Supporters of such programs often see them as a local economic stimulus plan, allowing software developers and entrepreneurs in cities ranging from San Francisco to South Bend, Ind., to New York, to build new businesses based on the information they get from government websites.
When Los Angeles Mayor Eric Garcetti issued an executive directive last month to launch the city's open-data program, he cited entrepreneurs and businesses as important beneficiaries. Open-data promotes innovation and "gives companies, individuals, and nonprofit organizations the opportunity to leverage one of government's greatest assets: public information," according to the Dec. 18 directive.
A poster child for the movement might be 34-year-old Matt Ehrlichman of Seattle, who last year built an online business in part using Seattle work permits, professional licenses and other home-construction information gathered up by the city's Department of Planning and Development.
While his website is free, his business, called Porch.com, has more than 80 employees and charges a $35 monthly fee to industry professionals who want to boost the visibility of their projects on the site.
The site gathers raw public data—such as addresses for homes under renovation, what they are doing, who is doing the work and how much they are charging—and combines it with photos and other information from industry professionals and homeowners. It then creates a searchable database for users to compare ideas and costs for projects near their own neighborhood.
Mr. Ehrlichman raised $6.25 million from angel investors in October 2012, and expects to hire nearly 80 more workers by the end of 2014, as he continues to expand the online service nationally.
The origins of city open-data programs can be traced back to a December 2009 Obama administration directive to federal agencies to post more public information online. Since then, some 175 federal agencies—including the Defense and Justice departments—have posted more than 88,000 data sets on data.gov, the federal government's open-data site. And more than 43 cities have followed suit.
Some city agencies remain reluctant to turn over data, concerned about competition from the private sector, among other issues, says Bruce Blood, the city of Seattle's Web team manager, who oversees its open-data website. "It's really a cultural change for these agencies, so you have to do some arm-twisting," he says.
Since 2010, the city has put more than 200 data sets online, including crime rates, 911 calls and the precise locations of bicycle racks. Mr. Blood says he hopes to post at least 75 more data sets this year.
Natalia Carrizosa, a legislative analyst at Montgomery County's Office of Legislative Oversight in Maryland, says another issue is the lack of standards for storing digital records, which can make it difficult for smaller tech firms to expand from city to city.
Ian Kalin, director of open-data services at Socrata, a Seattle-based software firm that makes the back-end applications for many of these government open-data sites, says he's worked with hundreds of companies that were formed around open data.
Among them is Climate Corp., a San Francisco-based firm that collects weather and yield-forecasting data to help farmers decide when and where to plant crops. Launched in 2006, the firm was acquired in October by Monsanto Co. , the seed-company giant, for $930 million.
Overall, the rate of new business formation declined nationally between 2006 and 2010. But according to the latest data from the Ewing Marion Kauffman Foundation, an entrepreneurship advocacy group in Kansas City, Mo., the rate of new business formation in Seattle in 2011 rose 9.41% in 2011, compared with the national average of 3.9%.
Other cities where new business formation was ahead of the national average include Chicago, Austin, Texas, Baltimore, and South Bend, Ind.—all cities that also have open-data programs. Still, how effective the ventures are in creating jobs is difficult to gauge.
One wrinkle: privacy concerns about the potential for information—such as property tax and foreclosure data—to be misused.
Some privacy advocates fear that government data that include names, addresses and other sensitive information could be used by fraudsters to target victims.
Jerry Paffendorf, chief executive of Detroit-based Loveland Technologies, says concerns about privacy and fraud dog his online service, Why Don't We Own This?, or WDWOT?, a website that tracks the city's home foreclosure auctions, among other data.
The firm, which has six employees, uses government data to create and sell custom applications for clients, ranging from nonprofit groups to land banks and real-estate developers, charging upward of $10,000 a year. It is working on a contract with the Michigan housing authority to track property data for 380,000 Detroit residences.
A free site, WDWOT? makes some of these data sets available to the public, including the locations of distressed properties and it charges a $25 annual fee for membership for those seeking custom tools. But last year a local housing group complained that the data could be used by scammers to target vulnerable homeowners seeking emergency cash.
Mr. Paffendorf says there is no indication that the data is being misused, but he adds: "I get their concern. You don't know how people are going to use any information."