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Source Equity: Making Open Technology Development Profitable

Posted by boneill42 on December 13, 2006 at 2:49 AM PST

Increasingly companies are incorporating open communities into their software development strategy. This allows companies to capitalize on expertise and innovation beyond their enterprise boundaries.

This works well for markets that can easily attract development communities with cutting edge technology or a sexy problem domain. People are willing to donate time just to get exposure or to learn something new, but how do we expand open technology development into other markets?

Additionally, in a world where software development is becoming a commodity, how do we ensure that the contributors delivering the value are rewarded appropriately? In an open development model where enterprises are leveraging external "free labor" forces, it is in the enterprise's best interests to maintain a stable community and to motivate that community in a direction that aligns with their corporate goals.

Thus,

What if we began treating software development projects like traditional enterprise ventures? Using standard agile methodologies, equity could be assigned to user stories based on relative customer value. As contributors complete user stories, new shares are authorized and granted to those contributors. Then, revenue could be shared with the development community. Contributors would receive a share of the revenue based on their equity holdings.

A model like this would allow non-traditional markets to avail themselves of the open-technology and open-source development communities. Also, since equity distribution is based only on the delivery of customer value (vice vesting periods), the model provides a low-risk open development model for startups, Startups that couldn't otherwise fund staff, can leverage a much broader community that could share the risk (and consequently the reward) of the venture.

I've been working this concept for a few years now, trying to evolve the specifics. You can check out the fruits of my labor here:
Source Equity

Although they are more focused on the "idea farming" phase, a similar concept is being worked by http://www.cambrianhouse.com/.

I believe this model has other interesting characteristics when you consider the "right to fork", corporate teaming arrangements and work-share, and even applications of the model within enterprises (bonuses based on contributions, etc.); But i'll leave those comments for later blogs. =)

If you are interested in getting involved, please drop me a note:

bone@alumni.brown.edu

All comments are welcome.

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