Digifesto

There’s some interesting commentary around Twitter’s recent acquisition, Whisper Systems:

Twitter has begun to open source the software built by Whisper Systems, the enterprise mobile security startup it acquired just three weeks ago. …This move confirms the, well, whipsers that the Whisper Systems deal was mostly made for acqui-hire purposes.

Another acquisition like this that comes to mind is Etherpad, which Google bought (presumably to get the Etherpad team working on Wave) then open sourced. The logic of these acquisitions is that the talent is what matters, the IP is incidental or perhaps better served by an open community.

When I talk to actual or aspiring entrepreneurs, they often make the assumption that it would spoil their business to start building out their product open source. For one thing, they argue, there will be competitors who launch their own startups off of the open innovation. Then, they will miss their chance at a big exit because there will be no IP to tempt Facebook or whoever else to buy them out.

These open source acqui-hires defy these concerns. Demonstrating talent is part of what makes one acquirable. Logically, then, starting a competing company based on technology in which you don’t have talent makes you less competitive, from the perspective of a market exit. It’s hard to see what kind of competitive advantage the copycat company would have, really, since it doesn’t have the expertise in technology that comes from building it. If they do find some competitive advantage (perhaps they speak a foreign language and so are able to target a different market), then they are natural partners, not natural competitors.

One can take this argument further. Making open and available software is one of the best ways for a developer to make others aware of their talents and increase the demand (and value) for their own labor. So the talent in an open source company should be on average more valuable in case of an acqui-hire.

This doesn’t seem like a bad way out for a talented entrepreneur. Why, then, is this not a more well-known model for startups?

One reason is that the real winners in the startup scene are not the entrepreneurs. It’s the funders, and to the funders it is more worthwhile to invest in several different technologies with the small chance of selling one off big than to invest in the market value of their entrepreneurs. Because, after all, venture capitalists are in the same war for engineering talent as Google, Facebook, etc.. This should become less of an issue, however, as crowdfunding becomes more viable.