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Foolish Investing in a New Open Source Order

Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

During the better part of six years I spent covering open source full-time for ZDNet, there were clear lines between companies that were open source and those that were closed source. We would cheer the heroes, like Google, and hiss the villains, like Microsoft.

Since then, the lines have blurred considerably, as Black Duck Software, which helps companies track the licenses under which their code is written, revealed in its latest list of “Rookies of the Year.”

The companies we saw as open source villains when I was at ZDNet are now emerging as heroes, as open source becomes the mainstream of software development.

Microsoft an Open Source Hero?

Guess who was on the list? Microsoft (NASDAQ: MSFT), with a program called Typescript, a new language for creating Javascript applications. Yahoo was also on the list with something called Mojito, which Wired once called its “Apple app store killer.” 

Companies release software as open source because they want other eyes on it, other hands on it. They are no longer just releasing software they no longer care about. They are trying to build programming communities around the software. They're trying to create alliances around it. They're trying to grow it.

Microsoft, in fact, has long been a big supporter of open source, through a site called CodePlex http://www.codeplex.com/. Codeplex today is one of the largest open source repositories online, and Microsoft has learned a lot about open source from running it. Many in open source still consider Microsoft “the villain,” but that's no longer the reality. It's more of a frenemy.

EMC Seeks Open Source Mojo

The more open companies are in how they produce open source these days, the more help they can get with it.

VMware (NYSE: VMW) learned this the hard way recently with Vert.X, something one of its own employees created for creating Web applications in a variety of languages. This sort of thing is vital for cloud computing, where applications must be re-written to run in new environments quickly. When Red Hat hired the programmer in question, a brief skirmish ensued, the result being that the program was placed with the Eclipse Foundation.

Open source will be extremely strategic for VMware, and EMC (NYSE: EMC), which owns 80% of it, as it tries to build out its own cloud offerings. While the vSphere virtualization system is proprietary, VMware has learned the hard way that cloud won't wait for a small group of proprietary developers to create the infrastructure, platforms, and applications the market needs. That is why EMC did an extensive reorganization late last year, placing many of its open source cloud assets into a new group under former VMware CEO Paul Maritz.

The important point to understand here is where Maritz came from. He came from Microsoft. The man directing VMware's open source cloud future is a Microsoft alumnus.

The Foolish See the Blur

The bottom line for investors here is that you should not evaluate software companies based on whether they are open source or closed source any more. As with Microsoft and VMware, so with others. You measure them on how they implement open source strategies, and how they balance their own self-interest with those of other players, even rivals.

It is unclear to me at this point how EMC will decide to monetize these open source cloud assets. If it were to spin them out into an independent company under its control, as it did VMW, that would be a very interesting investment. Those who want to bet on that would be wise to have some money in EMC.

And those who want to bet that Microsoft can't come back because it doesn't understand open source might be wise to reconsider.  

DanaFBlankenhorn owns shares of Microsoft. The Motley Fool recommends VMware. The Motley Fool owns shares of EMC, Microsoft, and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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