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Open Source

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During the past few years open source has transformed the tech industry. According to Gartner's survey 85% of companies currently use open source software. In this presentation we will examine what open source is? What are the pros and cons for software developers? How big is the market? How can one make money developing an open source product and which business models companies use? If it doesn’t work – is it possible to witch from and to OS?

This presentation was created in Aug 2013.

During the past few years open source has transformed the tech industry. According to Gartner's survey 85% of companies currently use open source software. In this presentation we will examine what open source is? What are the pros and cons for software developers? How big is the market? How can one make money developing an open source product and which business models companies use? If it doesn’t work – is it possible to witch from and to OS?

This presentation was created in Aug 2013.

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Open Source

  1. 1. Liron Zighelnic July 2013
  2. 2. Agenda 2  Open Source (OS)  Pros and cons for software developers  Customers’ decision factors  The market  Business models  Investments  Dos and don’ts  Switching from and to OS
  3. 3. Open Source (OS) 3 “open source is a philosophy which promotes universal access via free license to a product's design or blueprint, and universal redistribution of that design or blueprint, including subsequent improvements to it by anyone.” Source: Wikipedia
  4. 4. Open Source software in numbers 4 >180,000 >1400 Unique licenses Available open source projects Source: Wikipedia
  5. 5. Open Source license families 5 Give me credit MIT, BSD Give me something (e.g., fixes) APL, MPL, LGPL Give me everything - Copyleft GPL
  6. 6. Open Source license families – cont. 6 Source: 451 Research
  7. 7. OS software is widely used According to Gartner's survey 85% of companies currently use open source software 7 Source: Gartner - http://www.gartner.com/newsroom/id/801412
  8. 8. Pros and Cons for Software Developers 8
  9. 9. Pros for software developers  Open platforms usually scale much more quickly  “Free” marketing and greater penetration  More likely to establish an industry standard and gain competitive advantage (especially in infrastructure domains)  Creates community (free testing, bug fixing, users’ feedback, etc.)  Increases innovation - Joy’s Law - “no matter who you are, most of the smartest people works for someone else” [1]  Promotes the company's image and reliability including its commercial products if exist.[2]  Helps build developer loyalty as developers feel empowered and have a sense of ownership of the end product.[3] 9 [1] Bill Joy, Sun Microsystems co-founder [2] ,[3] Source: Wikipedia Open Source Software
  10. 10. Cons for software developers  Complex business models  It’s a “less paved” road  The community as a double-edged sword  Can we go back?  Is it good for revenues?  Is it good for M&A/IPO? 10
  11. 11. The community power 11
  12. 12. “Having some components of your solution stack provided by the OS community is a fact of life and a benefit for all. So are roads, but nobody accuses Fedex or your pizza delivery guy of being evil for using them without contributing some asphalt. Commercial entities provide needed products and services, employ people and pay taxes. We might want them to make more OS contributions, and some do, but they are not morally obligated to do so.” 12 Source: Gartner Merv Adrian VP Research, Gartner March 2013 The community as a double edged sword
  13. 13. Customers’ Decision Factors 13
  14. 14. Customers' decision factors - OS or not?  Freedom from vendor lock-in  Flexibility  Competitive features  Security  Internal technical capabilities  Support  Better software quality  Lower costs 14
  15. 15. Over the years the importance of the customers’ decision factors has changed 15 Freedom from Vendor lock in 1. Better software quality 5. Flexibility 3. Lower costs 2. Freedom from Vendor lock in 1. Flexibility 2. Better software quality 3. Freedom from Vendor lock in 2. Better software quality 1. Flexibility 3. 2011 2012 2013 Source: Black Duck
  16. 16. Which OS to use – decision factors Project maturity – 43% Availability of commercial support – 23% Size of community – 19% 16 #1 #2 #3 Source: The future of the Open Source
  17. 17. The Market 17
  18. 18. The number of OS projects sharply increases Source: Black Duck 18 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 2006 2008 2010 2012 2014 Projected
  19. 19. Top IPOs and acquisitions Company Date IPO/M&A Post IPO Valuation/Price Red Hat Aug 1999 IPO $9.2B Sourcefire Jul 2013 Acquired by Cisco $2.7B MySQL Jan 2008 Acquired by Sun Microsystems $1B Sourcefire 2007 IPO $700M Xensource Oct 2007 Citrix Systems $500M Springsource Aug 2009 Acquired by Vmware $362M JBoss Jun 2006 Acquired by Red Hat $350M Zimbra Sep 2007 Acquired by Yahoo! (and later by VMware on 2010) $350M Day Software Jul 2010 Acquired by Adobe Systems $240M Suse Nov 2003 Acquired by Novell (acquired by The Attachmate Group on 2011) $210M 19 * Some of the numbers are based on estimations
  20. 20. Top 10 OS startups based on the Momentum Index 1 93.8 $76M Cloudera dominates mindshare around Hadoop. Whether they develop product revenue or service revenue will be the difference between being the next Splunk or the next Appirio. Either way, it’s a big win. 2 90.6 $50.2M Appcelerator combines mobile and OS to support 1.3M developers and 30K applications. 3 90.1 $38.5M With over 2M downloads since inception, Drupal is used by web developers worldwide to build sophisticated community websites. 4 87.7 $73.4M 10Gen looks to be the database of the future. 5 86.3 $79.6M 700 new customers and 118% revenue growth in Q12012. 6 79.0 $55.5M A star CEO and a big partnership with Amazon show great progress at Eucalyptus. 7 77.8 $21M Nexenta has some 4.5K customers currently and wants to catch NetApp by 2014. 8 76.7 $44.1M Has over 150K web publishers, media companies, enterprises and educational institutions 9 74.1 $50.5M Has ~80% market share managing OSS and 40% annualized sales growth for past 3Y 10 70.6 $37.5M The leading PaaS provider for Ruby on Rails and PHP developers. They host applications for many companies including Nike, AOL, Apple, Disney, and MTV. 20 Source: Momentum Index http://momentumindex.com
