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I wrote yesterday that Christensen’s law of Conservation of Attractive Profits could be used to explain why open source vendors are increasingly turning to hybrid development and licensing strategies to generate revenue from open source.

Before I could think about doing so Arjen Lentz wrote a comment that did a lot of the explaining for me.

To recap, “The Law of Conservation of Attractive Profits”, articulated by Clayton Christensen in his book The Innovator’s Solution, states:

“When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.”

Arjen wrote:

“OSS vendors turn to hybrid development and licensing strategies (or in some cases, not turn to but cling to even though other newer revenue streams have emerged successfully) because their sales organisations a) don’t always understand how the OSS market place works - they should indeed read a good dose of Clayton Christensen’s works! and b) it is a known path for revenue, and since sales people’s income and job is directly related to this month’s performance, they won’t naturally experiment with that. Sales people will do what’s been successful in the past, for a long as it remains succesful.

The fact that other avenues *might* be more successful (or nicer to the clients and the ecosystem) is in this context, irrelevant. They won’t go for it. Can’t. It’s one of the basic innovator’s dilemma factors.

The point is that being a vendor that publishes OSS, does not make it a non-traditional company. The vast majority are really very traditional in the way they do business. Which is quite understandable, given the above aspects.

In the long run, of course, these vendors will find their “safe” and known market disrupted, even if they once considered themselves a disruptor. Yes, the disruptor can and will be disrupted. It’s happening all-over the place in our business.”

This explains the initial attraction of hybrid licensing in my view, but doesn’t go the whole way. Yes, a lot of these vendors are continuing to think like traditional companies and perhaps, as Dave Neary recently suggested, they shouldn’t.

However, given that these vendors are attempting to maximize profits it is understandable that they will look to traditional licensing methods to achieve that.

In the context of Christensen’s law open source specialists are engaged in commoditizing their own stage in the value chain. Unless they make money from other stages in the value chain such as other products (e.g. HP, Oracle) and/or embedded open source in commercial hardware and software (e.g. IBM, Cisco) then those vendors face a problem.

It is of course possible to generate profit from support (whether it be ad hoc or subscription based) but that arguably does not scale, presents problems in terms of balancing community and commercial requirements, and is unlikely to provide the sort of profit margins most vendors will be looking for (especially as hybrid development models maintain higher development costs, as opposed to pure open source community development models).

This explains why the likes of Matt Asay and Savio Rodrigues have recently argued that Sun and MySQL should return to the idea of closed source extensions to the open source software in order to close the gap between large but declining proprietary revenue and small but increasing open source revenue.

One of the problems this Open-Core Licensing approach has, however, is identifying value-add features that will persuade users to becoming paying customers and maintaining the balance over time (to stretch Arjen’s point, the open source disruptor is disrupted by its own disruption).

In the context of Christensen’s law it is probably easier in the long-term to generate profit from adjacent proprietary products than it is to generate profit from proprietary features deployed on top of the commoditized product.

This is why I would agree with former Sun employee Rich Sands and his view that the better long-term model for Sun lies in using open source to generate revenue from other products and services.

Which isn’t to say that one model is intrinsically better than the other, but that each has its place depending on the stage of commoditization and the short- and long-term goals of the individual vendor. I think I’ll come back to that later.

Dana Blankenhorn asks whether open source is hurt by piracy, prompted by comments made by Louis Suarez-Potts, Sun’s community manager for OpenOffice.org at OSCON.

Dana is unconvinced that open source supporters should necessarily be doing anything about piracy, noting that “There is no direct financial loss to Open Office when someone has a pirated copy of Microsoft Office. To the extent that BSA enforcement actions cause fear in the market, that just benefits open source, so why join it?”

He also notes that “On the other hand if we helped Oracle enforce its license terms we might accelerate the move to MySQL and Ingres.”

However, one need only remember these comments from last year made by the president of Microsoft’s business division, Jeff Raikes, to understand why piracy is bad for open source:

“Our number one goal is that we want people to use our product. If they’re going to pirate somebody, we want it to be us rather than somebody else. And that’s because we understand that in the long run the fundamental asset is the install base of people who are using our products.

What you hope to do is over time you hope to convert them to licensing the software, legally licensing it, so on, and so forth,” he added, neatly - and presumably accidentally - describing the method by which commercial open source vendors benefit by making their core code available free of charge.

So it’s always a delicate balance, because what you want to do is you want to push towards getting legal licensing, but you don’t want to push so hard that you lose the asset that’s most fundamental in the business.”

Additionally on our recent virtual tour of Europe we saw how piracy was seen as a barrier to further adoption of open source in countries like Greece and Romania.

