The return of open source software


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Open source software is on fire this year. Before this weekend, we had seen:

  1. Microsoft purchase GitHub, a code-management service, for $7.5 billion.

  2. Salesforce purchase MuleSoft, technology integration software, for $6.5 billion.

  3. Cloudera and Hortonworks merge in a deal worth $5.2 billion.

Each of these deals was dwarfed on Sunday when IBM announced plans to acquire Red Hat, an open source software company, for approximately $34 billion. If the deal is finalized, this would be the third largest technology acquisition in US history.

There are two things that jumped to mind when I saw the news:

  1. Technology valuations are getting out of hand. Red Hat made $259 million on $2.92 billion of revenue in their last fiscal year. This values Red Hat at 131 times profits or 11.6 times revenue. For a business growing revenue only 20% year-over-year, it is obvious we are “late cycle” for technology valuations. In my opinion, these market conditions will be hard to sustain for a long period of time.

  2. Enterprises are starting to understand the power of open source. Few companies understood this previously, but it wouldn’t surprise me if Bitcoin, blockchain, and cryptocurrency have brought the “power of the crowd” to the attention of corporate boardrooms. The ability to incentivize and organize thousands of software developers around the world becomes much more important in a global, digital world.

The open source software movement is as old as computers. Software engineers originally shared their work publicly so that the entire community could improve the code and push the industry forward. Commercialization of proprietary software became popular in the 1970’s and 80’s, which led to the creation of the largest companies in the world.

We are slowly watching the return to open source software as the default though — (1) Consumers are quickly losing trust in centralized services, (2) developers are remembering the power of open collaboration, and (3) entrepreneurs are figuring out sustainable business models around open source software. These three trends are hard to ignore, so centralized corporations are attempting stay ahead of the curve by purchasing open source communities.

Unfortunately they can’t purchase the software itself, but they can purchase the tools developers use (Github), the services wrapped around the open source code (Red Hat), or the communities focused on specific open source applications (Cloudera). Maybe these “picks and shovels” acquisitions will better position corporations for a world dominated by open source software. I wouldn’t count on it though.

Open source software, just like decentralization/blockchain/crypto, is just as much about the ethos as it is about the code. Corporations with short term stock price pressure have a bad track record of successfully honoring non-financial ethos in the technology industry. This should lead to more entrepreneurs leveraging open source software, but in a decentralized world.

Corporations will eventually figure out that you can’t purchase market share in the decentralized world — you either build or fade into obscurity.

-Pomp


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THE RUNDOWN:

Coinbase staff protests as company cuts ‘at least 15’ jobs: Coinbase, the biggest cryptocurrency exchange in America, cut a handful of staffers this week in its customer support, compliance, and fraud departments. Coinbase confirmed the cuts but would not confirm a head count. Sources say it was more than 15 people. One source inside Coinbase says, “People here are pretty upset about it, and so far senior leadership is handling communications poorly.” Read more.

Sweden’s central bank is speeding up plans for a national digital currency: For the last couple of years, Sweden’s central bank, the Riksbank, has been mulling over the idea of issuing a digital currency, in order to adapt to the needs of the increasingly cashless society. Last year, the Riksbank—the world’s oldest central bank—issued a report describing what the “e-krona” might look like, and on Friday it called for the design of the electronic currency to move forward, so it can be tested. Read more.

Google expert developer joins Ripple to lead RippleNet: Blockchain technology startup Ripple Labs has hired Amir Sarhangi, who had been leading Google’s rollout of a new wireless messaging system, as vice president of products. Sarhangi will lead its effort to develop a global payments network known as RippleNet. Read more.

Binance introduces blockchain-based donation website at UN Conference: The Blockchain Charity Foundation, a social project of the world’s largest crypto exchange Binance, has introduced its blockchain-powered donation platform. BCF will first use its donation platform to raise funds for the victims of the floods and landslides in Eastern Uganda. Binance has also revealed that decentralized blockchain project the TRON Foundation pledged an initial donation of $3 million to BCF. Read more.

Four agricultural giants eye blockchain in push to digitize global trade: The four biggest agricultural corporations plan to utilize tech such as blockchain and AI to bring the global grain trade into the digital age. Archer Daniels Midland Company, Bunge, Cargill, and Louis Dreyfus said they are looking at ways to standardize and digitize international agricultural shipping transactions "for the benefit of the entire industry." Read more.


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