Investors Leverage Securities Tied to Free Software

by Andy Hough on October 29, 2016

Investors and brokers have long argued back and forth about whether or not software developed around an open-source model will ever turn a profit. Plenty of vendors have lost a significant amount of money by giving away their products for nothing, and these companies ultimately dragged some unfortunate portfolios down with them. The market is changing, however, and several top vendors are again leveraging their experience in free software to reap large profits. Some analysts are now advocating adding these companies to a healthy portfolio in the interest of diversification.

Canonical Attracts International Funds

Mark Shuttleworth isn’t a figure many investors have heard of, but those who are putting together technology investment funds are taking a close look at him. Canonical is a private British computer software company. Shuttleworth, a South African investor, has put his entire weight behind the company. It’s positioned to become one of the largest open-source model vendors in the world. While Canonical technically loses money, that’s at least in part because Shuttleworth continues to invest most of the profits back into the firm.

The company is currently privately held, but they’re exploring revenue streams that aren’t traditional for most software vendors. Shuttleworth applied for trademarks that would allow the company to sell shirts and hats featuring their company’s logo. Few software firms have that kind of faith in their product’s brand image. These alternative revenue streams are drawing interest from investors who want to add Canonical’s securities to their technology-based mutual funds once the company goes public.

Putting on a Red Hat

Red Hat is one of the biggest technology stocks to watch today. It’s become famous for being a rare example of a security traded on the New York Stock Exchange that saw it’s target price appreciate from literally nothing to a hefty sum. The company provides software solutions in several industry segments that analysts previously thought were worthless. They distribute open-source software solutions based solely on crowdsourced operating system technology. Red Hat once shared their name with what was then the most popular free operating system.

Today they market Red Hat Enterprise Linux (RHEL), which provides industrial and commercial users with all of the support they would expect from Microsoft or Apple. RHEL proved to be extremely competitive in the marketplace, and it continues to steal customers away from Windows and OS X. Individual consumers have flocked to Fedora, which is Red Hat’s distribution for personal desktops and laptops. The company provides training and consulting services for people using either distribution, which gives them a strong second stream of revenue. It’s no wonder that investors are extremely bullish when it comes to this particular stock.

Can Free Software Make Investors Money?

Investors are quickly asking if the open-source model can ever turn a profit. The answer is yes according to Vista Equity Partners founder Brian Sheth. Vista Equity recently acquired a majority stake in Granicus, which is a software vendor that specializes in solutions marketed toward government agencies. Sheth has faith in the company’s mixture of free and commercial software solutions. Leaders of major equity funds don’t usually put their backing behind projects that they have little faith in. The fact that there’s so much support seems to indicate that free software will indeed make money for those willing to invest in it.

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