The Identity Crisis Facing Open Source Companies in the Cloud
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Identity Crisis Facing Open Source Companies in the Cloud
Open source software marries the decentralized community of the Internet with the ambition to build great things. Databases, application servers, streaming technologies, application deployment, and container management - many modern tools were born open source. But the clouds are rolling in for open source companies (pun intended). Today, open source software faces an identity crisis: what does it mean to be an open source company in the cloud? Imagine you’ve co-authored a massively successful open source project and you’re on the cusp of commercializing it. You face a critical decision. This decision will impact the business for the next 24 months and beyond. It will determine your price point, your roadmap, your hiring plan, your revenue, and consequently your fundraising prospects. The decision reversible, but not without pain and difficulty, and likely 3 to 4 quarters of work. What is that decision? Do you support on-premises deployments or launch a managed service (aaS)? This is a challenging, hand-wringing, sleepless-nights decision for many open source companies. On one hand, the previous generation of open source companies did start out supporting on-premises. With that strategy, they’ve built huge businesses. And for good reason. The open source user base already uses, deploys, and contributes to the project. This great allure of open-source software, that customer base is already using the product, is the leverage in the model. Sales teams and marketing teams' task is self-evident. Convert the faithful to the contracted faithful. Those sales cycles are fast and the contract sizes are large, which means cash in the bank. The name-brand contracted logos become the lighthouse accounts who respond to reference calls, proselytize the gospel on stage, and bolster the social proof of both the open source and commercial efforts. It’s enterprise-first selling. On the other hand, the future is in cloud. Most customers prefer a managed service. So should the company commercializing open source software should. Managed services are homogeneous rows of boxes in a well-run factory. On-premises deployments are messy factory floors littered with half-opened boxes skewed helter-skelter and crocodiles lurking in dark places. Services offer one platform to everyone. On prem means managing 100 on-premises deployments with varying configurations, hardware, and network topologies; not to mention security postures. Second, a managed service provides defensibility with the proper open source license. If an open source project is successful, the startup commercializing it will want to defend it from the monoclouds, who will inevitably compete at some point. Third, expansion is exceedingly easy. Customers effortlessly expend more after they’ve exhausted their entitlement. But what does it mean to be open source in the cloud? Open source isn’t a differentiator in a managed service - or least much less of one. So, how will the company differentiate in the future vs potential closed source competition? And this GTM strategy means tacking the mid-market first, because not many large enterprises will trust their infrastructure to a fledgling service. Building an on-prem company means hiring field sales teams, solutions architects, field marketers. aaS companies demand a different set of acronyms: SRE (site reliability engineers) and PLG (product-led growth) marketers. The Venn diagram intersection of those skill sets is a null set. Picking one means hiring a specialized team that will have limited to no ability to cross-over. So open source companies have two paths in front of them:
There’s no universal answer. But there are factors to consider when deciding:
Every open source company will face this decision of when to become a cloud company. It will define the next two years of the business and nearly every aspect of the business and especially call into question: what does it mean to be open source? |
Older messages
UIPath S-1 Analysis: How 7 Key Metrics Stack Up
Monday, March 29, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. UIPath S-1 Analysis: How 7 Key Metrics Stack Up
The Importance of Building & Maintaining Great Developer Documentation
Monday, March 22, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Importance of Building & Maintaining Great
How Selling Has Changed Post-COVID, and How it Will Change Again Afterwards
Monday, March 15, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Selling Has Changed Post-COVID, and How it Will
This is the Most Ridiculous Use of Money Management I've Ever Heard. What is Wrong with You?
Monday, March 8, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. This is the Most Ridiculous Use of Money Management
How Much is 20% More NDR Worth to Your SaaS Startup?
Friday, March 5, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Much is 20% More NDR Worth to Your SaaS Startup
You Might Also Like
SaaSHub Weekly - Mar 28
Thursday, March 28, 2024
SaaSHub Weekly - Mar 28 Featured and useful products Loach logo Loach Say goodbye to unachieved OKRs with Loach, an OKR management solution that empowers your team to seamlessly align their daily work
84 new Shopify apps for you 🌟
Thursday, March 28, 2024
New Shopify apps hand-picked for you 🙌 Week 12 Mar 18, 2024 - Mar 25, 2024 New Shopify apps hand-picked for you 🙌 What's New at Shopify? 🌱 New login requirements for the Order Status Page Changed ⸱
We've Been Tinkering
Thursday, March 28, 2024
Join Our Beta! ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
AMA with Chiedo John, Director of Growth @ GitHub
Thursday, March 28, 2024
Live on Wednesday, April 3rd, starting at 9 AM PST͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
red hot startup intel
Thursday, March 28, 2024
FULL SWOT analysis on Ramp, Databricks, Cohere, Devoted Health, and Coalition inside Scouting Reports on 🔥 Startups Download Now Hi there, Psst. Want competitive intel on the top 5 industry leading
The Ultimate Amazon Guide: Strategies For Sellers In 2024
Thursday, March 28, 2024
Learn from Melisa Vong for FREE in the Start Your Ecommerce Business Summit ! Another day, another exciting opportunity to introduce you to one of our 20+ ecomm trailblazers in the Start Your Ecommerce
[SaaS Club] Overcoming Early Struggles to Bootstrap to $22M ARR
Thursday, March 28, 2024
Hey Reader Let's connect on LinkedIn! Follow me to stay in touch! Here's a quick round up of what's been going on at SaaS Club: 🎧 Podcast Hubstaff: Overcoming Early Struggles to Bootstrap
The ultimate 9-5 escape plan
Thursday, March 28, 2024
This is from THIS episode - Spotify - iTunes Reid Hoffman (founder of LinkedIn) once said “Entrepreneurship is like jumping off a cliff and building a parachute as you go down.” 😅🪂 I don't know
The Entrepreneur's Secret Weapon 💪
Thursday, March 28, 2024
The Entrepreneur's Secret Weapon 💪 u/Electrical_Ad_7754 Hey friends! Welcome to The Slice, a weekly curation of cool bootstrapped startups and actionable reads. We've got AI tools for
📂 Treat content like its your product
Thursday, March 28, 2024
Today's newsletter is proudly supported by Embarque 🎉 For two years in a row, SaaS founders and marketers reported content as the #1 driver of growth according to the State of SaaS