Supported by government, open source can be used as a tool defeat piracy. Louis explained, ComputerWorld reports that: “By cracking down on software piracy, nations around the globe are starting to see that they can help themselves dramatically by encouraging innovation and creativity — as well as job growth and richer economies — through open-source development.”

An example of this is Russia, where Microsoft’s bungled attempt to crack down on software piracy resulted in a decision by the government to reduce piracy and encourage local business by encouraging the use of open source software.

Progress acquires IONA. Red Hat announces quarterly earnings. Optaros raises new round of funding. (and more)

Progress Software Corporation to Acquire IONA Technologies, Progess Software / IONA Technologies (Press Release)

Red Hat Reports First Quarter Results, Red Hat (Press Release)

Optaros Closes $12 Million in Series C Financing Co-Led by .406 Ventures & Globespan Capital Partners, Optaros (Press Release)

Sourcefire, Inc. Responds to Barracuda Networks Letter, Sourcefire (Press Release)

Linux Phone Standards (LiPS) Forum Joins Forces with LiMo, LiPS Forum / LiMo Foundation (Press Release)

Microsoft Takes Additional Steps in Implementing Interoperability Principles, Microsoft (Press Release)

Sun Microsystems Releases New GlassFish and MySQL Offering To Provide Customers With Unlimited Deployments of Enterprise Class Application Server and Database Software, Sun Microsystems (Press Release)

Oracle Updates Entire Family of Oracle Berkeley DB Embeddable Databases, Oracle (Press Release)

Openmoko Signs Five Distributors for Freerunner Open Source Mobile Phone, Openmoko (Press Release)

MuleSource Releases Mule Galaxy Enterprise, MuleSource (Press Release)

NETGEAR Launches Open Source Wireless-G Router Enabling Linux Developers and Enthusiasts to Create Firmware for Specialized Applications, NETGEAR (Press Release)

Zenoss Expands IT Management Solution for Managed Service Providers, Zenoss (Press Release)

Actuate First to Provide Support for Eclipse BIRT 2.3, Actuate (Press Release)

Latest Open-Xchange Public Beta Gives Customers a Free Preview to Business-Class Groupware, Open-Xchange (Press Release)

Open Source Community Wins at Ingres Code Sprint, Ingres (Press Release)

Coming Battle Over Open Source Phones, Forbes.com, Elizabeth Woyke (Article)

Linux experiences ‘prolific’ growth, says Linux Foundation’s Zemlin, SearchEnterpriseLinux.com, Pam Derringer (Article)

Nvidia Reiterates Position on Closed Source Driver, OSnews, Thom Holwerda (Article)

Red Hat CEO: Oracle/BEA Deal Is Helping Us, Internet News, Sean Michael Kerner (Article)

The State of Open Mobile OSes, TechCrunch, John Biggs (Blog)

When is an open-source project ready?, Practical Technology, Stephen j. Vaughan-Nichols (Blog)

Nokia?s Open Source Response: The Symbian Q&A, RedMonk - tecosystems, Stephen O’Grady (Blog)

To coincide with EURO 2008, I’m embarking on a virtual European tour, taking a quick look at open source policies and deployment projects in the 16 nations that are competing in the tournament.

One of the potential favourites for EURO 2008 was always going to be eliminated from the group stages given France, Italy and The Netherlands were all drawn in Group C and it was France that made an early exit following a 2-0 defeat to the Italians last night.

France must also be considered one of the favourites to be crowned EURO 2008 Open Source champion given the number of open source-related policies, projects and vendors. It would almost be easier to list the departments of the French government that have not adopted open source.

Key policies:
As long ago as 2001 the French Agency for Information and Communication Technologies in the Administration announced that it was promoting the use of open standards and open-source software in e-government applications. The following year it published a guide designed to help public sector entities choosing and using free and open source software.

In 2002 the Commissariat Général du Plan, a report analyzing the French software industry was published and recommended that public agencies promote the development of free software platforms and open standards.

More recently, in April 2007 the Ministry of Defense announced that it would prefer open source software for both acquired and internally-developed software projects.

Meanwhile the Practical Guide to the use of Open Source software by public authorities was published in late 2007, while in May this year the Ministry of Education agreed a four-year 60% discount with Mandriva for the adoption of Linux by all teachers and staff (estimated at 1.5 million employees) at France’s 250 schools and universities.

Somewhat extraordinarily given the amount of deployment projects listed below, it was recommended in January that France should increase its use of open source software and consider tax benefits to stimulate open source development. The recommendations were made by an economic commission set up by France’s president Nicolas Sarkozy.

