How can entrepreneurs build mature, sustainable businesses while giving away software for free through open-source code?
That was the central question at the Battery Ventures Open Source Summit, a half-day conference in early June, which gathered 140 technology executives, investors and others together to discuss the issue. IT executives from Goldman Sachs and Capital One offered their perspective on the open-source value equation for enterprises, while open-source pioneers from RedHat, MySQL, Cloudera and Chef offered advice on monetizing open-source projects. Finally, corporate-development executives and investment bankers discussed the metrics required to lead to a successful M&A or IPO exit.
There is no question that open-source software has gone mainstream. Don Duet, head of the global technology division at Goldman Sachs, quipped that open source is “eating Goldman Sachs”–a riff on the popular “software is eating the world” meme–as he described the investment firm’s “download, build, buy” manta of software development. “If you are looking to solve a problem at Goldman Sachs, we look first to see if the technology is available from the open-source community; if not, we consider software development; the last cause is really purchasing proprietary software,” he said.
That is not to say, however, that Goldman Sachs is not willing to pay for open-source software itself. “As an open-source solution becomes more and more important to our business, and critical to the successful running of our firm, we find many times we are willing to, and desire to, pay for these services and solutions,” said Duet.
One critical element, from Capital One’s perspective, is support services. “It is really hard to hire and retain great engineers,” said Skip Potter, managing vice president of engineering at Capital One, when asked about the value of paying for services, versus using internal engineering resources to maintain open-source code. “If we can focus our talent on building the capabilities that are unique to Capital One, I would rather spend resources on creating those better experiences, than operationally running something.”
The open-source monetization panel gathered pioneers of the open-source industry including Marten Mickos, former CEO of MySQL and Alex Pinchev, former president of RedHat, as well as modern leaders Barry Crist, CEO of Chef and Jim Frankola, CFO of Cloudera. The panel was moderated by former MongoDB CEO and current Battery Ventures Executive-In-Residence, Max Schireson. The panel discussed how open-source monetization models have evolved from the days of MySQL and RedHat, and how to strike the right balance between free open-source software and commercial offerings. “If you want to drive ubiquity with your solutions, you should be a little scared by how much you are giving away,” said Barry Crist, CEO of Chef. “It is like putting salt in your food. You don’t need a lot [of commercial features], just enough to make them pay,” Marten Mickos, former CEO of MySQL, added.
The afternoon wrapped up with two panels focused on exits—strategic acquirers from Cisco, EMC, HP and Oracle discussed the acquisition landscape for open-source and other technology companies, while investment bankers from Goldman Sachs, Morgan Stanley and Stifel shared insights on the IPO environment. Both panels agreed there is no real difference between open-source and proprietary-software company valuations, as open-source companies likely will be measured on same set of characteristics as traditional software companies.
What is critical for open-source companies, however, is protecting the company’s core intellectual property, participants on the M&A panel emphasized. While other concerns around contamination and different licensing agreements do come play during an M&A scenario, ultimately, “by the time there has been a decision to acquire, unless something is crazy egregious, it is all just mud to work through,” said Peter Magnusson, senior vice president of cloud development at Oracle.
Following the summit, the group gathered for drinks, networking and more discussion. Additional photos from the event are included below. For more insights from the Battery Ventures Open Source Summit, follow Powered by Battery for upcoming podcasts from the sessions.