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Can You Build a Company from Free Code?

Hank Jones is a 23-year software and technology lawyer who’s written widely about open source since 1999. Chip Rosenthal is an independent open-source software development consultant. Don Shafer, co-founder of the Athens Group, an Austin-based consulting firm, is a senior member of the IEEE. Steven Vandegrift is managing director of Techxas Ventures, a VC firm.

Hank Jones is a 23-year software and technology lawyer who’s written widely about open source since 1999. Chip Rosenthal is an independent open-source software development consultant. Don Shafer, co-founder of the Athens Group, an Austin-based consulting firm, is a senior member of the IEEE. Steven Vandegrift is managing director of Techxas Ventures, a VC firm.

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The panel began to explore whether initiating a free or open software project makes sense for a business based on its customer base, revenue, and business development strategy. But in the end, the panelists merely made the case for using open source software — or becoming an open-source developer.

Hank Jones: We’re all users of open software, whether we know it or not. Two thirds of software is open. To get ourselves oriented here, let’s set some expectations and an agenda. We’re going to consider some of the benefits and risks. Just this week, CIO magazine was telling executives about the myths of open source.

Before we get into some of the specifics, let’s try to drill down a little bit on why it’s going to work or not work. Some people say you can make a living following a service a model versus a product model.

Chip Rosenthal: My challenge is finding a way to monetize my skill. One of the things I confront is changing the thinking of software as a product service rather than a product. What you’re doing is providing a service to companies that use open source as a platform. It’s a challenge to turn around that thinking.

Don Shafer: We’ve been using bits and pieces of open source since the beginning of the company. We incorporated in 1998, and I’ve been using open source software since 1975 — a long time. We’ve got manufacturing assistance middleware products that are now running 24-7. We’ve got software running in Japan, Germany, and East Fishkill, New York.

Jones: The geographic reference is a good transition. People are looking for tech support not in their own ZIP code but in Bangalore. The outsourcing is as huge an issue as you read about in the press. The fact that you have an engineering degree might not matter as much going forward. Does geographic proximity matter any more?

Shafer: In some situations. There’s still some technology work we do where you’ve got to be there. I’m leaving early tomorrow to spend a week in Norway. Could I do it on the Web? Yes. But we’re all people, and you need to interact on a person-to-person scale. I’m not talking about call centers. Those will be off shore soon. But diagnosing technical products, you’ve got to be there for the initial parts.

Jones: Let’s talk vertical now. A lot of careers are built to meet specific needs in specific industries. I’ve heard some skepticism from investors whether open source will work in a vertical.

Steven Vandegrift: We’ve actually invested in a couple of companies that use MySQL. You need to have all the licensing wrapped up, but it’s another tool in their tool bag.

Jones: Speaking of investors, how do you see the investment community looking at this new business model?

Vandegrift: Naﶥ as hell. The VC’s are just starting to wake up to this problem. They don’t understand that the companies that they’re working with are using open source, may not be using it appropriately, and they’re not thinking about exit strategies in which, guess what, it’s got to be put back into the public domain.

Jones: So if you’re looking at joining a company that’s based on stock equity, there’s more scrutiny and due diligence. Lawyers like me will pore over the details of the company. They might not even own the software they’re building. Will the buzz and acceleration of open source be maintainable? There’s also a quality question. Will this stuff work as well as the stuff from a proprietary developer?

Rosenthal: Can I return to the previous issue? I know that by profession you’re a lawyer and that your job is to create uncertainty and doubt in people’s life. Whenever I participate in a panel about open source, the boogey man of will open source infect your product always come up? Open source adds transparency to the process so it’s actually easier to see if software has been misappropriated.

Jones: Knowing what is in your product base is a requirement. But the risks are there. There’s uncertainty and doubt, and then there’s describing a train wreck when you see one. If you educate your programmers and your senior management, then you can be clueful. What about security? There you have FUD — fear, uncertainty, and doubt — allegations.

Shafer: As far as security goes, we have a pretty secure set of firewalls. Everything resides on Linux boxes within our DMZ. We’ve been pretty happy all these years that we’ve got Linux and not Windows. I’m very pleased with Linux, and I enjoy seeing a lot of companies with Windows. It’s easier to get into their systems that way.

Rosenthal: One of the things I’ve been dealing with is electronic voting. This is a project that would be perfect for open source. It can increase security by increasing the number of eyes. There’s the Black Box Voting site, EFF Austin has been blogging some activity, and Adina Levin has been blogging a lot about it.

Jones: How can businesses go from being novice to intermediate?

Rosenthal: Use it. Use the source. The leading game manufacturers see the mod community as a primary resource. There’s a vibrant, open open source community.

Shafer: The way you learn is to pick a problem and build an environment. You can also build yourself a development environment. Pick it up and start playing with it.

Jones: I’d recommend some self-skilling resources. The users community is key. Find the events where you can grok with other geeks. If you’re interested in the business side, there are more things to be learned so you can inform clueless colleagues, venture capital sources, and other leaders. The Cathedral and the Bazaar is a necessary resource. There’s a one-page handout with URL’s for a paper I just wrote about M&A strategies. [He also penned a piece for Darwin magazine.]

Update: At the very end of the Q&A session, one participant in the audience brought the discussion back to the business case for open source. He said that they approached their work as a service, and they followed three paths:

  • Seek out customers who are sensitive to licensing costs
  • Use the ASP model: Clients use the service, and the provider decides what to build it in
  • Work with non-profits