Open source: Where's the money?

Ted Schlein, who used to manage venture capital firm Kleiner Perkins Caulfield & Byer's Java fund, said he's not interested in pouring cash into just another Linux distribution endeavor. Instead, he's looking for a company with an entirely new business model related to Linux.

But he said also he has no plans for a Linux fund, even though his VC firm unveiled a major investment in Linuxcare Inc. earlier this year. "What else I would invest in for a Linux fund is not exactly apparent to me," he said.

The successful IPO of Red Hat, which distributes a version of Linux, has drawn the attention of the investment community, Schlein added. "That has everyone, venture capitalists as well as investment bankers, scratching their heads and saying 'hmmm what else is out there?'"

Fernand Sarrat, CEO of Linuxcare, said he's having no trouble getting second round funding for his firm, which provides support for Linux. In fact, the money on the table has been triple the amount his company is seeking.

Appetite is healthy
"The appetite for this kind of a company is healthy," he said.

People in the audience also wanted to know where the open source phenomenon would hit next.

Drawing from his paper The Magic Cauldron, open source advocate Eric Raymond said the best candidate for the open source model is software that's part of the infrastructure and that also has well-developed standards -- software such as the operating systems, where Linux already has taken hold. He predicted the software used by e-commerce companies such as Amazon.com would go open source as such firms begin to view infrastructure software as a commodity.

Poor candidates for open source include highly reliable software created for vertical markets, software that wouldn't thrive as a result of the peer reviews given open-source products, he said. He once advised against the open source model for a maker of software used by saw mills.

"There are cases where the economics favor staying closed, but they're rare," he said.

In addition, Schlein predicted that middleware and databases would be the next types of software to go open source.