Friday, June 4, 2010

A Modest Proposal: A Structured Tax-Exempt Structure for Corporate OSS Development

Today's columnist is Carlo Daffara from Conecta. He writes:

One of the most common observations in the open source marketplace is related to the low level of contributions by companies, especially small and medium sized businesses, to the projects behind the open source software (OSS) they use within their embedded systems or as part of an internal IT infrastructure. Looking at the Eclipse Foundation, one of the best run open source projects, it is possible to see that most contributions are from large companies that use Eclipse as a basis for their products or from open source companies that are aware of the strategic importance for code contributions to OSS projects.

What is missing is the large number of companies that may be interested in contributing and who perhaps are already sponsoring some internal developer's work on the project. However, they are not able to structure their contributions in a formal way. The reason is threefold: knowledge, legal, and economics.

Knowledge: most companies are unaware of the fact that they can contribute back or do not know how to do so. Maybe an internal developer is able to submit patches, but the company itself does not understand how to fully engage with the open source project. For this reason, many contributions are from individuals using a company email. Company managers are often unaware of the use of OSS inside of their own products or infrastructure, and do not understand what advantage may be obtained by giving back to the project. In fact, most companies are limited in the first step of the OSS adoption ladder identified by Carbone and moving up the ladder from "use" to "contribute" is a much rarer step.

Legal: companies are often wary of backfire from an "official" contribution. They fear that internal intellectual property (IP) may be revealed. Some licenses provide implicit patent granting, which may limit the ability of a company to ask for licensing fees later. Some companies avoid this scenario accurately; for example, some of the contributions to OSS by Microsoft were developed by external companies that held no IP under contract from Microsoft, and were released in an indirect way.

Economics: why should a company contribute? What economic benefit can it bring? Unless there is a clear business advantage, most companies will not face the risks and costs of contributing code, and prefer taking the "developer did it" approach.

I would like to propose a blue-sky experiment: a clearinghouse for code contributions. It can be imagined as a traditional software development company, but under non-profit and tax-exempt status. This would be similar to the Mozilla Foundation, but would aggregate development activities from many different companies and covering a wide spectrum of projects. The clearinghouse can accept tax-exempt donations, clearly marked towards a development objective, and visible through a project dashboard, such as the one used by the Eclipse project. The clearinghouse can then parcel the work out with a bounty system, if the work is small, or directly by paying the developers of the original project for the activity. This way, the OSS project can receive an immediate benefit.

The biggest difference between current structures would be the:

  • coverage of a large number of projects, increasing the sustainability of the clearinghouse itself

  • legal coverage, as the development would be done by a third party, not impacting any potential IP held

  • efficiency of the structure, reducing the ramp-up effort for internal developers to become proficient with the source code itself

  • tax-exempt status of the donation, providing an economic benefit on top of the increased efficiency of open source development

Such a structure can be made in a relatively simple and cost-efficient way, one per continent to simplify the legal process. In my opinion, this can be a first step towards increased participation by those companies that now use open source, and still are unaware of the potential impact of contributing. We tend to overestimate the impact of large contributions and forget that, for example, in the Linux kernel 25% of the change sets are from unaffiliated developers, the single largest group. If we can turn at least a small part of that 25% into paid services under a tax-exempt umbrella, we radically increase the economic market for open source services.

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