Technology entrepreneur Marc Andreessen once famously declared that software will eat the world. Joseph Jacks (pictured), founder general partner of OSS Capital, has a different twist on Andreessen’s opinion. He believes that open-source software will simply eat everything.
Developments in the open-source space over the course of 2018 alone could lead some to agree with Jacks’ point. In January, Red Hat Inc. announced that it would acquire Kubernetes solutions provider CoreOS Inc. A month later, the open-source enterprise content management firm Alfresco was purchased by a Boston-based private equity firm.
Then Salesforce Inc. decided to acquire open-source middleware firm MuleSoft Inc., followed in rapid succession by Adobe Systems Inc.’s opening of its wallet for the e-commerce platform Magento Inc. in May and Microsoft Corp.’s purchase of GitHub. And yesterday, in a bombshell deal, IBM acquired Red Hat for $34 billion.
If open-source was a big box retailer, it’s Black Friday and the shelves have been picked clean.
“This is a really profoundly huge year for open-source software,” Jacks said. “I think that surprised a lot of people.”
Jacks spoke with John Furrier (@furrier), host of theCUBE, SiliconANGLE Media’s mobile livestreaming studio, at theCUBE’s studio in Palo Alto, California. They discussed the founding of Jacks’ new investment firm, value and monetization for open-source software, and the continued impact of container orchestration management system Kubernetes in enterprise computing.
This week, theCUBE features Joseph Jacks as its Guest of the Week.
Starting an investment firm
Against a backdrop of open-source acquisitions and mega-mergers (Hortonworks Inc. and Cloudera Inc. also announced this month that they would combine forces), Jacks has formed a new investment firm — OSS Capital. His firm will invest solely in commercial open-source software companies.
Jacks’ decision to dive into the investment waters can be understood from one critical vantage point: Valuations for open-source software companies are soaring.
Open-source search provider Elasticsearch BV rolled out its initial public offering in early October, and it soon doubled in value. The Cloudera/Hortonworks combination is currently valued at $5 billion, and the MuleSoft buyout was valued at $6.5 billion earlier this year.
“What we’re starting to see is a necessary shift toward accounting for the fundamental differences of open-source software as it relates to new technology getting created and new software companies coming into market,” Jacks said. “We felt that if you had a firm designed to focus exclusively on those kinds of companies, where the firm was actually backed and supported by the founders of the largest commercial open-source companies in the world over the last decade, that could deliver a lot of value.”
Value creation and business models
The key word here is value, a term that has been hotly debated within the open-source community for many years because, by its very nature, the technology produced is free and open for all to use. Jacks addressed this issue in a blog post earlier this year where he made the case that players in the open-source software community ignite value creation through either new categories (GitHub driving a social network for coders, and Docker leading the containerization movement) or disruption (Cloudera/Hortonworks transforming the legacy data warehouse industry).
The kicker is that value becomes essentially a bottomless well from which cloud providers or commercial open-source software companies can draw in the hopes of monetizing technology products. Results from this model can be seen in technologies like PostgreSQL or MySQL, captured by cloud providers to deliver services, or Confluent around Kafka and Databricks around Apache Spark, which fuel commercial open-source software businesses.
“We believe that open-source software will always generate or create orders of magnitude more value than any constituent can capture,” Jacks said.
There are business models for monetizing and commercializing open-source software. One involves an approach known as “open core” in which the central open-source software product is free and feature-packed versions are commercialized. Jacks prefers to view this model as having varying layers of commercialized “thickness” around a central open-source offering.
Other, more-common industry examples include software as a service and companies like Cumulus Networks Inc., which offers both proprietary and open-source networking tools.
Part of the investment strategy at OSS Capital will include funding new approaches to open-source business models. “There’s a huge amount of polarization and lack of industry consensus on what it actually means to have or implement an open-source-based business model,” Jacks explained. “We believe that many business models for monetizing and commercializing open-source exist. We will absolutely, heavily invest in more business model innovation.”
Kubernetes as next paradigm
Along with his investment initiative, Jacks has also been an active participant in the Kubernetes community. He was the original organizer of KubeCon and co-founded Kismatic Inc., an enterprise-oriented Kubernetes tools company.
As the management of multicloud workflows increasingly relies on container technology, the Kubernetes enterprise steam roller marches on. Wikibon’s analysts have predicted that over the next five years, 90 percent of multicloud applications will use Kubernetes (Wikibon is owned by the same parent company as SiliconANGLE).
“Kubernetes is a foundational part of the next computing paradigm in the same way that Linux was foundational to the computing paradigm that gave rise to the internet,” Jacks said. “I think we’re starting to see the same kind of repeat effect thanks to Kubernetes being really well received by engineers and by the cloud providers.”
Bundling and unbundling tech
An enduring lesson of Silicon Valley is what’s past is prologue. Long before Andreessen discovered that software would eat the world, he co-founded Netscape Communications Corp. and worked with Jim Barksdale, who was president and chief executive officer of Netscape. Started in 1994, Netscape at the time was wrestling with a new technology called the web browser.
As described in an interview with the “Harvard Business Review”, both men recalled how development of the World Wide Web and the tech industry in general was a tale of bundling and unbundling. After an explosion of open content on the web and competing browsers (the unbundling of information services), Microsoft bundled a browser into its wildly popular software product, and Netscape was history.
Jacks believes that this same dynamic, bundling and unbundling, is playing out again in the software world. “We’re starting to see the unbundling of proprietary cloud computing service APIs,” Jacks said. “They get unbundled because we have open-source alternative data paths and we have Kubernetes, which allows us to disaggregate things out pretty easily.”
Bundling, unbundling, disaggregation and disruption. The open-source software movement sits at the center of what may ultimately be a sea change in enterprise computing, as evidenced by the buying frenzy witnessed this year.
“We’re seeing more software companies become open-source software companies,” Jacks said. “It just needs to exist. This is a model that’s happening by necessity.”
Watch the entire video interview below, and be sure to check out more of SiliconANGLE’s and theCUBE’s CUBE Conversations.
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