Should you sell out your next big open source idea?

The Guardian probes an interesting dilemma for startups: Should you flip or float (an IPO)?

The truth is that innovation blackmail [Starting an industry-changing company] and selling out is becoming an increasingly attractive option. With the world's financial outlook so torrid that even the most strapping City magnates are being shrivelled up by paranoia and turned into tiny human prunes, we can't expect much different.

Nobody gets into the startup business just to be average. You've got to have big ambitions: change the world, make a fortune, get famous - or perhaps all three. The scrutiny that young dotcoms are under means very few entrepreneurs are simply hoodlums who think they'll blackmail their way to a retirement fund. But there are two real exit strategies for a startup founder: to flip or float. Option two is disappearing fast....

The post comes in response to Tom Foremski's post about disruptive startups selling out to the very companies they should be putting out of business. Foremski's is a fair critique, but as The Guardian notes, it may be that startups have little choice but to succumb. Entrepreneurs like cash, too.

As for open-source startups, Tim O'Reilly posited a year ago that open-source disruptors would mostly end up feeding the hands that they had been biting: "I will predict that virtually every open-source company (including Red Hat) will eventually be acquired by a big proprietary software company."

One year and Zimbra and XenSource later, Tim's point seems increasingly prophetic. There simply aren't many open-source "biggies" capable of paying adequately for open-source startups.

There's a case to be argued for "disrupting from within," and I believe Marten and the MySQL crew would argue that they're helping Sun to become more open and transparent, just as JBoss has helped Red Hat to see beyond the operating system. But these are open-source startups opening up other open-source companies. Has Zimbra or XenSource made a dent in the corporate cultures of Yahoo! or Citrix? Probably not. (In the case of Yahoo!, which is already friendly to open source, maybe there isn't much work to do...?)

I'm coming around to the idea that everything will be a blend of open source and proprietary software or services, at least for the foreseeable future. If true, perhaps it wouldn't hurt to have Oracle digest SugarCRM, Tibco acquire MuleSource, etc. These established players are unlikely to adopt the business models of such targets, at least not wholesale. But perhaps such acquisitions would provide an in-house laboratory in which to experiment with open source business models as yet another way to find new customers.

What do you think? Should open-source vendors hold out for IPOs or should they capitulate? Can open-source entrepreneurs make a difference in a large vendor like IBM, Oracle, or (gasp!) Microsoft?

[The_Decider]

Neither, selling out to a corporation will only destroy what you created.

Selling out via IPO will have the same effect. It is not a good idea to let people who are looking at short term gains no matter the long term effect to have any power in your company.

[mike88888]

Although you may view it as selling out, open source plays an important role inside of large vendors, because it can be monetized through complimentary services. For example, it is clear how IBM can take advantage of -- and contribute to -- open source software because it augments hardware sales. IMHO, this gives IBM a much stronger competitive position, and the ability to contribute more resources to the open source cause than a pure open source vendor who ends up competing on price to provide support that becomes commoditized.