"I’m very excited about what they’re doing," says Stacey Quandt, an analyst at Giga Information Group, based in San Jose, Calif. "The company has the potential to have a significant global impact."

San Francisco-based Collab.Net was founded in May by O’Reilly & Associates, a leading supplier of software-development tools and publications, based in Sebastopol, Calif., and Brian Behlendorf, cofounder of the Forest Hill, Md.-based Apache Software Foundation.

The company recently secured an undisclosed amount of first-round venture financing from Menlo Park, Calif.-based Benchmark Capital.

"We’re believers in the business opportunities created by open source," Kevin Harvey, a Benchmark Capital general partner wrote in a statement released when the investment was announced late last month. "Like Red Hat Inc. {RHAT}, another Benchmark investment, Collab.Net’s business model adds real value to the open-source development process."

Producers of open-source software freely share the source code used to create their products. Armed with source code, developers can modify or improve software without needing the approval or help of the original manufacturer. Linux, a free open-source computer operating system that’s sold by companies such as Durham, N.C.-based Red Hat and Caldera Inc. {CLDF}, of Orem, Utah, is perhaps the best-known open-source software program.

Like Linux namesake Linus Torvalds, Collab.Net founder Brian Behlendorf was instrumental in the creation of a popular open-source software program. Behlendorf’s team created Apache, now the most popular software used to power public Internet servers.

As of August, Apache held a 55 percent market share in the server software sector, according to U.K.-based Netcraft Inc., which surveyed more than seven million publicly available Internet sites. By contrast, Microsoft’s comparable closed-source server software held a 22 percent market share.

"Most people don’t realize that the open-source business model is already very well-established," says Tom O’Reilly, founder of O’Reilly & Associates. "Open-source software is what makes the Internet work," he says, citing the importance of a variety of open-source programs, such as the Internet Protocol, which helps route Internet traffic across different computer platforms.

Collab.Net is adding a new twist to the open-source software development process. In the past, informal global networks of open-source software programmers collaborated over the Internet, almost always without pay. "They did it for the love of creating good software," Quandt says.

Collab.Net, by contrast, is serving as a broker between open-source software programmers and companies that want to develop new open-source products. The company has already received six software-development contracts from Palo Alto, Calif.-based Hewlett-Packard, including one to develop software that Hewlett-Packard plans to resell to companies operating large business-to-business commercial Web sites.

"We expect to be getting more contracts in the next few weeks," says Collab.Net founder Behlendorf. "But we wanted to work the bugs out of our system first, and HP agreed to be the guinea pig."

Check out Collab.net

Collab.Net’s business model combines traditional business practices with the open-source approach. The company matches requests for proposals from high-tech companies posted on its Web site with programmers submitting bids to carry out the work.

In exchange for facilitating the process, Collab.Net, Inc. receives a variable percentage of the overall cost of each project. Although the company is just a few months old, more than 2,500 software programmers have already registered to bid on work offered through the Collab.Net Web site.

"They’re changing the way software is developed," Quandt says. "It’s a revolutionary advance. They’re able to take advantage of the best talent from all over the world."

In accordance with open-source practices, Collab.Net will post the source code from completed projects on its Web site, where it can be freely used by other programmers, including those working on future projects brokered by Collab.Net.

"Our process is intended to be open from the beginning," Behlendorf says. "There’s lots of people chomping at the bit to get access to this software."

Behlendorf says he expects Collab.Net will receive at least one more round of private venture-capital funding before the company begins planning an initial public offering. In addition, he says Collab.Net will roll out complementary products in the coming months, such as service and support options for companies using open-source products.

"Brian Behlendorf’s success with Apache makes him the ideal person to run the company," Quandt says. "They definitely have a lot of potential."