Key projects:
There are almost too many to mention, and the following is just a taster. The Ministry of Equipment and Transport migrated 1,500 Windows NT Servers to what was then Mandrakelinux in 2004. Meanwhile the Ministry of Defense contracted five suppliers to create a secure Linux variant, the Family Allowance Agency migrated to Red Hat and JOnAS, and the Ministry of Foreign Affairs adopted an open source web application deployment and development platform.

The Ministry of Agriculture and Fisheries migrated 500 Windows NT servers to Mandriva in 2005, followed by a further 400 servers starting in 2007. The Tax Ministry (PDF) adopted the JBoss Application Server as part of its COPERNIC project to overhaul of the IT system that underpins the French tax system.

In 2006 the Directorate General for the Modernisation of the State approved the adoption of OpenOffice for 400,000 central administration desktops as part of a move to support the Open Document Format.

The Ministry of Education migrated 2,500 servers across its 30 local education authorities to Red Hat Enterprise Linux last year, while the Culture and Communication Ministry migrated from Microsoft Office to OpenOffice.org.

This year the gendarmerie announced plans to migrate up to 70,00 workstations to Ubuntu running Firefox and OpenOffice.org, while Ubuntu was also chosen for adoption by French MPs as part of the migration of the National Assembly from Windows to Linux.

Open source has also been adopted by local authorities including Arles, Grand Nancy, Lille, Val d?Oise, Marseille, Brest, Grenoble, Lyon, Rennes, and Marseille again.

Adoption of open source is also strong in the private sector. Examples include the adoption of MySQL by retailers Franprix and Leader Price to manage the data in their supply chain and product distribution platforms.

Another comes from Agence France-Presse, which has adopted Nuxeo?s open source content management system, as have SNCF, La Poste, and Gaz de France, among others. Meanwhile Airbus created its own open source development tools for building mission critical systems based on Eclipse, and Peugeot Citroen moved to SUSE Linux for up to up to 20,000 desktops.

Key vendors:
France has a host of open source vendors, of which the most famous is probably Linux vendor Mandriva. Former Mandriva founder Gaël Duval is having another crack at the open source desktop with Ulteo, while other French open source vendors include content management vendor Nuxeo, data integration firm Talend, and services firm Linagora. Also worth a mention is the OW2 Consortium, a non-profit open source middleware consortium formed by the merger of ObjectWeb and Orientware. Although its headquarters is actually in Belgium, its roots and its administration home is in Paris.

And another thing:
France even has its own family free software license. CeCILL was released in July 2004 and is designed to be compatible with both the GNU GPL and French law. It has been approved by the Free Sofware Foundation. CeCILL was followed by CeCILL-B, which is a BSD-style license, and CeCILL-C, which is more comparable wit the LGPL.

As always we welcome your input. If you have examples of open source adoption in France that we’ve overlooked, please leave a comment below. For more stops on the European tour, see this post.

Microsoft and Novell extend collaboration to China. IDC sees open source growing in importance with end users. rPath to use SUSE Linux for appliances. (and more)

Microsoft and Novell Extend Reach of Interoperability Collaboration to China, Microsoft / Novell (Press Release)

Open Source Software Grows in Importance to End-User Organizations Providing Rising Services Opportunity for Quality Assurance and Testing, IDC Survey Reveals, IDC (Press Release)

rPath to OEM SUSE Linux Enterprise Server from Novell for Appliances, rPath (Press Release)

Latest Server Release Expands Ubuntu Enterprise Profile, Canonical (Press Release)

Red Hat Enterprise Linux Delivers Dramatic Virtualization Performance with HP Server and AMD Processor Technologies, Red Hat (Press Release)

Zenoss Closes Record Quarter with Over 100 Enterprise Customers, Opens New Development Center in Austin, Texas, Zenoss (Press Release)

AlterPoint Expands into Europe with Open Network Management Initiative, AlterPoint (Press Release)

Terracotta Adds Rich Visualization to Leading Java Clustering Solution, Terracotta (Press Release)

OSA Announces New Board Members to Guide Consortium Push Toward Interoperability, Open Solutions Alliance (OSA) (Press Release)

Fedora goes to a community-dominated board, LWN.net, Paul Frields (Article)

Mercury News interview: Fitting MySQL into Sun’s orbit, San Jose Mercury News, Brandon Bailey (Article)

Ask RedMonk: Open Source Indemnification - the Q&A, RedMonk - Tecosystems, Stephen O’Grady (Blog)

Did Canonical Just Get Punked by Red Hat and Novell?, Linux Today Blog, Brian Proffitt (Blog)

Has MySQL Forgotten All It Learnt?, Computerworld UK, Glyn Moody (Blog)

Does Open Source Participation Open Career Opportunities?, Marketing at Eclipse, Ian Skerrett (Blog)

Wired Asks the Wrong Question about Open Source, CIO - The Open Source, Bernard Golden (Blog)