Is Being VC Backed Startup Really Compatible with Open Source Business Models?

After closing their latest funding round, Redis (circa $146 millions raised to date) announced new licence changes (again) to their Redis Modules. Before that we had high profile startups Confluent (behind Apache Kafka with circa $205m raised to date) and MongoDB Inc (now a public company) change their licences. These licence changes are according to their executives necessary to protect against what they perceive as unfair practices from big cloud vendors (Amazon Web Services often cited as biggest culprit) — who do not make significant contributions (or none at all!) to open source projects and yet fork projects to create competing hosted services. The following are some of the quotes from Redis and Confluent executives that echo the sentiment of unfairness towards the big cloud vendors.

“The community now understands that the original concept of open source has to be fixed because it isn’t suitable anymore to the modern era where cloud companies use their monopoly power to adopt any successful open-source project without contributing anything to it” — Redis CEO Ofer Bengal.

“As a company, one solution we could pursue would be for us to build more proprietary software and pull back from our open source investments. But we think the right way to build fundamental infrastructure layers is with open code. As workloads move to the cloud we need a mechanism for preserving that freedom while also enabling a cycle of investment, and this is our motivation for the licensing change.

We think this is a positive change and one that can help ensure small open source communities aren’t acting as free and unsustainable R&D for tech giants that put sustaining resources only into their own differentiated proprietary offerings.” — Confluent co founder Jay Kreps.

Being open source VC backed startups means large exit via IPO or M & As is #1 priority for their investors, and that`s OK, after all VCs also need to deliver high returns to their own backers!:) But in order to deliver significant returns to investors, these startups need to first deliver great value to their customers and gain significant market share — meaning increased adoptions of their technology, fast revenue growth via hosted services and other enterprise support services. Unfortunately these business objectives become harder to meet if big cloud vendors with high distribution power such as AWS are offering similar hosted services. For example Confluent reacted with licence changes soon after AWS announced their Amazon Managed Streaming for Kafka (MSK) — because of course they understood the negative impact to growth of AWS offering a hosted Kafka service that will be competing with Confluent`s own hosted service that also runs on the AWS infrastructure.

All this brings us to a fundamental question that we would like to ask the HackerNoon community. Can an open source startup ecosystem thrive alongside the very aggressive market expansion of big cloud vendors? Or even a more interesting question, is being VC back startup really compatible with the current open source business models? Of course there are some good exceptions of companies built on open source business model like Red Hat — now part of IBM after several years as a public company. Another company using open source business model that could possibly follow Red Hat`s path is Canonical.

One thing we have consistently witnessed over the past few years is that far too many startups use open source strategy prematurely as a quick way to get traction in order to raise money from VCs— and later try to capture enterprise customers with hugely expensive enterprise offerings that make the cheaper alternatives of big cloud vendors more attractive?

Survey: Please share your thoughts with us by completing this Open Source Survey — we will share the results of the survey on HN in the coming weeks.

Posted by Bambordé Baldé, Co — Founder | Twitter: @cloudbalde | LinkedIn:linkedin.com/in/bambordé|