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Open Source Investments panel at OSLS:Erica Brescia, Bitnami; Jake Flomenberg, Accel; Jocelyn Goldfein, Zetta Venture Partners; Rashmi Gopinath, Microsoft Ventures; Idit Levine, solo.io; Gary Little, Canvas Ventures; Sirish Raghuram, Platform 9

Interest in evaluating and investing in open source startups is on the rise again after a dip in the past couple of years, according to speakers at a panel discussion on investment startups in the open source world.

The discussion took place at The Linux Foundation’s recent Open Source Leadership Summit (OSLS).  In terms of investment activity in the open source startup space, “there is good appetite for the acquirers as well as the public markets, depending on the value proposition that these companies … have to offer,’’ said Rashmi Gopinath, a partner with Microsoft Ventures, the corporate venturing arm for Microsoft. She noted that Microsoft acquired Deis in 2017, an open source startup specializing in the Kubernetes container orchestration platform.

Monetizing something that’s free

Venture capital firms are always concerned with monetization and how to monetize something that fundamentally is free, observed another panelist, said Jocelyn Goldfein, a partner at Zetta Venture Partners, a venture capital firm that invests in enterprise startups solving problems with big data and AI.

“I think that Red Hat was the only one that seemed to seriously make a go of ‘Well, the software is free, but we’ll sell support,’” Goldfein noted. Although there was a belief when cloud computing was introduced that money could be made from hosting software, “I think we also have yet to see really big successes come there,’’ she said.

Goldfein, however, pointed to GitHub as one company that is “killing it on a monetization side.” This is because it is “selling an enterprise product with an enterprise feature set with a free open source version that does not in the least feel artificially crippled or constrained by its user base.” She called the GitHub model a “really exciting” and “inspiring” example of a company that identified “a proprietary business model on top of a foundation that’s free and open source.”

Open source is the rule

Goldfein added that “We’ve gone from a world where open source is the exception, to open source is the rule. There’s probably at least two dozen venture firms that invest a lot in open source now.” If people are going to build another database, now the tendency is to ask not why would it be open source, but why wouldn’t it be? That’s been the fundamental change over the past decade, she said.

Success for open source will come when people stop talking about it as a business model, because it essentially is a development model, maintained Jake Flomenberg, a partner at Accel, a global VC firm that focuses on both consumer and enterprise companies.

Accel looks at startups from what Flomenberg called a “Three-P Framework:” project, product and profit. “What that means is if you can’t build a project that people care about in a truly meaningful way and deploy a mission-critical use case, who cares,’’ he said.

Gary Little, co-founder of Canvas Ventures, which has invested Jaspersoft, MuleSoft, Soni Type, and Platform 9, said they have found that “the people who love open source are developers. Developers don’t have money and if they have money, they don’t want to spend it. But open source is great for basically being distributed and viral growth within the developer community.”

So investing boils down to finding a niche use case. For Jaspersoft, he said, its market was selling reporting software to developers. MuleSoft provides integration software to connect applications, data and devices.

As a business model, Little said, open source works for adoption purposes, but is “really poor for monetization, unless you’re monetizing at different levels.”

Open source momentum

Almost every company has some aspect of open source in their strategy at least in the software space now, said Erica Brescia, co-founder and COO of Bitnami, which offers a catalog of over 150 open source apps on all the major cloud platforms.

“They’re either using or building around open source like … the Kubernetes ecosystem for example, where companies are investing heavily there, and then building products around it and networking,’’ she said.

Open source has gained a lot of momentum, and that is incentivizing firms to want to invest in startups, Brescia said.

Flomenberg concurred, saying that there has been a rise in initial public offerings of companies that are fundamentally open source in the past year and a half, and he expects more in the next year. “I think we’ve seen a small uptick in buys in medium-scale open source companies including some pretty recent transactions,’’ he said.

The panel was asked whether, when pitching VC firms for funding, it is efficacious to be an open source company.

“The beauty of open source from an investor’s perspective is distribution, not innovation — it’s contribution to marketing, not to [research and development],” said Goldfein. She recalled a quote she’d heard, and, although she didn’t remember who said it, she wanted to share. “It’s something like, ‘Look, startups are in a race with big companies. Startups have innovation. Big companies have distribution. You’re in a race to get distribution before the big company can get innovation.’”

The panel of investors and entrepreneurs also included Sirish Raghuram, co-founder and CEO at Platform 9, which delivers open source cloud frameworks as a service, and Idit Levine, founder and CEO of solo.io, a company that streamlines the cloud stack.

Measure success

Measuring Your Open Source Program’s Success is a free guide to help any organization learn exactly how their open source program is driving business value.

Open source programs are proliferating within organizations of all types, and if yours is up and running, you may have arrived at the point where you want to measure the program’s success. Many open source program managers are required to demonstrate the ROI of their programs, but even if there is no such requirement, understanding the metrics that apply to your program can help optimize it. That is where the free Measuring Your Open Source Program’s Success guide comes in. It can help any organization measure program success and can help program managers articulate exactly how their programs are driving business value.

Once you know how to measure your program’s success, publicizing the results — including the good, the bad, and the ugly — increases your program’s transparency, accountability, and credibility in open source communities. To see this in action, check out example open source report cards from Facebook and Google.

Facebook’s open source program office periodically posts the month-over-month results from its open source projects internally and sends an executive report to management. “Reports are just a good way to raise awareness,” said Christine Abernathy, Open Source Developer Advocate at Facebook. “Even though Facebook places a high value on open source (as an organization), it’s still always a good thing to market yourself internally all the time and show your value.”

Existing tools can help you measure program success. You can begin by setting up the right tools for collecting data and make sure the data sources are clean and in a format that everyone can understand. Many organizations create a dashboard of metrics for their open source programs, to track all of the data in one place and provide project snapshots that can help assess progress at a glance. (See our guide on Tools for Managing Open Source Programs.)

Key metrics for measuring open source program success

There are countless ways to measure success and track progress for open source programs. Project health isn’t the only thing to track, but is important. “How do you actually get the smartest people in the world working at your company?” asks Chris Aniszczyk, Executive Director of the Open Container Initiative and COO of the Cloud Native Computing Foundation (and former head of open source programs at Twitter). “Well, you open source stuff and then you convince them to contribute to your projects.”

It helps to be able to quantify project health. GitHub’s guide on open source metrics gives a great overview of what project maintainers should pay attention to.  Some key project metrics to track are:

  • Number of contributors (and ratio of internal to external contributors)
  • Number of pull requests submitted, opened and accepted (and time remaining open)
  • Number of issues submitted (and length of time remaining open)
  • Number of commits per contributor (internal and external)
  • Number of external adopters
  • Number of projects created or contributed to (program wide)

Other metrics include popularity and awareness, influence, and program costs. As you delve into these metrics, you can concretely report everything from diversity of contributors to your projects to the number of followers you have across channels.

The Measuring Your Open Source Program’s Success guide can help you with all these initiatives and more, and it explores how to set program goals and measure whether or not they are being met. It is one of a new collection of free guides from The Linux Foundation and The TODO Group that are all extremely valuable for any organization running an open source program. The guides are available now to help you run an open source program office where open source is supported, shared, and leveraged. With such an office, organizations can establish and execute on their open source strategies efficiently, with clear terms.

You can read more in previous articles, on How to Create an Open Source Program and Tools for Managing Open Source Programs. We encourage you to check out all the guides and stay tuned for more coverage of them.