SM: What else has come out in your genre the last four years?
JR: If you look at commercial open source, which is the category we put ourselves into, there are about 20 companies . Zembra had the same model as ours and was founded at the same time. It was sold to Yahoo for $350 million. XenSource was also acquired for $500 million. JBoss was pretty close.
There really are not a lot of comparables. The IPO market is dead and will remain dead for another year. MySQL was going to be the first public OpenSource company and got purchased for $1 billion. That should give us some idea as to the valuation of these companies. Sugar is now the biggest one standing. I actually like that in the way.
SM: I don’t think there is anything wrong with being a private company.
JR: With MySQL being purchased, all the big guns that were ahead of us are gone. There are a lot of others which are smaller and getting bigger.
SM: Are you familiar with CollabNet?
JR: They are actually a customer of ours. They started with more of a Linux movement and arose out of the initial Linux movement. CollabNet is really strong. I think there was a gap of about 2-3 years where OpenSource was not funded very well. During the dot-com boom there were a lot of different Linux distributions. Then we had a dark winter. Companies like us eventually came out and said, “We don’t care. We love Linux, we run on Linux, but we are not Linux. We also run on Windows and Mac OSX.”
Linux is still the foundation. On the other hand, you do not have to run Linux to run Sugar. These are interesting times. The collapse of the stock market has slowed things down. We thought we would be in position to file next year.
SM: Are you going to do anything differently now that you are not going to file next year?
JR: We have a very good cash position, a very strong balance sheet, and a very strong recurring revenue stream, and I think the market that is most susceptible is enterprise sales. OpenSource is kind of an underworld. It is blogged on, but there are not a lot of journalists covering the movement of projects and the size of which projects are gaining strength and which are losing strength. The proprietary world is all about PR firms, events and press. They are bigger, they have earnings, and lots of little software projects.
As a society we have tremendous energy challenges ahead of us that I think will radically affect the amount of time we spend together face to face. As a result of that, technology companies which are dependent on salesforces and screen marketing and lack the base technologies, that business model will be in trouble. OpenSource is kind of like what the Japanese did to Detroit in the 1970s. Detroit was building these big, proprietary, monolithic cars, and they would last 50,000 miles. The Japanese started building boring cars that were cheaper, lasted longer and got better gas mileage. Everybody used to laugh at them in the beginning, much like they laughed at OpenSource at first. The fundamental manufacturing process that the Japanese used was different than the one Detroit used. I think that is really having a big impact. It affects everything. Our engineering salaries are not just engineering salaries. Most companies look at engineering salaries as overhead. We look at them as marketing. If you OpenSource license what they do, it makes the phone ring. That is unique, and it is a great way to grow the company.