The WSJ published a fine article about the success Peter Fenton of Benchmark (formerly Accel) has had in concentrating on, and exiting, Open Source investments. I am a huge believer that Enterprise prices are on a steady downward pricing curve and that 'best of breed' vendors are suffering from the slings and arrows of open source (maintenance based) pricing, AND pricing bundles from integrated vendors that takes away, or minimizes ASP's for these independent vendors. While terribly painful for these focused vendors (and their investors), it's good for customers.
Here's some of the quotes that I really enjoyed (and agree with):
When praising open-source many venture investors tout the low-cost product development that comes from a project’s community. But for Fenton, that’s overstated - the real advantage he says is the distribution model.
Rather than “expensive sales efforts and negotiations with the upper management to get the most money possible,” the people that will be using the software can easily download and try the product. This helps the best products proliferate and weeds out the underperformers.
Having a well-received product not only results in plenty of downloads, users and developers, it also makes the sales process that much easier. With SpringSource, “anyone the company sold to was already using the product,”
The success of open source, coupled with the aggressive pricing of integrated vendors (CA, Oracle et al) is mostly killing the business model of the best of breed vendors offering limited product suites. Unless these vendors offer real technology innovation, as opposed to products based on business process innovation, it will be quite hard for them to realize returns that will justify the capital investment necessary to build the IP and a direct sales/service organization to support it.
From an investors point of view, the opportunity cost of investing in an Enterprise software company that requires a direct salesforce, a dedicated R&D team, plus a 24/7 support organization pales in comparison to internet enabled alternatives. As my buddy Elad once said "Stay away from businesses that fight technology trends", and embrace the one's that are ahead of the wave.