‘Software is eating the world’ were Marc Andreessen’s famous words in 2011 to point out that our daily lives will be inevitably and exhaustively converging with software. Interestingly, with this year’s notable acquisitions of Github and Red Hat, we can see that open source software plays a crucial part in this incorporation process. The importance of open source is further exemplified by the 2.3 billion Android devices which rely on the open source Linux kernel. Hence, we take a closer look at some of the trends within open-source.

Our observations

  • In April Pivotal Software, an enterprise cloud computing company, raised $555 million, the largest IPO of an open-source company, resulting in a $3.9 billion market cap on the first day. Pivotal Software contributed their code to several open-source projects like Cloud Foundry Foundation and the Spring Framework.
  • In May Salesforce acquired Mulesoft for $6.5 bilion, a company that builds technology to help businesses connect apps and allow data sharing.
  • In June Microsoft announced their intent to acquire Git-repository hosting service Github for $7.5 billion and closed their purchase in October. As of December the acquisition has been green-lit by EU regulators. Github has become the largest host of both proprietary and open source code in the world with over 28 million users and 57 million repositories.
  • In October IBM bought all shares in Red Hat, a deal valued at around $34 billion. Their press release stated that the prime motivation is to become a hybrid-cloud provider that is able to bring portability and security to multiple clouds.
  • GraphQL is an open-source data query and manipulation language for APIs for fulfilling queries with existing data. Wired has written an extensive article on the programming language, highlighting its value in enabling app developers to easily query different data sources.

Connecting the dots

Open source software allows programmers to study, change and distribute source code freely. Consequently, the absence of a license agreement fee is the most obvious benefit for adopting open-source code. However, more importantly, open source allows programmers to work collaboratively on code due to the largely absent regulatory and financial hurdles. Thereby code  improvement can suddenly draw on immense network effects of programmer communities worldwide resulting in more innovation. As a result open-source software is often more secure. Interestingly, as code is copied, altered and selected, researchers found that code improvement follows evolutionary patterns.
Another advantage of open source is  the prevention of vendor lock-in, as can happen with proprietary software where sustainable support and interoperability with other systems can be suboptimal due to conflicts with the company interest. For the same reasons open-source is most common among platform- and infrastructure-software as open standards and open source enable interoperability. A good example can be currently found among containerization and micro-service software which enables the deployment of multi-cloud systems.
From the perspective of the vendor there are also convincing arguments to make their source code open. For example, in 2015 Google open sourced TensorFlow, their computational framework for building machine learning models, to attract AI talent globally and benefit from their contributions. Furthermore, in the process they are building a strong academic and developer community around their code which has all kinds of spin-off effects (e.g. sales, publications, PR).
From an historic perspective, the open and collaborative nature of coding is as old as software itself. However the formal acknowledgment of open source only emerged in 1998 with the Open-Source Initiative (OSI) after the software

commercialization wave in the 70s. One year later Red Hat went public, a business formed around the open source operating system Linux, which is now the operating system with the largest install base of all general-purpose operating systems (among them mobile operating system Android).
Almost two decades later with a yearly revenue of $3 billion and the acquisition by Microsoft Red Hat has shown that open source is able to generate considerable revenue through combining development with subscription-based consultancy, support and service. There are also companies that within the context of open source, sell commercial licenses (double licensing) and/or sell licenses of proprietary software extensions (open core), which is received with contempt by some open source developers. Moreover, public cloud providers like Amazon and Google have received considerable criticism by making money from open source solutions that are offered as as-a-service. In response, two solutions have been proposed, Commons Clause  and the Server Side Public License (SSPL). The commons clause lets developers include a clause which prohibits the licensee to sell the software whereas the SSPL license requires the licensee to open-source all programs that are being used to make the software available (also known as copyleft).
In finding new business models and revenue streams for the future, Red Hat developer Bilgin Ibryam believes that the open-source software development is still missing a direct, transparent, trusted, decentralized, automated bidirectional link for transfer of value between the open source producers and the open source consumer. He believes that the blockchain and cryptocurrencies have an important part to play in filling this gap. At the same time we also see that the volatile cryptomarket has caused some open-source projects to lay off employees due to funds that have evaporated in the last few months.

Implications

  • Further acquisitions of open-source software companies is to be expected as the software market matures.
  • Open source foundations will put more emphasis on education in order to stimulate talent growth. For instance, the Linux foundation and Coursera launch a new specialization for open source, Linux and Git.
  • Acquisitions of projects within the containerization and micro-service domain.
  • The success of crypto-based open-source development will heavily correlate with the value of cryptocurrencies.