The XenSource Acquisition & the Debate on the Death of Open Source or the Victory?

Huge news today. Citrix has agreed to acquire XenSource for a whopping $500 Million dollars. In the wake of this news, I figured I’d offer some commentary and a perspective.

First, as a sister investment company (XenSource and Hyperic are backed by Accel Partners and share Larry Augustin as a board member), I am excited for them and their new prospects. They’ve done an outstanding job of going pedal-to-the-metal and delivering a stand-out product and an exceptional valuation to their employees and investors. I wish them all the best with the new opportunities in this next chapter of growth. XenSource has ambitious plans and a ripe market opportunity, and their newly minted relationship with Citrix will ideally enable it to compete even more effectively in this emerging market.

As expected, this has caused all kinds of conversation and speculation on the impact this has on open source companies in general, including ours. The blogosphere seems full of speculation on open source vendors being squashed by proprietary vendors, are they “selling-out”, or worse, is this the only expected outcome for open source companies? No on all counts.

In his blog on CNET, my good friend Matt Asay references a recent comment made by Tim O’Reilly:

I will predict that virtually every open source company (including Red Hat) will eventually be acquired by a big proprietary software company.

In fairness, Tim did not call this out in response to XenSource but well before it. As Matt explains:

Tim believes that open source, at least as defined by open-source licensing, has a short shelf life that will be consumed by Web 2.0 (i.e., Web companies hijacking open-source software to deliver proprietary Web services) or by traditional proprietary software vendors.

In other words, why don’t I just give up, sell out, and go home? I guess I would if I thought that Tim were right. He’s not, not in this instance.

I agree. Open source is a hot-bed for technology innovation. It’s prediliction for fast customer adoption, product cycles measured in months (not years), and community collaboration breeds high growth. Customers are empowered to know how to solve their problems faster. They like it. In any market where innovation is fed and adoption grows, an acquisition is a serious possibility. That said, no CEO I know in open source or otherwise sets out to sell out. Venture investors worth doing business with smell this a mile away, and would never back a company that’s designed to be flipped. They back entrepreneurs that have an idea and a purpose and are driven to take it as far and as wide as they can. The idea is to grow as much as you can and have as many options as you want – including acquiring companies yourself.

Open source companies are growing in numbers and in size. As they grow, they naturally have more options today than they did a year ago. We’re seeing an increasing number of acquisitions – both proprietary backed and some open source backed – but we will soon see an increasing number of IPOs too. MySQL (another Benchmark sister company) is hopefully setting an example for others to follow. What is most interesting though is that proprietary companies are feeling the pressure to engage and can no longer dismiss the efforts of OSS companies as science experiments. The quick win is to buy into open source, the longer road is to embrace it and repackage/relicense existing code under open source licenses and build a community. By and large, we’re seeing even more of the latter – more companies trying to evolve into a faster paced, more modern business model. And open source is a part, but not all of it.

So no, I do not think this marks another open source company going dark. I think it affirms that open source will be a strategy the majority will adopt to stay relevant and appealing to customers. The fact that VMWare had a tremendously successful IPO also proves that open source is not the only way one can drive a huge outcome for a software company. As I’ve stated repeatedly: innovation and customer success are the proof points that make all the difference, open source is a business strategy option that can speed that success.

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