MARK PERCIVAL

Although the idea of open source software has been around since the 1950’s, it wasn’t until 1992 when Linus Torvalds licensed Linux under the General Public License and that the modern era of open source began. Linux’s rise to domination was slow and steady (And once prompted Steve Ballmer to label open source a cancer), eventually leading it to dominate nearly every back-end system on the internet. Open source software now powers the vast majority of the services we use, from servers and databases to the Chrome laptops found in most classrooms. While the first dotcom boom may have given us the occasional RedHat, in the past 5 years we’ve seen an explosion of very viable and commercially successful open source startups. From the GitLab IPO to Mongo DB our own investment in Posthog, open source is proving to be a meaningful part of any venture portfolio.

Why Open Source Works

Some years later, when Steve Ballmer feverishly screamed “The key to success is, developers, developers, developers!" at a Microsoft conference he may have been talking about open source. If you look at the current successful open source startups, the one common theme is the critical role of developers in its adoption into the enterprise. As open source options grew, developers began to strongly advocate for its use. There are several reasons for this.

Avoiding lock-in

First, developers value the reduced vendor lock-in. (This may be more perception than reality, but that perception still drives meaningful adoption.) The switching cost at large organizations is very high, and nearly every developer has dealt with antiquated and proprietary systems that take years to replace. This has lead to developers pushing their organizations to reconsider proprietary solutions, something that the management teams largely support, having also been in the position of dealing with large switching costs.

Communal approach

Additionally, OSS has a communal approach to development that gives developers a say over product direction. Although this tends to follow the bike-shed problem effect, the transparency of open source development not only gives the community a say in the project, but also gives them a heads up to changes that are being considered or are in the early stages of development.

Security

That same community involvement is also widely perceived to lead to better security practices from having “more eyes on the code.” And we’ve even seen this very recently in practice, with a Microsoft developer discover a large and very significant backdoor in a core Linux utility. That’s not to say that open source will catch every vulnerability, but the cost of finding of bug or piece of malicious code drops dramatically when researches and developers have access to the underlying code.

Lower initial cost

In most cases, OSS is lower cost, often defaulting to free (although startups have found creative ways to monetize them). For a startup, OSS provides a bottoms up go to market motion and an alternative value prop to attack SaaS incumbents. Developers looking for a quick solution to a problem will often use an open source variant in their first pass in order to avoid involving procurement or the finance department.

Attracting talent

Because open source has become the dominant standard, companies that don’t use open source are viewed as antiquated by developers. And in a market where developers are still a limited resource and difficult to hire, open source gives companies an edge in recruiting. Better yet, companies that contribute of open source are seen as leaders in the marketplace and are often able to leverage that reputation to attract better quality developers.

Longevity

Finally, proprietary software is typically developed and maintained by a single company, which leads to a single source of failure. If that company is acquired, changes direction, or ceases to exist, it’s users are left holding the bag (one that they don’t know the contents of). Although open source projects can see development drop, or even cease entirely, popular projects tend to live on with the community providing updates and support for longer than a company would.

Where OSS Fails

There are plenty of examples of open source projects that never made the jump to viable venture scale businesses. Some of these projects are even wildly successful (Android and the Chrome browser are both open source), but without a clear monetization model, require the involvement of a benevolent benefactor to succeed. Others, like LibreOffice (a Microsoft Office clone), function more like a non-profit.

For similar reasons, OSS has not historically been successful in consumer markets. Consumer OSS projects are inherently hard to monetize and often come up against well-funded alternatives with better marketing. (Firefox is a perfect example of this; although it has made numerous gains and largely hit feature parity with Google Chrome, Google continues to dominate the market in no small part by also controlling Android and the Chromebook project)

from ramy: As infrastructure software companies scale and go public, new nimble players find creative ways to undercut by writing modern software from scratch, paying more attention to the needs of smaller customers, and leveraging the zeitgeist of the moment. We believe Open Source is the perfect force in today’s cycle of distortion.