Linux: Following the money

The stock-market success of Red Hat is turning open source into the latest investment gold rush.
Written by Lisa M. Bowman, Contributor

Two weeks after the wildly successful initial public offering of Red Hat, 2000 people flocked to Monterey, California, to find out how they, too, can cash in on the open-source movement.

The O'Reilly Open Source Conference, which lasts until Tuesday, featured people not traditionally involved in the open-source movement, including keynote speakers former Apple Computer evangelist Guy Kawasaki, and Sun Microsystems' Bill Joy. Several came to find out how to fund an open-source startup. A panel on the topic featured successful Linux companies such as Linuxcare and Sendmail and a member of the venture capitalist (VC) community.

John Partridge, a venture capitalist with Accel Partners, said open-source companies can be appealing to VCs because of their talented pool of developers and devoted installed base. However, they also prevent a challenge because many aren't focused on turning a profit. "One thing that needs to be clear is that we're dealing with a real business that wants to be a success -- in financial terms," Partridge said.

He also said a company looking for funding should make sure its business plan shows how the company will leverage open source while differentiating itself from potential competitors.

Many said they were buoyed by the IPO of Linux distributor Red Hat, which has seen its share price more than quadruple (up from an IPO of $14 to $63 7/8 Monday), since going public two weeks ago.

Dave Sifry, founder of Linux support company Linuxcare, said Red Hat's IPO legitimised the open-source market. "It really shows that open source is here to stay," he said.

Michael Tiemann, who founded Cygnus Solutions in 1989, said that a few years ago "you couldn't even mention with word 'free' without people chasing you out of the building". Now, many VCs are clamouring to get in on the action.

However, some open-source advocates were worried about the valuation of Red Hat -- and whether the company, and others planning to go public, could sustain the momentum. "I hope and pray that people are a little more selective in Linux IPO space than they were in Internet IPO space," Tiemann said.

Earlier in the morning, after scoffing pink-frosted donuts and Cokes, attendees listened to Kawasaki explain how to apply the principles from his book Rules for Revolutionaries to the open-source movement.

Such rules include "Eat like a bird, shit like an elephant" (or take in lots of information and disseminate your product). During an entertaining speech, Kawasaki urged the open-source community to concentrate on gaining legitimacy. "At the start of a revolution, it is more important to legitimise the revolution than it is to gain market share," Kawasaki said. "In a tornado, even turkeys can fly."

Kawasaki also compared the Linux movement with efforts by Apple to change the industry -- though he also ridiculed Apple's arrogance and urged open-source advocates to refrain from being control freaks. Now he heads Garage.com, which pairs startups with investors.

Kawasaki also told the audience to ship, then test, their product ("Don't worry, be crappy" in his book) and make sure they have product roadmap that includes constantly updated products (or "Churn, baby churn").

He also said open-source advocates shouldn't listen to naysayers who pan their plan. "The more the people who are bozos try to grind you down, the more you're onto something," he said.

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