Jerry Chen | Open Source vs. Cloud Castles

TL;DR

Startups can compete with big cloud providers by leveraging open source projects, reaching developers directly, and offering cloud services.

Transcript

hi everyone welcome to gray matter the podcast from greylock where we share stories from company builders and business leaders i'm heather mack head of editorial at greylock this episode is the audio version of a new essay by greylock general partner jerry chin the essay is part of greylock's castles in the cloud series which you can find at greylo... Read More

Key Insights

• 🤗 Open source startups are challenging the dominance of big cloud providers by leveraging open source projects and reaching developers directly.
• 🤗 The number of open source projects and companies has exploded in recent years, proving to be successful challengers to the incumbents.
• 🤩 Solving a hard problem, having community-led growth, and getting the timing right are key elements for an open source project to potentially yield a successful company.
• 😶‍🌫️ Startups can strategically evolve with tech transitions, adapting their business models for the cloud-only era.
• 😃 Licensing alone is not enough to build a moat against big cloud, but can provide a timing advantage for startups.
• 🤗 Successful open source practices include solving a hard problem, providing a helpful solution, and crafting a scalable go-to-market strategy.

Questions & Answers

Q: How has open source evolved from a risky business model?

Open source has matured over the past 30 years, moving from a fringe model to the foundation of many new technologies, embraced by vendors and customers alike.

Q: Which startups have achieved success by leveraging open source projects?

Startups like Chronosphere, built on the open source observability platform M3, have achieved success by combining the low friction distribution of a cloud service with the open nature of open source communities.

Q: Can startups leverage open source without becoming open source businesses themselves?

Yes, companies like Instabase, Rockset, and Snowflake have built proprietary tech on top of open source offerings from big cloud providers, reaching developers with a cloud service while leveraging open source tech under the hood.

Q: Why is open source on the rise?

Open source has become the best way for new projects to start and generate collaborations, reducing friction to awareness, trial, and adoption by customers.

Summary

In this episode, Greylock General Partner Jerry Chen explores the strategies that startups can use to compete with the big three cloud providers. He highlights the rise of open source startups and how they have become successful challengers to the incumbents. Open source projects have matured from a risky and fringe business model to the de facto start of many new technologies. Open source startups are making a market impact by combining the low friction distribution of a cloud service with the open nature of open source communities. Startups can leverage open source projects to directly compete with the big cloud players and reach developers more easily.

Questions & Answers

Q: How has the perception of open source evolved over the years?

Open source has evolved from being considered a risky and fringe business model to becoming the de facto start of many new technologies. Former Microsoft CEO Steve Ballmer once called Linux a cancer, but Microsoft's $7.5 billion acquisition of GitHub demonstrates how the industry has embraced open source. Vendors and customers have come a long way in their acceptance and usage of open source.

Q: How have open source startups challenged the dominance of big cloud providers?

Open source startups, both public and private, have emerged as successful challengers to the big cloud providers. Companies like CockroachDB, Chronosphere, Confluent, Databricks, Elastic, HashiCorp, MongoDB, MuleSoft, Postman, Redis Labs, and Temporal have all achieved multi-billion dollar valuations in recent years. These startups leverage open source projects and combine them with the distribution advantages of cloud services to reach developers and compete against the big cloud players.

Q: How are open source startups different from older open source companies?

Previously, older open source companies were mostly open source versions of existing on-premise systems. But now, open source startups are built in and for the cloud native ecosystem. They are making a market impact quickly by combining the low friction distribution of a cloud service with the open nature of open source communities. This allows them to reach developers more directly and compete effectively against the incumbents.

Q: Can open source projects be the foundation for successful startups?

Yes, open source projects can be the foundation for successful startups. One key factor is solving a hard problem. The problem should be challenging enough that there are few substitutes, and customers and developers value its solution. Another factor is community-led growth, which reduces friction to trial, adoption, and usage of the project. Additionally, getting the timing right and evolving with tech transitions are important considerations for open source startups.

