Note: The TaskMaster breaks from his regular schtick today, devoting the entire column to a start-up focused on a burgeoning area of technology. Warning: This column CANNOT make you money right now. It is for informational purposes only. Something for the knowledge bank.

SAN FRANCISCO -- Further tumult in Internet stocks and continued struggles by the bond market sent major averages reeling from morning highs. Still, the

Dow

avoided the meltdown. (For more, see today's

Market Roundup.)

The Next Wave?

Long before I moved to San Francisco,

TSC's

editor-in-chief,

Dave Kansas

, told me people on the West Coast are "a generation ahead" of the rest of the country. You might get arguments from folks in New York's Silicon Alley, or Dulles, Va., or even Schaumburg, Ill., but surely Kansas has a point (did I mention he's my boss?).

I came across a few of these generational "pioneers" recently at a party hosted by a friend of a friend. Like my bud, the host and many of the guests were ex-

Microsoft

(MSFT) - Get Report

employees who've cashed out options and are staking their claim in the "new economy." (Our host is the CEO of an Internet music start-up that's so "start-up" he'd prefer it stay anonymous ... for now.)

The ex-Softees I met are all enamored with Open Source, a movement among developers holding the basic tenet that software should be accessible to anyone and everyone, and making the source code available will ultimately result in "better software for all!" (Hardly a slogan to rile the masses, but you'd be

amazed

how passionate developers are about this stuff.)

Open Source philosophy is antithetical to traditional business models in the industry, which -- of course -- is dominated by Microsoft. Bill Gates & Co. judiciously guard code as "proprietary," protecting "intellectual property" as well as the firm's mind-boggling revenue stream. (PS: Although Microsoft made many of them rich, the developers I met loathe the company as -- I gather -- do most Open Source practitioners. I guess free sodas engender only so much goodwill.)

In practice, Open Source development is most popularly embodied by

Linux, a Unix-like operating system that has been delivered free over the Internet since 1991.

Linux has been a hot topic of late as major IT firms such as

Oracle

(ORCL) - Get Report

,

SGI

(SGI)

and

Hewlett-Packard

(HWP)

have announced support for the operating system in various ways. More recently, Linux has interest intensified amid the hype surrounding

Red Hat's

planned IPO. (For more on Linux and Red Hat, see

TSC

contributor

Jim Seymour's

excellent

two-part

series.)

Linux owes much of its traction in the tech community to

Apache

, a Web-server software package that runs on Linux. More than half the Web servers in the world use Apache running on Linux, Seymour reported, evincing its popularity and power.

The man who spearheaded Apache's development is Brian Behlendorf, who may be unfamiliar to the average citizen but who evokes respect and (near) worship from developers.

From Philosophy to Profitability

Behlendorf's latest project is

sourceXchange

, an online (what else?) venture seeking to link corporations in need of Open Source developers with the software jockeys who can get the job done.

"We thought there was a need for a very broad-based needs-matching system for companies and sponsors with interesting ideas for projects and developers willing" to bid on them, Behlendorf said in an exclusive interview. "We want to create a resource that helps answers how Open Source is going to respond to the needs that the larger community has.

To date, Open Source hasn't got into the more critical spaces, the larger parts of the developer picture like end-user applications and big business systems."

Big business is certainly paying attention. H-P is "sponsoring" sourceXchange's first offering, with projects expected to be launched this week focusing on its E-Speak products, according to Mike Balma, a manager in H-P's Open Source solutions operation. (See Monday's editions of

The New York Times

for more on E-Speak.)

"Open Source is a key part of the strategy for a number of H-P's products," Balma said. "sourceXchange is a way to access a very competitive market. Because it is Open Source, people are often willing to do things for less because it will be available to others. If H-P retains the rights, it costs more."

Yes, you heard correctly: Developers are willing to charge

less

for Open Source development, even though it's one of the hottest areas right now. Because of the community's egalitarian nature, Open Source profits have been elusive thus far. Moreover, it's impossible to measure just how big the Open Source development movement is, although anecdotal evidence indicates it is big and growing. To wit:

  • In its amended S-1 filing with the SEC, Red Hat reported Linux-based operating systems represented 17% of new license shipments of server operating systems in 1998.
  • International Data Corp., a market-research firm in Framingham, Mass., predicted Linux usage will grow by at least 25% annually for at least the next five years, The Atlantic Monthly recently reported.
  • Linux sales tripled in 1998, according to IDC data cited by H-P's Balma.

Meanwhile, Dan Pellegrini, project director at sourceXchange, said more than 1,370 developers signed up during the first two days of the site's "internal beta" launch last week. The official launch is set for the end of August, he said.

It seems sourceXchange's biggest challenge will be marrying the sometimes anarchistic -- and geographically far-flung -- Open Source developers and the more staid corporate culture of H-P (and others of its ilk). And sourceXchange plans to oversee projects after the initial match making.

Clearly there's a need for a buffer between the developers and corporations. So sensitive is the issue that Hewlett-Packard decided not to take an equity stake in sourceXchange, even though Balma said the firm had the original idea.

H-P went to

O'Reilly & Associates

, a publisher of technical books and a "member of the Open Source community," with the concept, he said. Behlendorf was working at O'Reilly at the time and was quickly recruited for the project because of his credibility with the developer community.

sourceXchange was later spun out of O'Reilly & Associates, which retains an equity stake. The employees (there are six currently) own a majority of the company and there is some venture capital investment, although Behlendorf declined to name names.

On the outside, H-P is surely looking in. "We saw the trend and said we need to create this, we need this ourselves," Balma said of sourceXchange's genesis. "But we do not have an ownership stake. We need to respect the needs of the

Open Source developer community and their belief system. Right now, H-P has chosen not to take an equity stake, but it's something we might consider."

Obviously, H-P's level of interest will largely depend on the continued acceptance of Open Source software. More specifically, it will hinge on the ability of sourceXchange to show it can profitably walk the thin line between the somewhat socialist leanings of Open Source developers and the very capitalistic leanings of Wall Street and those who answer its calling.

For whatever it's worth, Behlendorf isn't thinking about charity.

"Long-term, we'll be successful if we can prove this is a more efficient way of developing software," he said. "We intend to build the company into a profitable endeavor. It's not being run as a nonprofit. It's a business-to-business entity."

There are no current plans to take sourceXchange public, but "I wouldn't rule out something like that as an endgame," Behlendorf said.

TSC Special

Heather Bourbeau

, soon to formally join

TSC

as a staff reporter covering international issues, gets a jump-start on the "Specialist of the Year." Check out her

With Netia, Poland Polishes Its Investor Image.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.