I agree with Shaun (no surprise there). The open source doubters continue to underestimate the power of open source as a business model tool. And Savio, though normally I wouldn't characterize you as anti-open source, you seem to want, like many at IBM, to keep open source nicely contained in a package that is easy to leverage but doesn't impact your license business.

At some point you have to take the training wheels off open source and let it truly be disruptive. IBM has done a great job of using open source within its proprietary product lines - it understands "complements" very well and uses Linux, Apache, etc. accordingly.

But many of the upstarts believe in open source as a substitute, too, and I can tell you from direct, personal, daily experience (both with Alfresco and with the 10 open-source startups I advise) that there's a heck of a lot of "substitution" going on. As I've written elsewhere, there's a long runway for the mega-corps like IBM, Oracle, and Microsoft, but open source will eventually breach those defenses, too.

IBM probably has less to worry about than others because it has long understood that services are a key component to delivering value. Just don't get too attached to those outsized license revenues.

Im confused Savio...what dont you understand about a software subscription annuity model? $200-500mill today in base revenue could easily be (along with a modest growth rate of new customers, which Red Hat doesnt seem to have a problem getting) over $1bill in revenue in the near future. Keep providing value to customers (RH is #1 4 years in a row). Keep your renewals (RH has a 90% renewal rate). Keep getting new customers and adding products (JBOSS, MetaMatrix,etc.).

Your comments seem to be at best irresponsible...and at worst plain ignorant?

But hey, I think Red Hat likes being the underestimated darkhorse.

OK, Savio. I've taken the bait and blogged further on the topic:
http://connollyshaun.blogspot.com/2007/11/scaling-software-business-open-source.html

Matt,

You are clearly open sources best cheerleader and I have repsect, that said....

Red Hat is a bad example; sorry. They do not offer a free binary, and their binary is only valuable vs. other OSS companies because of ISV support which is a naturally tipping market (OSs in general).

Red Hat ranks high in value because of the high cost old HP gear they are taking out with it...more than anything. What is their next cost trick?

If the OSS model is scalable then why are the two most deployed OSS software groups (MYSQL, JBOSS) largely unprofitable?

I appreciate the blogging, but the reasoning is damn superficial around here sometimes.

James