Q: How does the use of open source benefit startups in competing with big cloud vendors?

Open source projects have several advantages for startups in competing with big cloud vendors. Firstly, open source projects provide a distribution advantage, reducing friction to awareness, trial, and adoption by customers. Secondly, if a startup's open source project becomes the defacto solution in a particular market and gains developer mindshare, it gives the startup a marketing advantage against the big cloud players. Lastly, making the code free and easy to download or launch on a cloud service reaches developers directly, bypassing corporate procurement and other gates that can increase friction to adoption.

Q: How are open source startups leveraging the offerings of the big three cloud providers?

Open source startups are leveraging the offerings of the big three cloud providers by building proprietary tech atop the open source offerings, without becoming open source businesses themselves. Companies like Instabase, Rockset, and Snowflake have built interesting and technically hard products in data warehousing, real-time analytics, and document understanding, respectively. These companies leverage deep open source tech under the hood and focus on reaching developers directly with their cloud services.

Q: Why has open source become the best way for new projects to start and generate collaborations?

Open source has become the best way for new projects to start and generate collaborations because it allows companies, universities, and individuals from across the globe to come together and contribute. Open source projects can be found in every software category and have attractive distribution advantages. They reduce friction to awareness, trial, and adoption by customers, and often have cute animal logos. Open source projects enable startups to reach their customers directly and compete against big cloud vendors.

Q: How does the timing of open source projects impact their success?

Timing is crucial for open source projects. Being the first project in the market isn't always a winning strategy, but being the first project to gain critical mass of developers and community interest often leads to success. Similarly, being the first to offer a cloud service in a particular category can give startups an advantage over big cloud vendors. For example, MongoDB's cloud business, Atlas, and Elastic's cloud services were released ahead of Amazon's DocumentDB and Amazon's Elastic, respectively, which likely made a significant difference in their success.

Q: What are the challenges faced by startups using open source strategies during the cloud-only era?

Startups using open source strategies during the cloud-only era face an extra set of challenges. While open source is a popular and successful strategy, it may not have the same impact in the cloud-only era. Startups must carefully consider their entry point and develop a product and business model adapted to the evolving cloud ecosystem. The challenges include finding the right timing, architecting technology for a cloud-native environment, and dealing with licensing issues to prevent big cloud vendors from benefiting from open source code.

Q: What are the key elements needed for an open source project to potentially yield an interesting company?

Several key elements are needed for an open source project to potentially yield an interesting company. Firstly, the project should be solving a hard problem that requires deep expertise or addresses a critical need. Secondly, the project should stand out as a unique solution with few substitute open source projects. It should be the clear leader in its market to create a successful company. Thirdly, the project should have a vibrant and dedicated developer community, which indicates that it is indeed solving a hard problem and reduces friction to trial, adoption, and usage of the project. Finally, getting the timing right and being the first project to have critical mass of developers and community interest is crucial for success.

Takeaways (in one paragraph)

Open source startups have emerged as successful challengers to the big three cloud providers by leveraging the low friction distribution of cloud services and the open nature of open source communities. Startups that solve hard problems, gain critical mass of developers, and have vibrant communities have a marketing advantage against big cloud players. The use of proprietary tech atop open source offerings allows startups to build interesting and technically advanced products. Timing, evolving with tech transitions, and developing cloud-native solutions are important considerations for open source startups. While open source is a popular and successful strategy, startups must adapt to the cloud-only era and carefully consider their entry point in the evolving cloud ecosystem.

Summary & Key Takeaways

• Open source has evolved from a risky business model to the de facto start of new technologies, challenging the dominance of big cloud providers.

• A growing group of open source startups, such as Chronosphere and Confluent, have achieved multi-billion dollar valuations in the cloud ecosystem.

• Startups can leverage open source projects to solve hard problems, attract developers, and reach customers directly by offering cloud services.