VC Summit 2006
Last week I attended the Microsoft VC Summit at our Silicon Valley campus. Before Microsoft and IBM, I helped to build four start-ups, three in the Bay area, so spending a day with a couple hundred VC folks talking about industry trends and business models and in general networking with some great people, was a lot of fun. I did a Q&A onstage with Scott Sandell from NEA on Microsoft, Open Source, our strategy and the relationships to the venture capital community. One of the questions that we spent a good deal of time discussing was the impact of open source software to the venture community. It was an interesting discussion about defining and measuring a successful open source software company. In my opinion, many of these companies are either evolving or starting out with business models that incorporate open source ‘components’ with commercial components (Greenplum is a good example of this), largely because selling support and services for non-differentiated commodity software is not proving to be a sustainable revenue generating model for most of the commercial OSS companies.
Steven Weber’s ‘The Success of Open Source’ discusses this in detail, and Stephen Walli and Matt Asay have been blog-debating this recently as well. I’m interested in business models and I’m interested in analyzing the history of business models. I think one aspect that is often left out of this discussion is that some of these OSS companies have been around for a while, so there is a reasonable history to look back at and measure. Red Hat and MySQL were both founded around 1995 (if memory serves me), and many others can be tracked back six, seven plus years as well. So the question that was discussed at the VC Summit, as well as just this week in the blogosphere, is what qualifies a commercially successful OSS company, and (importantly for investors) how do they rank comparatively to other commercial software companies that VCs may be considering as a potential portfolio company? These venture specific conversations were, of course, very much focused in benchmarking revenue and profitability. I talk a lot about the evolution of commercial and open source models and I think this type of analysis will influence the evolution as vendors, customers, and the investment community start to take a realistic look at the pros and cons of the model. For more information on the VC summit, Don Dodge has a good summary here.