Larry Augustin's Weblog

Thanks to Matt Asay for a great OSBC

I've spent the past two days at OSBC in San Francisco, and this was probably the best OSBC ever.  The conference was packed with many interesting people, both speakers and attendees.  I want to make sure to thank Matt publicly for putting together such a fantastic program.  The content was incredible.  This was one of the few conferences I've attended lately where not only did I want to attend the sessions, but they lived up to their expectations.  Thanks Matt for all the hard work.

One Patent Per Developer (OPPD)

Last weekend Fortune Magazine published an article in which Microsoft General Counsel Brad Smith and licensing chief Horacio Gutierrez claimed that Free and Open Source Software infringes on no fewer than 235 Microsoft patents.  The resulting blogostorm (including my own contribution) generated a lot of sound and fury, but did it really accomplish anything?

I know that it’s an obscure reference, but I’m reminded of a favorite quote from a tongue-in-cheek game I used to play in high school and college called Junta.  Junta involves taking control of a small dictatorship by battling for such important strategic spots as the bank, television station, etc. One of the event cards in the game reads, "Students Protest: No Effect". How do we turn the uproar around Microsoft’s recent patent assertions into something useful, and make sure the result is not just "no effect?"

Microsoft did take some notice of the uproar.  Bill Hilf, general manager of platform strategy and director of Microsoft's work with Open Source projects, answered some of the criticism and clarified that Microsoft’s strategy is "to license, not litigate."  But as Matt Asay blogged, that’s not entirely a comforting clarification, and the Open Source community needs to respond.

And respond we can.  Now I know that many people have issues with the current patent system, particularly as it pertains to software.  We need to continue efforts to reform the system.  But until the system is changed we need to work with the existing patent system.  Open Source developers have now for decades been contributing code to the community.  But as we are learning contributions of code are not enough.  We must fight fire with fire. We must build an Open Source patent portfolio to rival commercial portfolios.  We have a start at that already in the Open Invention Network (OIN) and the Patent Commons. Last week OIN CEO Jerry Rosenthal said that OIN stands "ready to leverage our IP portfolio to maintain the open patent environment OIN has helped create." OIN to date has accumulated more than 100 patents.  We can do a lot better than that.

Scott Collison, CEO of Ohloh, tells me that Ohloh tracks 39,664 contributors to Open Source projects.  The vast majority have contributed over the last year or two. If every Open Source developer contributed just one patent to OIN we’d have a patent portfolio that would rival most any in the industry. Famous patent troll Intellectual Ventures only owns somewhere in the range of 1,000 to 5,000 patents.  One Patent Per Developer (OPPD) - that's all we need.

Let us then take Microsoft's patent claims as a call to action for the Open Source community: One Patent Per Developer.  It's a lofty goal, and not one that will be achived easily.  But one that we can achieve.  With every contribution of code we each must be thinking, "one patent".  That's all it takes to help keep this code free - one patent.

LinuxWorld Podcast with Don Marti

I had a chance to talk with LinuxWorld Editor Don Marti recently about Microsoft's claims of patent infringement by  by Linux and other Open Source software.  The podcast is available here.

It's Time for Microsoft to Put Up or Shut Up

An article published Sunday reveals that Microsoft General Counsel Brad Smith and licensing chief Horacio Gutierrez told Roger Parloff of Fortune Magazine that Free and Open Source Software infringes on no fewer than 235 Microsoft patents.

For some time now Microsoft has been claiming infringement of its patents by Open Source software.  Gutierrez even claims such infringement is willful:

"This is not a case of some accidental, unknowing infringement," Gutierrez asserts. "There is an overwhelming number of patents being infringed."

Setting aside questions of Gutierrez’ command of grammar, I take offense at the notion that anyone in the Open Source world is willfully violating a Microsoft patent, particularly since Microsoft refuses to disclose any potential violations:

"Gutierrez refuses to identify specific patents or explain how they're being infringed, lest FOSS advocates start filing challenges to them."

Gutierrez and Microsoft aren’t interested in intellectual property rights.  They’re not interested in allowing the Open Source world to defend itself. They’re not interested in a fair fight.  Like a bully, they refuse to face the Open Source world in a fair fight, instead hinting at willful infringement and making backhanded threats.  Why?  Like any bully they fear that when faced with a fair fight in the light of day they will be revealed for the bully they are.  Like any bully they fear that which they threaten.

