“It was the best of times,
it was the worst of times,
it was the age of wisdom,
it was the age of foolishness,
it was the epoch of belief,
it was the epoch of incredulity”
Marc Andreesen famously said that software is eating the world; others have more recently added that at least in b2b, open source is eating software. Indeed, when we look at 2018, it has been a landmark year for users, enterprises and investors alike—but has it also included the seeds for a potential slowing down of open source investment, and of perhaps even usage?
In the cloud world, where the operational friction of software is reduced or removed, and where economies are extremely effective, public cloud providers present a challenge to many open source projects. Over the past several years, I have had the good fortune of being involved in key deals to monetize some of the largest open source software projects—in a way that keeps them free and usable for end users, and gets cloud providers to support the community. However, given what we’ve seen in 2018 and just last week, the economic model for funding open source may be at risk. It is down to more innovative aggregation models and powerful open source communities to ensure that open source continues to gain ground .
Continued adoption, M&A explosion
It’s no secret that open source use is accelerating, and is driving some of the most critical pieces of modern IT. In addition, the Linux Foundation recently reported that in the last five years, membership has gone up by 432 percent increase.
On top of that, 2018 has seen roughly $57 billion of value creation in open source M&A and IPOs The number jumps by $7.5 billion if you countGitHub ’s acquisition by Microsoft MSFT -0.29%, despite the fact that GitHub is not a developer or curator of open source software as such; rather, it accelerates use of open source (with “pervasive developer empathy”, as I heard Accel’s Adrian Colyer mention). This is a story of absolute sums but also of multiples, as effectively analyzed by Tomas Tunguz in this blog post.
Over the years we’ve seen different approaches to monetizing open source, and we have examples of them all in the past year’s exits (the following is just my simplistic breakdown):
- Sell support and services (Heptio acquired by VMware VMW +0.57%)
- Sell hosted/managed open source ( MongoDB as-a-service)
- Have an open source core, sell extra features around it ( Elastic , Pivotal IPOs)
- Make order out of chaos ( Red Hat RHT +0.02% acquired by IBMIBM -0.76%, also Pivotal)
- Aggregate and accelerate other peoples’ code (GitHub acquired by Microsoft)
Of the above, as far as I have seen, the first two are probably most common, and arguably most vulnerable. If the technology can be wrangled effectively by internal teams or by consultants, there is less of an incentive to buy support from vendors (as Ben Kepes mentioned in his analysis of Cloud Foundry’s position); and if AWS is the best company in the world at selling software services over the web, then it would have an immediate advantage over providers who primarily sell through other channels, including commercial sponsors of open source. For this reason, recent developments around open source licensing are particularly important.
MongoDB and Redis pull back, AWS react
Last week, AWS announced on its blog the launch of DocumentDB, a MongoDB-compatible database. As some pundits have pointed out, this is clearly a reaction to MongoDB, Inc.’s new and highly-restrictive license called the Server Side Public License (SSPL)—a move which the publicly-traded MongoDB made in order to protect its revenue position.
Earlier last year, Redis Labs learned a hard lesson in community relations management when it took a less dramatic step: while offering its Redis database under a permissive license, it changed the licensing on its add-on modules to the “Commons Clause”, so service providers would need to pay for their use. While communication could have been clearer, the action itself is similar in intent to what MongoDB did, and to what many other open source companies have attempted or plan to attempt to do.
Bill Gates once said that “A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it. Then it’s a platform.” By that measure, if AWS is the ultimate cloud platform of our times, then AWS will recognize that it is better because software like Redis exists, and therefore work to increase—rather than limit—Redis Labs’ overall revenue. In this conundrum, community may be the key.
Communities: the un-replicable asset
A big part of open source’s success over proprietary software has been its ability to move in an agile fashion, with strong and fast feedback loops, and devoted developer engagement. As fast as AWS moves, with its famous customer obsession and feature release pace, it is still constrained by money and financial priorities. Open source contributors don’t work for money (although communities should be supported financially, if we want to keep enjoying the independence of some key projects), and some open source projects are almost too big even for IT giants to replace with a proprietary clone. On top of that, consider that many developers will simply switch off any solution which smells of corporate interest, especially if there is an open source alternative.
This reminds me of a protracted discussion I was part of some years ago with an IT giant who considered the cloning option for a piece of software, meant for distribution. At the end of a call in which a group of execs agreed on the cost of engineering, a developer advocate posed a simple question: we now know how much building this will cost, but how much will we invest in building a community? (the IT giant chose to support and collaborate with the project).
What does 2019 hold?
While the economic tension between public cloud services and the first two or three types of open source monetizations might increase in 2019, I estimate that ‘order-makers’ and ‘aggregators’ will continue to go from strength to strength. Specifically, companies that accelerate reliable production use of open source—from GitHub competitor Atlassian to open source security company Snyk—are proving that there is great value to be provided to users from focusing on security and usability of, and collaboration around, small and large projects alike.
What might change in the immediate future is the pace and size of venture capital investment into open source companies, but this could also be the cyclical product of a very loaded 2018, and not only related to business model frictions.
In either case, a focus on building and sustaining healthy open source communities and differentiating business models seems to be more important than ever.
(Originally posted on Forbes.com)