After speaking at the launch of Beaverton's Open Technology Business Center, Gov. Ted Kulongoski put his arm around Ryan Lucas, hugged him close and smiled for the cameras.

Why the public display of affection? Lucas moved his nascent company, Stunt Computing, from Hampton Roads, Va., for the express purpose of tapping into Oregon's software expertise. "We tried importing talent in our last venture," explains Lucas. "This time, we decided to go where the talent is."

That kind of statement has a particularly tender ring to it when you're the governor of a job-hungry state. That the Open Technology Business Center — a new software incubator — was able to deliver a relocating company at its launch party was a coup for the city of Beaverton and a positive omen for software in Oregon.

Stunt Computing's products — hardware and software tools designed for people who have multiple computers in their lives — are built around open source software. Lucas recognized that among Oregon's other virtues is the state's strength in the growing sector of open source software.

Open Source Development Labs (OSDL) — the self-proclaimed "center of gravity" for open source software and its most famous brand name, Linux — is in Beaverton. And last year, Linus Torvalds — Linux's creator and the industry's equivalent of an international rock star — took a job there, moving to Oregon from the Bay Area.

Beaverton officials launched the Open Technology Business Center to take advantage of the proximity of OSDL, along with IBM, Hewlett-Packard and Intel, other big backers of open source software. The center started recruiting startups to locate in its space around the time of Stunt Computing's arrival this winter and the three-employee company became its first "venture in residence."

The center represents a big bet by the city of Beaverton that open technology — computing or business strategies that involve sharing core technology — will translate into jobs and economic growth for the city. Beaverton has $1.3 million, invested in the center as startup funds, that says it will.

It may be a good bet. Oregon's software cluster has been flashing signs of a comeback. The question now is, how big a role will open source play in software's revival?

THE DAYS OF LAID-OFF SOFTWARE PROGRAMMERS jettisoned into new careers — such as sanitation engineering or the paint-your-own-pottery trade — appear to be coming to an end, though making up for the thousands of jobs lost during the recession will take some time.

"We're seeing a lot more action and a lot more activity than we did a year or two ago. We're coming out of that malaise," says John Tortorici, acting president and executive director of the Software Association of Oregon. "We're being asked to be a resource center for jobs. We didn't do this two years ago because there weren't any jobs."

From a financial markets perspective, Norman Duffett, managing director at D.A. Davidson in Lake Oswego, reports a similar pickup. After several years of slow activity, more companies are making deals — such as the $380 million acquisition of Hillsboro's Merant PLC last year. "Oregon has a good core base in software," Duffett says. "And a number of entrepreneurs stepped out of companies and were able to take more risk. Those are the startups that will make interesting acquisition candidates as we go on."

Activity at the SAO reflects the change. Last year, the group formalized a strategy designed to encourage new startups, attract software companies from outside Oregon to relocate here and nurture the growth of companies already based here. The retirement late last year of Larry Wade, the association's president for seven years, clears the deck for new leadership — Tortorici, an industry veteran and SAO board of directors chairman, has a contract that runs through March.

"The bottom line is that software is more strategic to Oregon than semiconductors," says Wade, who's watching the industry from the sidelines as a mostly retired consultant. He estimates there are 100,000 software workers in Oregon, many of them at hardware giants such as Tektronix and Intel, and many, many more at hospitals, universities, banks and insurance companies that rely on custom software to make their businesses run.

"It's hard to believe that there is yet more software to be written," muses Wade, "but our lives are becoming increasingly complex." So where are the opportunities for new lines of code? Wade points to an entire culture that's formed around online auction house eBay and the emergence of new devices such as phones, sensors and wearable computers that will need software to make them run.

"Twenty years ago software was invisible. It's more visible now," says LaVonne Reimer, who launched and operated online learning company Cenquest until it closed last year. She was tapped last August by the city of Beaverton to run the Open Technology Business Center, which she calls her second startup.

Reimer says that while Oregon has always had pure software companies, such as Mentor Graphics and Extensis, the region has a particular expertise in writing the kind of software that doesn't show up as a desktop icon. It's the software that runs closest to the hardware, the software that makes devices smart.

In other words, we do the kind of software that gets the highest geek credibility. "You have to know the system completely," Reimer says. "You can't just be a coder."

And it's an area where open source software — cheap, reliable, flexible and hearty — does very well. Indeed, many of the smart gadgets of the day are running Linux in their innards.

BUT ASK AROUND AND IT BECOMES CLEAR that not all of Oregon's software players see open source as the key to growth.

"Linux is a platform, it's a development environment," Tortorici says. "It's a less costly option and it's going to be a player in this area, but SAO is platform-agnostic. We're concerned with building an ecosystem that allows many software companies to flourish."

Wayne Embree, venture capital investor with Cascadia Partners, says there aren't likely to be many open source companies, just companies that have a component of their strategy that takes advantage of open source. "We've gotten away from a pathological need for software to have patents," he says.

The hallmark of open source software, like the operating system Linux, is that the source code written by programmers to make it work must be made freely available. That means that the code can be modified, tweaked to fit a specific project. It also means that programmers around the world who access the software via the Internet are constantly improving upon the code.

While open source software is protected under a public license, it isn't patented in the traditional sense. And since it is essentially free, creating a profitable business model around it has proven challenging. But a movement in the industry toward a more service-oriented model may play to open source's advantage.

Count David Pool among the open source faithful. Pool, with Naked Ape Consulting in Portland, co-founded a support group, Portland Open Source Software Entrepreneurs, or POSSE, last year. They signed up eight business members, including OSDL.

"It's no longer going to be software that you're giving money for," Pool says. "It's about making industries more efficient. Everything is transparent, you compete on how well you can use it." In Pool's mind, today's POSSE member is tomorrow's Bill Gates.

But Mona Westhaver, president and co-founder of Portland's Inspiration Software, says there are limits to open source's effectiveness. It doesn't make sense in the education market that Inspiration serves, for instance.

"We're going to go where our customer wants us. We're a market-driven company, that's the way we run our business," Westhaver says. But so far, the school districts that Inspiration sells to — from Boston to San Diego — aren't embracing Linux or open source in a big way. And while technology giants such as IBM and Hewlett-Packard can embrace free, open source software and still make money on hardware sales and service contracts, Inspiration is more limited.

Inspiration is doing just fine with its current business model — it increased sales to $19.2 million in 2004, 14% over the previous year. And Inspiration is expanding into new markets with the help of some 20 new employees to be hired this year.

"There's no reason for us to do an open source version of our product," Westhaver says. "It costs us about $1 million to develop a product. If we make it open source and give it to the world, we're out of business."

For Pamela Jones, a Lake Oswego-based executive recruiter and business consultant with a long history in the high-tech industry, open source is something that comes up in conversation with her clients frequently.

"Established businesses don't know whether to identify it as a trend that will come and go, or whether it's here to stay," she says. "It's divided between true believers and those who are reluctant observers. It's going to be very interesting to see how it all plays out."

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Copyright 2005 Oregon Business magazine