I attended the 2nd Annual Microsoft Open Source Partner Forum yesterday in San Francisco. 

The panel in which I had the most interest was a VC panel comprised of Ann Winblad of Hummer Winblad Venture Partners, Jeff Clavier of SoftTech VC, and executives of Jaspersoft, Mindtouch and SpikeSource, all Microsoft partners deploying commercial open source software on a mix of Windows and SQL servers.

When asked what have been some of the changes in open source investing over the last year, Ann Winblad noted that not much had changed, and that she continued to look for open source offerings that served large markets, had demonstrable ROI and were real "pain killers". Those criteria would apply to any enterprise software offering today.  In fact, what became more apparent throughout the discussion was that pricing was the real differentiator. Overtime, I question whether open source will be able to sustain this pricing advantage as commercial vendors re-orientate their traditional licensing models.

Jeff Clavier voiced a pragmatic viewpoint on venture investing as whole, which is to invest in companies that have the lowest cost of failure, or high capital efficiency.  He noted that having done so several times in the past; he never wanted to prove ROI to the CIO. In fact, Jeff is looking for technologies that have horizontal appeal and can achieve a high degree of virility to create demand.

The CEOs chimed in when asked how they confronted the operational challenge of selling open source software. From distribution to licensing model to support, the biggest challenge an open source software vendor faces is go-to-market. Dominic Sartorio of SpikeSource suggested that getting customers to pay for open source was a delicate balance of including a valuable set of basic features and leaving out just enough features and value, so that customers would be willing to pay for the commercial version.  Hence, dual licensing is becoming more broadly accepted.

To wrap things up, the driving forces behind open source adoption do not vary from its commercial counterpart.