For some time, Sun has been talking about OpenSolaris but it was never really clear to us what you were getting when you download a free copy of Solaris. Is it an open source version where everyone in the world has freely added functionality and features, or is it a Sun-controlled version that is more appropriate for enterprise deployment? During a recent trip to New York to meet with analysts, Rich Green, Executive VP of Software explained exactly how the process works.
Sun has implemented a dual licensing model with Solaris 10, with one version being open source and the second version representing a commercial release. The open source community decides what features should be added to OpenSolaris and when. If Sun wants features added, it goes to the open source community with the request. Of course the bulk of that community is made up of Solaris engineers who are on the Sun payroll, and those engineers are eager to please their management. When the new features are added to the OpenSolaris version of the OS, Sun requests that the contributor of each new feature sign an SCA allowing Sun to use that feature in the commercial version of Solaris 10. At that point, the feature is added to the beta version of commercial Solaris and the usual testing and qualification is performed. If the contributor refuses to sign the SCA, then the capability never makes the transition. It is still unclear as to how Sun handles the forking of the two Solaris versions since not all features ultimately make it into the production version.
When customers download a free copy of Solaris from the Sun web site, they are downloading the production version of Solaris and they receive that copy at no charge. To protect the reputation of Solaris, Sun allows anyone to download security patches, but full support is only available to customers who purchase a support contract. As Sun transitions over to this new open source business model, revenue initially drops as customers who would have paid in the past now receive Solaris for free. Over time, however, revenue begins to climb as a fraction of the millions of customers who download a copy of Solaris for free want to put the server into production and now need full service and support for Solaris. In the past, Sun did not split out software revenues, but it will release some non-GAAP numbers with the next quarterly earnings release. The timing for such a move is generally good for Sun because the revenue drop appears to be behind them and Sun’s software is now growing at the rate of 13% year-over-year.
The dual licensing approach to open source development that Sun is using has long been successfully applied by other open source software suppliers. such as MySQL, SleepyCat, and Trolltech. One of the major benefits for Sun is the ability to leverage the open source community for Solaris development,even as they maintain the ability to deliver a proven version for customers who value stability. That not only saves money in the long run, but it also allows Sun to communicate the message that they are responding directly to customer needs and requirements. For instance, if HP wants Solaris on Integrity, it can go directly to the open source community and make that happen. Another benefit is that Sun is able to get Solaris into the hands of millions of potential customers. Of course not all of those customers will end up paying for support, but Sun feels over time enough of them will pay to more than make up for the loss of software license revenue. Overall, the plan appears to be working well for Sun. We at IDEAS can’t see any downside other than the loss of software license revenue in short term. It will be interesting to see what software numbers Sun reports at the end of the quarter.
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