spread around about Apache, RedHat, and OSI policy in general represents naivety; it represents protectionism. As long as people like for example, my non-tech-savvy relatives think that these assholes know more about the Open Source Initiative than I do, than my ethics and expertise, along with that of th

  • VC firms are business firms with little understanding of the scientific or the technical. In other words, they are herds of PHBs that simply smell money like sharks smell blood.
  • I thought Nadia, here, did a bang up job about what is wrong in the open source world, here. https://medium.com/@nayafia/ho... [medium.com]
  • When do I get my money back? How can I screw over the founders to make more money?

    "Startup: A Silicon Valley Adventure" by Jerry Kaplan is great book on how his pen-based computer company got screwed over by the VC's, Microsoft, Apple and IBM.

    http://www.amazon.com/gp/product/B00L0M749M [amazon.com]

  • Those guys wouldn't be the first ones to be surprised when people uses their open-sourced product in ways they never intended for releasing it under a license they didn't understand.

    Yet even those of us who think we understand FLOSS don't know how it will work out in the long term or even if it is viable at all, at least in its current shape. It's a whole new economic model made possible by a radically new technology, and it combines some ideas from extreme communism (radical lack of proprietary control) wi

  • by tricorn ( 199664 ) <sep@shout.net> on Thursday February 11, 2016 @04:44PM (#51489635) Journal

    The TechCrunch article referenced has a related article link to Where The Free Software Movement Went Wrong [techcrunch.com], which has the following nugget from a writer discussing the difference between Free Software and Open Source Software:

    Morozov writes that the difference between the two is that free software emphasizes users and that open source emphasizes developers. But I would submit that free software is also primarily interested in developers as well, in that the freedoms it emphasizes are ones that matter to developers, but very little to the rest of us. That’s where the movement went wrong.

    and then goes on to say

    try telling graphic designers that they should use GIMP instead of Photoshop because they can study the code, modify it and release their own version. Or try telling a data analyst why they should use Libre Office instead of Excel, or a musician why they should use Ardour instead of Logic. See how far you get.

    Where I think that goes wrong is one of educating the users, specifically that even if they can't code themselves, Free Software helps them by preventing lock-in. As an example, a friend has a bunch of stuff she worked on years ago, in Appleworks format. While there are still a few programs that can read that format (including Pages), they don't implement everything, fonts are different, pagination is different, etc. If Appleworks had been Free, and the fonts Free, it's much more likely that there would be programs and fonts that could perfectly reproduce what she originally had, and she wouldn't be relying on continuing support from any one source. Alternatively, if MacOS and the Mac ROM had been Free, she'd be able to LEGALLY fire up an emulator to run the original version of Appleworks. Even if she herself hadn't stashed away source code, it's almost certain that someone would have, and what she had wouldn't be locked away behind proprietary walls.

    It's bad enough we have hardware obsolescence, we shouldn't have unnecessary software obsolescence when it's so easy to prevent (the entire source code to the Mac ROM and OS and all the development tools would be a tiny blip on any current storage device, I can transfer the entire hard drive of my first computer (Lisa, 10MB) in a couple seconds to almost anywhere in the world; the cache files for this page are probably larger than a MacPlus ROM image plus an early Mac boot diskette).

    • This matches up to a /. story from earlier this week - the Firefox developers cut a perfectly good feature [mozilla.org] which some people based their browsing habits around because they could. Apparently it caused the occasional abort.
      The FF developers have too much time and neither enough clue nor oversight, Australis was another product of that mindset. What does one do under these circumstances? I know someone who has now started his own private fork over this, Firefox ESR is another short-term solution.

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