I work with many companies that have partnerships with Microsoft. For many years I’ve tried to give Microsoft the benefit of the doubt and watched them slowly move from anti-Open Source to an Open Source supporter, or at least a company that recognizes the importance of Open Source ISVs to the future of the Windows platform.  But this bullying has to stop now.

If Microsoft believes that Free and Open Source Software violates any of their patents, let them put those patents forward now, in the light of day, where we can all evaluate them on their merits.  If not, then stop trying to bully customers into paying royalties to use Open Source.  It’s time for Microsoft to put up or shut up.

Open Source Venture Investment Through Q1 of 2007

Matthew Aslett over at Computer Business Review has been tracking the flow of venture capital into Open Source startups and was kind enough to share some of his data with me this week as I was preparing for the upcoming Software 2007 and OSBC conferences. The data was originally collected and published by Matt Asay and Robin Vasan.

The level of VC investment flowing into Open Source is impressive and growing. Last year $481MM was raised by 48 startups. Since 2000 Open Source startups have raised over $1.9B in financing. Here are the last three years:

2004	$298MM	36 deals
2005	$306MM	41 deals
2006	$481MM	48 deals

I plotted the amount of investment and number of deals by quarter since 2000 and came up with this graph:

For the last three years VCs have been investing in about 11 deals per quarter (trending upward slightly) with increasing average deal size. The first quarter of 2007 continued this trend with $100MM flowing into 11 deals.

So much for the historical data; what’s the Open Source venture climate likely to look like for the next few years?

I think the number of investments made per quarter, as Matthew is currently tracking them, will stay flat to decline in 2007 and 2008. There are two reasons for this. First, the venture business is a portfolio business. For most funds it doesn’t make sense to focus all of your investing on one sector. Typically a venture fund makes money off of 2 or 3 highly successful investments. So a fund makes one or more investments in multiple sectors, spreading the risk across both the companies and sectors. It’s the principle of diversification. Once a venture firm has a few Open Source investments they’re not as likely to do another one lest they risk over-weighting their portfolio too much to one sector. (Of course I personally am a counter-example, being heavily invested in Open Source; So much for diversification!) A lot of firms already have their handful of open source deals. This creates an interesting dilemma for entrepreneurs. It becomes more difficult to get funding from the experienced Open Source investors because their portfolios already have several Open Source investments.

Second, the ability to make a large return on an investment in an open source company is still largely unproven and investors are going to hesitate to plow more money into Open Source until they have more evidence of success. Yes, we have a few success stories: Red Hat, JBoss, TrollTech, and SourceFire. But that’s a pretty thin list. Further, JBoss, while a success at a $350MM acquisition, was not evidence of the $1B target venture investors would like to see. Also, SourceFire has stumbled and is now struggling with a market cap just over $300MM. Again, a success, but a modest one in the VC industry and not the evidence of the ability to reach $1B that venture investors need to see. Based on the maturity of the existing private Open Source companies, I don’t think we’re likely to see another large proof point until 2008, and multiple proof points until 2009. I think MySQL is a first quarter 2008 IPO if they can successfully transition to US GAAP accounting and demonstrate predictable growth in 2007. After MySQL there are several private Open Source companies that will do more than $20MM in bookings or revenue in 2007, positioning themselves for $40MM+ in 2008 and an early 2009 IPO. That means we’re at least a year, and maybe 2, from the more significant proof points needed to encourage more investment.

But you may have noticed that at the beginning of this posting I qualified my comments with the phrase “as Matthew is currently tracking them.” The companies tracked in Matthew’s data are those that identify themselves as primarily Open Source. Where we will see an increase is in the number of companies using Open Source as an element of their strategy. These companies won’t identify themselves as Open Source companies, but they will use a number of Open Source elements in their strategy. For example, companies like UBmatrix whose model is more traditional but also provides some core Open Source components.

In many ways that’s not bad. It means Open Source may be becoming more common. Rather than being an unusual strategy, it’s becoming something that virtually every software company will adopt at some level.