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- Databricks, Confluent and MongoDB have jumped this summer in the private and public markets.
- All three companies have built their businesses on open source software, which they provide for free.
- Their success shows that open source can thrive, even in competition with Amazon and Microsoft clouds.
It’s been a successful summer for open source software companies Confluent, Databricks, and MongoDB.
Confluent went public in June and now has a market cap of $ 15 billion. Databricks said it raised $ 1.6 billion in funding at a valuation of $ 38 billion in August. MongoDB’s market cap jumped to $ 32 billion this month, almost as much as the $ 34 billion price IBM paid to buy Red Hat, the open-source company that was one of the first pioneers to successfully market the same code he gave away for free.
All of these companies started out as open source projects or as free software to use, download, or modify. And while giving away software might seem counterintuitive, the success of Confluent, Databricks, and MongoDB shows that the model can provide the fuel for a business to take off, even in an era of dominance by Amazon, Microsoft and of Google in the cloud market and their combined resources and hold on developers.
It must be said that open source software is not a promise of commercial success, despite the triumphs of these companies. Companies such as Docker, Cloudera and NPM (now a subsidiary of GitHub) have all encountered turmoil that shows the difficulties of turning even the most popular open source projects into true challengers for tech titans.
At the same time, Joseph Jacks, founder and general partner of OSS Capital, suggested that while Databricks, MongoDB, and Confluent have all taken smart action with excellent market timing, open source was the foundation for the success that ‘they currently know.
“I think open source is basically the best way to create infrastructure technology and, in particular, data infrastructure technology,” Jacks told Insider.
And as Greylock Partner Jerry Chen explained in a recent article, companies like Confluent and Databricks thrive in gaps where cloud providers like Amazon Web Services, Microsoft, and Google Cloud aren’t or aren’t. are not yet implemented.
“Successful open source projects like Spark or Kafka can be a strategic advantage as the project and associated commercial companies come to market with a community of developers they can sell to,” Chen recently told Forbes. “More generally, finding an advantage around marketing or distribution is essential to compete with the big cloud.”
High-value companies are born from open source
Databricks’ business is based on the rapidly growing Apache Spark data science project, which began in a lab at the University of California, Berkeley. The founders of Confluent built its technology using Apache Kafka, which started at LinkedIn, and MongoDB started as a database project of the same name.
Dev Ittycheria, CEO of MongoDB.
MongoDB
Releasing software to open source allows more people to use a technology and, most importantly, increases its notoriety: large companies and individual developers are turning to it not only because it is free, but also because popular projects have thriving communities that always improve the software. Integrating open source code can dramatically speed up a software development project without sacrificing quality.
“Usually, if I’m a new IT developer at a big bank, the first thing I do is go open source and look at things I could use, so I don’t have to build everything. that, “said Alfred Chuang, general partner at Race Capital.
These companies tend to rely on a business model called ‘open core’, which means that while the open source component of their product remains free, it creates a paid version of the same software with improved customer support or features. additional, intended for a wide audience. customers. This, in turn, helps make popular open source projects acceptable to even the largest customers and offers companies such as Confluent and Databricks a path to success.
“Really what we end up seeing is if you can build a business that gets the lion’s attention and go down the managed services route, the market is going to reward that,” said Stephen O’Grady, analyst. principal at RedMonk.
Open source can be a competitive advantage, but it also comes with risks
For Ali Ghodsi, co-founder and CEO of Databricks, open source is “one of the main tenets” of his company’s strategy because it has created a massive ecosystem of developers around the product that is hard to match.
“Millions and millions of people are just using open source, and it’s hard for any other vendor to take over these communities and lead these communities,” Ghodsi recently told Insider. It’s also one of the startup’s advantages over Snowflake, its $ 95 billion data cloud rival. “If you have proprietary software like Snowflake, you don’t have this community of open source vendors, open source adopters around it,” he said.
Databricks also uses a model in which companies that build software on its open source have “connectors” that increase the use of Databricks through their common customers. “If someone uses partner software that works directly with Databricks, it generates more credits on Databricks, and it increases our revenue,” Ghodsi said.
Yet cloud providers such as AWS have increasingly used their power to compete directly with open source companies, offering their own commercial versions of free software such as Kafka – the same open source technology that Confluent uses. Some companies, including Confluent and MongoDB, have moved away from a traditional, more permissive approach to open source in response, opting instead for new licenses that limit how the software can be used.
Jay Kreps, Co-Founder and CEO of Confluent.
Confluence
Ultimately, while there are certainly some unique challenges in selling open source software – challenges that not all can meet – this new class of open source tech giants shows that the market is real and lucrative for those. who are able to meet the demands of the moment. .
Jacks, the OSS Capital investor, said: “With the last 15 years of infrastructure software development, it has become evident to the world that the majority of the truly exciting tools and technologies that developers care about come from. of the open source ecosystem. “
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