The Tech Boom 2.0

Fueled by “commodity” hardware and open-source software, the latest batch of young entrepreneurs are bringing their ideas to market in record time – and more cheaply.

Greg Kostello is moving fast – but he’s also not in a hurry. An entrepreneur with 20 years of experience in early-stage ventures, startups, and high-tech leaders like Apple and Netscape, Kostello is now building a new company.

“It’s an online media play,” he says, careful not to give away too much to a reporter asking a lot of questions. A launch date? “Probably in about a month,” says Kostello.

Based on that time estimate, one would be excused for thinking his venture is in the home stretch. “We started putting it together a couple days ago,” Kostello says.

Has the concept of “eight-minute speed dating” invaded the world of Internet startups? No, but commoditized hardware and open-source software have.

Kostello is one of a growing number of entrepreneurs who are experiencing first hand how much faster and cheaper launching a company is today, compared with even five years ago, thanks to the ever-decreasing cost of hardware and steady improvements in open-source software.

“We spent millions developing systems at MP3.com that are readily available today for free,” says Kostello. Open-source software covers a wide range of products, all with one thing in common: the source code is freely available to all to use and modify.

Despite the current hot-and-cold economy, don’t look for technology company launches to slow down. In fact, because of the improvements to open-source software and the commoditization of hardware, they’ll likely increase. These developments “lower the risk of starting a company,” says Kostello. “Since you don’t have to put out a lot of capital to start, you’re going to see a real creative wave of products.”

Travis Kalanick, CEO of Red Swoosh, has watched this development for years. Prior to starting that distributed networking company, he co-founded Scour.net, an early peer-to-peer outfit (it was eventually sued out of existence by larger entertainment companies). When starting Scour.net in 1998, they’d used open-source software and commodity hardware – an unusual approach in those days.

“Most people didn’t think that way in 1997 and 1998,” Kalanick says. “People got millions from VCs, who wanted them to spend it as quickly as possible, and a lot of companies didn’t think to be cost-conscious when it came to technology.”

Now, with the improvements to open-source software, using products such as Red Hat Linux, Apache server software, MySQL, and JBoss is a viable option, according to Kalanick. In the past, one had to have plenty of technical know-how and patience to use open-source software. Although tech know-how is still required, the programs have gotten much easier to use and the support much better.

Open-source software was also a key for Aaron Levie, CEO of Box.net, a remote file storage company, which has just been launched. Levie wasn’t around in the boom days, but he says that standardization makes the software “good for development, troubleshooting, and to get work done.”

In a statement that will likely strike fear into the Suns, Oracles, and Microsofts, Levie assesses the attitude of his fellow 20-something entrepreneurs: “My extended network is all in the younger crowd. I don’t know anyone who’s not developing on Linux.”

Another company that might find itself feeling the heat from this trend is Apple. For decades, the Cupertino, CA-based company has dominated the education market, with deep discount pricing and software and easy-to-use interfaces. Not surprisingly, the open source/commodity hardware trend is hitting this market, too.

On August 4, Linspire, a San Diego-based company, announced a deal with the state of Indiana to provide every high-school student in the state with a desktop computer running Linux. The project will use computers from Wintergreen, a low-cost manufacturer, and Linspire software.

“We came in substantially less than other solutions,” says Kevin Carmony, CEO of Linspire. “It’s a one- or two-year rollout period, and now there’s some discussion to make this K-12, not just high school.” Courting this market has another major benefit, as Carmony points out: “With the education market, you can influence the future of America.” (Read: future buyers of software and hardware.)

But for Kalanick and others the next generation is now.

Asked to express the importance of open-source software and cheap hardware, Kalanick had to think at first: “It’s like asking the inventor how important the light bulb was that was in the room where he did his work. It’s so commoditized and such a small portion of what you think about now….But, if it weren’t there, a lot of entrepreneurs would be in trouble.”

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