Open Source & Startups

I was discussing the impact of small software companies open sourcing their product lines with Jared, a co-worker of mine today. He brought up an interesting point I’d failed to consider.

In a lot of deals large customers will ask startups to put their code in escrow. This means that if/when the startup fails ownership of the code will revert to the customer. While not the greatest situation for the customer, since they’ve now got to maintain the code as well it is better than the startup going bust and taking the product with it and leaving the customer totally high n’ dry.

What if a startup approached open sourcing their product in the same manner. Meaning that instead of ownership reverting to the customer the code would be re-released under some business-friendly license, say BSD or Apache and put up on a publically available area. This produces the maximum benefit to the public if the startup goes under while still preserving the income stream.

This kind of clause could also act as a poison pill for competitors. If the startup went under and open sourced their product it could conceivably reduce the overall value and immediate income stream for other competing companies with similar products. Competitors would be incented (is that a word?) to acquire the company rather than drive it out of business. Of course, this is really only a workable strategy for the first company to do this. If many competing companies have similar contingent licensing arrangements it devolves into open source license Cold War.