Open Source Weblog

It is surprising how often you hear people in the IT industry making the mistake talking about open source providing free research and development for open source software vendors.

While engaging with an existing community of developers can help a company cut development costs, the vast majority of those developers still need their wages paid, and software vendors looking to provide value-add services have also found that its better to have the software expertise in-house.

(Sun's Simon Phipps has an interesting take on why open source R&D is not free, and developer motivation, see here.)

So who pays for open source development? For those open source software vendors making money from subscriptions, the answer is "enterprise customers". For those not - yet - lucky enough to be in Red Hat's position, the answer is more likely to be "investors."

So where is the money coming from? I've taken a look at some recent funding rounds involving a variety of open source software and services vendors: MySQL, Greenplum, SugarCRM, Qlusters, Xensource, JasperSoft, Black Duck, Zimbra, ActiveGrid, SpikeSource, Astaro, Scali, SWsoft (included thanks to its involvement in the OpenVZ project), Zend, Groundwork, Alfresco, JBoss, Collax, Univa, EnterpriseDB, Optaros, Trolltech, Funambol, Gluecode (now owned by IBM), Pentaho, OpenLogic, and SourceLabs.

Between them these companies have raised over $362m in the last few years (and this is just the tip of the iceberg, Alfresco's Matt Assay and Mayfield's Robin Vasan have calculated that $1.3bn has been invested in open source start-ups in the last five years).

A few investment company names crop up again and again, such as Index Ventures (MySQL, Zend, Trolltech, Pentaho, SourceLabs), Accel Partners (Xensource, Zimbra, Alfresco, JBoss), Benchmark Capital (MySQL, Qlusters, Zimbra), and New Enterprise Associates (SugarCRM, Xensource, Pentaho).

But one stands out: Intel, which has invested in MySQL, Black Duck, SpikeSource, Scali, SWsoft, Zend, JBoss, and Collax through its Intel Capital arm. It may not have been the lead investor in all these companies but clearly the chip giant's influence stretches far and wide into open source software.

(It should be noted that Intel's influence stretches far and wide in many directions. A look at the Intel Capital page reveals it currently has investments in no fewer than 266 different companies.)

The open source software vendor that has raised the most VC funding, by the way, is database firm MySQL, which has raised $39m in three funding rounds, including the recent $18.5m Series C round.

With Oracle snapping up its potential database storage engine providers MySQL may need some of that cash to develop one of its own.