Open source startups: Don't try to be Red Hat

VCs are realizing the next billion-dollar software company won't make money from software, but from what open source enables it to deliver

If you were a VC, you'd be looking for a way to turn your millions into billions. If you had only ever made money by betting on proprietary corporations, you would probably conclude that open source was a poor way to win big.

If, like Andreessen Horowitz VC and former XenSource CEO Peter Levine, your work on an open source platform had made you rich, you might conclude that open source had a role to play, but could never make you as rich as Oracle and probably not even as rich as Red Hat has become through its once-in-a-lifetime exploitation of the Linux and GNU commons. Indeed, that's the conclusion Levine reached in an article for TechCrunch this week.

[ Also on InfoWorld: The top 10 open source projects of the year | Torvalds's Git: The "it" technology for software version control | Track trends in open source with InfoWorld's Technology: Open Source newsletter. ]

But both outlooks have been superseded by the maturity of open source. It's possible to grow valuable, giant businesses with open source. The key to doing so is to avoid monetizing open source building blocks while you invest in and innovate around them. That sounds counterintuitive, but it's happening at companies like those Lauren Orsini controversially named recently: Square, LinkedIn, Facebook, Twitter, and Google.

None of these companies sell software; they don't even sell platforms. Rather, each has built a business that's powered by open source software, and each has gone on to create new projects that developers all over the world want to use. Those developers don't compete with them. Rather, they have a vested interest in the code they are using, so they fix bugs and develop features.

When smart developers do that, they realize that contributing back to the original project makes more sense than sustaining a fork of the code themselves. Thus, they contribute. Some model this as a "gift economy" -- and there's no doubt that a sense of community is important for open source developers. But fundamentally this is about self-interest and making sure the code ends up in a place where the most people will be motivated to use and maintain it.

The belief that open source needs to have "an upstream" where there's "a business model" has always seemed rather quaint. In this age of distributed version control, of Git and forks-as-goodness and pull requests, there is no longer a strong concept of "upstream." Rather, the code gravitates to the place where there's the greatest chance of it being improved. If that's the original project, then maybe "upstream" is a reasonable match to the concept, but in today's Generation Git, there can be many peers and code flows between them.

As a consequence, building your business on the expectation of being the "master upstream" is foolish. You benefit most from open source not as a dictator, but as the most favored collaborator. You benefit not by selling support and service -- although that's a viable business model if you don't want to get big -- but by being part of a giant, distributed R&D community, with bug fixes and features flowing in as all the other members of the community scratch their itch and contribute back to the place that's most likely to benefit them if they do.

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