Open Source, Super Profits and Venture Capital

Posted on 14/06/2010

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Glyn Moody wrote a great blog post about why there aren’t any billion dollar open source companies, and 451 followed it up.

I don’t think VCs are ever going to be that interested in pure-play open source companies, for the simple reason that they are never going to be profitable enough to interest them. VCs really want to buy into a monopoly. Closed standards, closed code and lock-in are all create the sorts of monopolies that VCs love. Open source companies deliberately reject those monopolies.

The one exception to this is where a company builds up a brand which can be used to leverage more business (but that’s another sort of lock-in I’ll talk about another day).

That doesn’t mean they can’t be profitable: a law firm is in many ways a service company like a pure-play open source company, and we’re pretty profitable, but we have virtually nothing in the way of lock-in, and a VC wouldn’t be interested in investing in us, because our value lies in the skills base and connections of our partners. There’s nothing there to abstract or lock in, and if our customers don’t like the job we’ve done, they can easily move elsewhere.

We know that, which is why we strive to the best we can all the time.

Open source companies do the same. Proprietary companies don’t. Which one would you rather have working for you?

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