Power Of Open Source: Lost Cost Development Or Distribution Model?

Scott Denne writes on WSJ blog has an interesting article about Peter Fenton, the venture capitalist with Benchmark Capital and previously Accel Partners, who had four open source investments exit through a successful sale. His investments include the recently sold SpringSource (sold to VMWare), JBoss (sold to Redhat), Zimbra (sold to Yahoo) and XenSource (sold to Citrix).

When asked about what contributes to the success of Open Source, he pointed out that more than the low cost of development due to active community participation, it is the direct line of communication between the vendor and the customer that makes the difference. It is an interesting take though I don’t agree so much with his characterization that the idea of low cost of development is overrated.

When praising open-source many venture investors tout the low-cost
product development that comes from a project’s community. But for
Fenton, that’s overstated – the real advantage he says is the
distribution model.Rather than “expensive sales efforts and negotiations with the upper
management to get the most money possible,” the people that will be
using the software can easily download and try the product. This helps
the best products proliferate and weeds out the underperformers.

“If you don’t have the best product, you’re not going to make it in
open-source,” unlike traditional enterprise software, where customers
often flock to good-enough products.

Anyhow, it is interesting to see that VCs are flocking Open Source more now than any other point of time. Congratulations to Mr. Fenton for his successful open source exits.