Let the real test of open source business models begin

After reading about the dooms day in venture cap , I could not help thinking about the impact this might have to the open source world.

With things like zero-based budgeting and re-looking at the base fundamentals of your financial models – it is going to be very hard to justify investments with no direct link to revenue – i.e open source is going to come under a lot of scrutiny.

Besides, when every company is financially stressed out, there will be a lot of pressure on improving the productivity levels in the corporation and as a result the supply of free developers/testers that the open source world gets at the cost of the corporate world will now be constrained.

People do open source for several reason but from a business model standpoint – You do it essentially for two reasons

1. As a Market Capture strategy – Achieve ubiquity, trade revenue for market share. The strategy here is that make pennies on a large number of transaction as compared to dollars on a small number of transactions. The issue in the current financial environment is that if you have a product that has not yet reached ubiquity you will have a negative cash flow because you probably do not have year maintenance contracts.

Sun Microsystems is right into this category of open source players and I think has a mix of successful and un-successful open source products. Sun seems to think that it will benefit from the downturn , but I would be hard pressed to believe that some of its products like openoffice will not be questioned for further investments.

2. As a sales influencer to some other product or a service. A case in point is google - Google does a whole bunch of stuff that is free hoping that you would ultimately end up clicking its advertisements if you are somewhere in the google world. With the pressure on Google Stock and lets say a decreased add spending – what happens to projects like GWT would be worth observing.