OStatic

According to a talk by Benchmark Capital's Rob Bearden at this week's Open Source Business Conference (OSBC), the nature of open source business models are changing. He says open source companies should strive to become the "enterprise standard" in their market space in order to effectively monetize their commodities. He also notes that if companies are willing to embrace the idea of making money off their open source projects, then they might be rewarded with an infusion of venture capital cash.

It used to be commonplace for open source companies to enter a market where proprietary software companies already had a strong presence, and make headway only by giving customers a free alternative to a previously pricey solution. Bearden says that instead of focusing on "free," CEOs should examine what new issues are cropping up and become the first to find ways to fix them. In fact, he went so far as to say that an open source approach to software development ought not to be considered as a viable business model, just a method of distribution.

While the idea of money as a motivating factor in an open source project might raise the hackles of some purists, it's not really a new idea. Interestingly, it was a hot topic of conversation at OSBC 2005, but from a different angle. Back then, venture capitalists were cautioning open source companies about relying too heavily on the formation of funding partnerships.

David Skok, a venture capitalist at Matrix Partners, told CNET News.com, "Too many of these companies (now forming) are being funded without a community... If a community doesn't form and form fast, then they're going to burn through their venture capital, and they're going to be disasters."

Venture capital firms have invested heavily in open source software companies over the past several years to the tune of over $500 million. However, a recent report from open source analyst firm The 451 Group noted that by 2007, open source funding had slowed down considerably.

That hasn't deterred Bearden's venture capital firm, though. He told the audience on Monday that from now on his company will only back companies that offer open source solutions or service as a software. That represents a shift away from the direct support of developers and into more of a community-building / marketing approach. It also focuses on monetizing ancillary services like tech support, instead of developing the product itself -- which, in these arrangements, is left up to the community at large.

What effect do you think the venture capital approach to funding will have on open source products? Will it free up developers to focus on creating a good product instead of worrying about simultaneously energizing the community, or does it pull needed funding away from developers tasked with making a good and viable product?

• venture capital
• vc
• funding