% fortune -ae paul murphy

How to monetise open source

Some time ago I got asked, by a guy who introduced himself as head of a hedge fund, how to monetise open source. He didn't really care, he said, about which companies or technologies won or lost, what he wanted was a way to be bet on such outcomes.

So I gave him one, and never heard from him again. But, the more I think about it, the better I like the idea.

Consider the Iowa Electronic market. Originally set up as a way to test the operation of free markets with respect to political prediction it has some characteristics that are applicable to the problem.

What the exchange does is sell people a bundle of possible outcomes only one of which will actually occur in the specified time frame. People are then free to trade the outcomes making up the bundle among the themselves and the exchange buys back the winning bet at the end.

Imagine, for example, an election with three candidates: A, B, and C. The exchange would sell a bundle of one bet on each candidate at a price of $5.00 and promise to pay off $5.00 on winning bets the day after the election.

Since individual bets can be traded some people would seek to accumulate bets on candidate A, others on B or C. At the end, a person who bought one bundle, sold B and C at $2.00 each to others, and bought a "C" bet for $2.00 from someone else would be down $3.00 if C lost and up $7.00 if C won.

In this example the exchange breaks even - but an exchange could just as easily promise only $4.50 for the winner and so make a margin.

To make this work for open source all we need is a way to define bundles and a way to measure relative success as of some predefined date. We might, for example, derive bundles from freshmeat and sourceforge listings and measure relative success by something like a combination of industry buzz, significant contributors, installation rates, and production users.

Figure out how to do the measurement and it's not hard to see that an exchange could use part of its margin to do the measuring while giving a bigger chunk back to the people involved in winning projects.

Measurement will be difficult, and there are some legal issues with respect to running this in the U.S., but get it working and you'll have monetised open source.

Of course you'll also have changed the entire dynamic of the open source movement.

Since we're really talking about introducing money into the garden of open source creativity some sober second and third thinking is required, but personally, the more I think about it, the better I like the idea. My bottom line is simple: if the audit system can be made to work and the market operates fairly, its long run effect will be a one way transfer of value (as in "cash") from Wall street and market punters to developers.

Paul Murphy wrote and published The Unix Guide to Defenestration. Murphy is a 25-year veteran of the I.T. consulting industry, specialising in Unix and Unix-related management issues.