Monday, January 21, 2008

Buying an Open Source Company

451 Group has recently published a report on why companies would buy an "open source" company. Although I have not read the report, I have been impressed by the quality of their work in the past. Ironically, the report came out on the day of announcement of the Sun acquisition of MySQL. Such acquisitions will be attractive to the open source companies for the same reasons that it was attractive to MySQL: the ability of a large company like Sun to provide the strong service component which is critical for smaller software companies (and particularly open source software companies) to be successful in selling to the enterprise.

Matthew Aslett summarizes the report in his posting. The 451 Group identifies the following drivers for open source M&A:

Entrance into new markets
Portfolio expansion
Consolidation play
Business overhaul
Technology play
Project acquisition
Technology transfer
Carve out

I agree with Martin Schneider that for many traditional software companies "Business Overhaul" is the most compelling reason for an open source acquisition. They need to learn more about the open source business model. However, I think that it is important to place open source acquisitions in the broader context of the consolidation going on generally in the software industry. The factors driving this general consolidation will also drive open source acquisitions.