  21. 21. Business Models 21
  22. 22. Developers vs. adopters 22 Developers companies that own the copyrights and the freedom to release the code under any license Adopters companies that adopt existing code MySQL Kaltura Instructure Red Hat Zend Lucid Imagination E.g., E.g.,
  23. 23. Business models & strategy 1. Services Model The company sells services e.g., maintenance, support, and training. The support can be priced per "buckets" (e.g., ElasticSearch) or as a subscription (e.g., Red Hat) 2. SaaS The OS project serves as a foundation for a SaaS offering. Customers pay for hosting, streaming, and delivery of the software. (e.g., Acquia) 3. Commercial plugins The company sells premium commercial add-ons, applications, and modules separately from the OS (e.g., Jaspersoft, Joomla) 23
  24. 24. Business model & strategy – cont. 4. Dual license The company releases the code under a standard commercial license and under an OS license. The OS can serve as an up-sell to a commercial enterprise edition (e.g., MySQL, Kaltura) 5. Freemium Model The company releases software under an OS license and sells premium features on top of it. The additional features are served as an up-sell to the OS 6. Non-Profit Developed by non-profit organizations (e.g., MIT, Stanford) 7. Mix-and-match The usage of any combination of the above (e.g., Kaltura, 10gen) 24
  25. 25. Investments 25
  26. 26. Investments trend 26 Source: 451 Group Total funding by year Funding by quarter
  27. 27. OS investment examples: Andreessen Horowitz $100M - Jul 2012 – GitHub is a very successful social network for programmers which allows collaboration by forking projects, sending and pulling requests, and monitoring development $11.2M - Jul 2012 Meteor is an OS platform for building web apps (round was led by A16Z) Undisclosed Angel Round - Apr 2013. OpenCoin develops an OS payment protocol named Ripple 27
  28. 28. OS investment examples: GreyLock Partners Cloudera, is the commercial Hadoop company, which develops and distributes Hadoop Typesafe develops OS technologies to help developers create rich, scalable, and reactive web applications, including: the Play web framework, Akka runtime, and Scala programming language 28
  29. 29. OS investment examples: Accel Partners Cloudera, is the commercial Hadoop company, which develops and distributes Hadoop Couchbase document-oriented database technology ForgeRock offers open identity stack to protect enterprise, cloud, social and mobile applications at Internet scale 29
  30. 30. OS investment examples: Index Ventures 30 OS search and analytics engine which makes real-time data exploration OS ad server Provides a spectrum of OS Business Intelligence solutions The PHP Company - the leading provider of products and services for developing, deploying, and managing PHP applications
  31. 31. OS investment examples: Intel Capital  12 out of 311 of Intel Capital's portfolio companies are OS companies, representing ~ 4% of its portfolio  These companies are: Klarna, 10gen, Inc., Adaptive Computing Enterprises Inc., Big Switch Networks, Inc. Black Duck Software, Inc., CollabNet, Inc., Concursive Corporation, Gengo, Inc., Zend Technologies, WSO2, Inc, Sendmail, Inc., and Revolution Analytics 31 Source: Intel Capital
  32. 32. Dos and Don’ts 32
  33. 33. OS is a “closed cult” – you need to get in 33
  34. 34. Build an active community 34
  35. 35. Work with the community 35
  36. 36. There’s a fine line – find it Often, attempts to maximize profit can conflict with the interests of the community and vice versa 36
  37. 37. Find the loudest people and make them feel loved 37
  38. 38. Don’t shush people 38
  39. 39. Business model - don’t build a “naked” product; if the product creates no value no one will use it 39
  40. 40. Business model - give people a good reason to pay 40
  41. 41. Support Hosting Training Plug-ins Business model framework – invest time and change when needed 41 Commercial Open Source Kernel
  42. 42. Be transparent - everyone can see everything anyway Including development status, list of features, road map, version control, and bug tracker 42
  43. 43. Switching from and to OS 43
  44. 44. The easier direction: from closed to open  Many examples exist  E.g., Netscape  In Feb 1998, Netscape re-licensed an existing closed source project to OS and released the source code of Netscape Communicator to the public  The name given to the OS development project was Mozilla 44
  45. 45. From open to closed: the XandrOS case  XandrOS was founded in 2001, with the goal of making easy-to-use desktop Linux  At the beginning, XandrOS had a dual license model with a GP license, and a commercial license that did not allow software redistribution without legal permission  In 2006 XandrOS stopped releasing the open source version. This move was not a great success, and the company was heavily criticized 45
  46. 46. Pulling Back from OS HW: the MakerBot case  MakerBot and its CEO were considered shining lights in the OS HW movement  OS HW is HW whose design is made publicly available so that anyone can modify, distribute, make, and sell the design or HW based on that design  MakerBot was a pioneer developer of OS 3D printers  In September 2012 MakerBot decided to veer away from OS 46 Source: CNET, MakerBot
  47. 47. Pulling Back from OS HW: the MakerBot case  “We will not share the way the physical machine is designed because we don't think carbon-copy cloning is acceptable and carbon-copy clones undermine our ability to pay people to do development.”  In June 2013 MakerBot Maker was acquired by Stratasys for $403M.  It was founded in 2009, and had a total funding of $10M 47 Source: CNET, MakerBot, CrunchBase
  48. 48. Q&A 48

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