Have OpenSource, Will Profit?! 5 thoughts from Battery Ventures OSS event

As “open source eats software” the profit imperative becomes ever more important to figure out.  We have to find ways to fund this development or acknowledge that software will simply become waste IP and largess from mega brands.  The later outcome is not particularly appealing or innovative.

wp-1465310489656.jpgLast week, Battery Ventures hosted a “Venture and Open Source Software (OSS)” event that crystallized several key points around OSS business models.  The speakers (really, check out the list!) were deeply experienced with thoughtful points that reflected a balanced perspective.  In those post, I’m trying to synthesize rather than give attribution.  Please review the vibrant #BVOSS twitter stream for specific quotes and pictures.

There is no valuation difference between for OSS and Proprietary.  OSS is a business model, you are running a software company.  

It’s hard to monetize a company with OSS.  While there are limited IPO benchmarks; the model is clearly being adopted deeply.  It’s also not clear if it’s better to be the primary driver for a project or to ride a larger effort.

Should companies avoid OSS?  It’s hard to monetize any idea – OSS is not a deciding factor.  At the end of the day, it seemed pretty clear that open source strategies are simply a new components of building software companies.

Big companies are willing to fund OSS projects (but late in the cycle).

Companies are recognized that they have a role to play in open source by funding projects.  They do this to ensure the project is sustained, maintain influence and ensure road map direction.  It’s often via support contracts.

This influence appears to be late in the OSS cycle.  It’s not clear how companies invest in early phases of development that are critical to start-up success.  In my daily business, I’d love to see companies set aside low-barrier $20-100k exploration funds to seed PoCs so that early stage projects could afford to hand-hold enterprise adopters.

I can think of many examples where the project is effectively spun out of other corporate or consulting efforts (including RackN core OSS IP, Digital Rebar).  IMHO, it’s less common to have an organic OSS company.

OSS companies need to hold something back to monetize.

This point was made emphatically multiple times.  Customers do not fund OSS projects out of good will, some hook is needed to entice payment.  It does not take much (Marten Mickos called it a pinch of salt) but having something was considered important.  Generally these are extras that are needed for advanced or scale users.

While this approach draws negative comments, the “open core” approach seemed to be the expectation from the room.  An all-things-open approach would result in trying to sell consulting services as the primary revenue model – this is generally not considered an attractive venture strategy for start-ups.

OSS value to the business increases with ubiquity/popularity of the project.

This may be obvious; however, an effective OSS model needs to have community validation.  The concept is that there is some conversion ratio, so having users makes up for a poor ratio.  Overall, the room assumed that community was a good thing.

I can think of cases where having a HUGE user base did not immediately translate into monetization.  In some cases (OpenStack, Docker), it translated into a large ecosystem and brisk competition.

As a Service (Hosted OSS) may be critical monetization path.

It was recognized that service providers (Amazon was the goat here) are doing a very robust job monetizing OSS.  For example, users pay significant premiums for MySQL hosted by RDS while they are much less willing to pay Oracle when they run it themselves.  It’s very clear that managed service models rely on cheap software.

It’s equally clear that users are willing to pay for services when they are reluctant to buy licenses.  The room felt that OSS companies should seriously evaluate this path to revenue and adoption.

Overall, it was a fantastic summit that left me, as a OSS start-up entrepreneur,  thinking carefully about how we are shaping businesses to create and exploit OSS.  Getting these models right is essential to maintaining our pace of innovation.

10 ways to make OpenStack more Start-up Friendly [even more critical in wake of recent consolidation]

The Josh McKenty comment that OpenStack is “aggressively anti-startup” for Business Insider got me thinking and today’s news about IBM & Cisco acquiring startups Blue Box & Piston made me decide to early release this post.

2013-03-11_20-01-50_458I think there’s a general confusion about start-ups in OpenStack.  Many of the early (and now acquired) start-ups were selling OpenStack the platform.  Since OpenStack is community infrastructure, that’s a really hard place to differentiate.  Unfortunately, there’s no material install base (yet) to create an ecosystem of start-ups on top of OpenStack.

The real question is not how to make OpenStack start-up friendly, but how to create a thriving system around OpenStack like Amazon and VMware have created.

That said, here’s my list of ten ways that OpenStack could be more start-up friendly:

  1. Accept companies will have some closed tech – Many investors believe that companies need proprietary IP. An “open all things” company will have more trouble with investors.
  2. Stop scoring commits as community currency – Small companies don’t show up in the OpenStack committer economy because they are 1) small and 2) working on their product upstream ahead of OpenStack upstream code.
  3. Have start-up travel assistance – OpenStack demands a lot of travel and start-ups don’t have the funds to chase the world-wide summits and mid-cycles.
  4. Embrace open projects outside of OpenStack governance – Not all companies want or need that type of governance for their start-up code base.  That does not make them less valuable, it just makes them not ready yet.
  5. Stop anointing ecosystem projects as OpenStack projects – Projects that are allowed into OpenStack get to grab to a megaphone even if they have minimal feature sets.
  6. Be language neutral – Python is not the only language and start-ups need to make practical choices based on their objectives, staff and architecture.
  7. Have a stable base – start-ups don’t have time to troubleshoot both their own product and OpenStack.  Without core stability, it’s risky to add OpenStack as a product requirement.
  8. Focus on interoperability – Start-ups don’t have time evangelize OpenStack.  They need OpenStack to have large base of public and private installs because that creates an addressable market.
  9. Limit big companies from making big pre-announcements – Start-ups primary advantage is being a first/fast mover.  When OpenStack members make announcements of intention (generally without substance) it damages the market for start-ups.  Normally corporate announcements are just noise but they are given credibility when they appear to come from the community.
  10. Reduce the contribution tax and patch backlog – Start-ups must seek the path of least friction.  If needed OpenStack code changes require a lot of work and time then they are unlikely to look for less expensive alternatives.

While I believe these items would help start-ups, they would have negative consequences for the large corporate contributors who have fashioned OpenStack into the type of project that supports their needs.

I’d love to what items you think I’ve overlooked or incorrectly added.