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Venture Dollars Flow to Open Source

Godzilla Meets Bambi?

And now open-source companies face competition on their own turf from conventional software giants that include Microsoft (MSFT - Get Report) and Oracle. The database giant began selling support for Red Hat Linux in late October.

There's some question about Oracle's claim that its support costs are much lower than Red Hat's, but having a giant stomping on one's turf is never good news. Indeed, shares of Red Hat are off 16% since Oracle entered the open-source business. They're now trading at $16.34, a loss of 40% since the beginning of 2006.

Making matters all the worse for Red Hat is the alliance between Novell (NOVL) and Microsoft, announced in November.

Microsoft will use its massive marketing muscle to help market Novell's Suse Linux, and it agreed to a partial truce in the legal wars that slowed the adoption of Linux.

Even so, it would be surprising if at least some of the new crop of open-source start-ups don't grow to profitable maturity.

Investors, however, will have to be patient. The new class of start-ups is probably three to five years away from the kind of growth and stability needed to go public.

Will it be worth the wait? Ask Marc Fleury, the decidedly procapitalist founder of JBoss, the North Carolina-based developer of a popular open-source application server.

His company says Microsoft will use its massive marketing muscle to help mark Novell's Suse Linux snapped up by Red Hat for a cool $350 million earlier this year. Not a bad day's work for a communist.
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