Gary Rivlin wrote a great article in the New York Times today on the combination of Open Source and too much money chasing too few opportunities:
Any resemblance to 1999 is strictly isolated, more what might be called bubblets than outright bubbles. Open-source software, podcasting, social networking, security - these and other areas have been so hot at different points over the last couple of years that occasionally prices have inflated wildly.
Open-source technology companies in particular are in demand, with the widespread adoption of the software by corporate users. The group behind XenSource includes a pair of faculty members from Cambridge University and two software industry veterans. The young concern, in Palo Alto, Calif., received a first round of $6 million in January from Sevin Rosen and Accel Partners, also in Palo Alto, and Kleiner Perkins Caufield & Byers, on Sand Hill Road. But by midsummer, the start-up needed more money. "We wanted to scale this up faster than originally planned," said Mr. Sturiale of Sevin Rosen.
"I know of open-source deals being funded almost automatically right now," he said. Many venture capitalists, he added, are convinced that the open-source phenomenon represents a fundamental shift in the software market, "so they want to have a play there." That's what happens, Mr. Sturiale added, echoing others, when there are too many venture capitalists pursing a small pool of ideas.
The important thing to note here is that this is a leading indicator of the future of commercial Open Source, once thought to be the anathema of the Open Source revolution - VCs are putting money in only because they can see ways to get more money out, despite many failures in the recent past. However, many people I've spoken with use the term "Open Source" very loosely and aren't always clear on why it's a good answer to a given problem.
I believe one of the reasons for this is the conflation of the term Open Source across multiple domains. Don't get me wrong - I think Open Source makes a lot of sense, but there is confusion here. Here's a stab at a useful set of distinctions:
1. Open Source as Development Model - leveraged software development approach using a small set of core committers with contributions from a broad community of developers and users.
2. Open Source as Commons - mutual investment into a designated shared property, where all are rewarded disproportionately to their involvement; originally described by Yochai Benkler and discussed extensively at FLORA.
3. Open Source as Business Model - disruptive low-friction distribution and marketing model which enables users to try software that was previously infeasible to acquire due to cost and complexity.
The industry has not yet adopted distinctions between these three meanings (and there are probably good cases to be made for additional meanings). In the meantime, it behooves all of us as entrepreneurs, investors, and industry watchers to know what we mean by Open Source.
Many variations on the Open Source Business Model are currently in play and many more are coming - but the new wave of Open Source, as the VCs know well, is anything but non-commercial.
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