The Rise of Open Source Challengers

A look at how OSS takes over the application layer + the potential end of closed source software categories

The Open Source Challenger Landscape 2021

Reach out to discuss any thoughts, comments, suggestions or if you would just like to chat on the future of open source software or follow me at @rajko_rad on twitter for more content on data, OSS and infra!

Note: the above landscape is certainly not a comprehensive overview of all top open source companies today (a list of ~200–300 top OSS companies is separately maintained, and NEA has partnered with many of them). Instead, I am highlighting the emergence of open source companies that directly challenge existing and well known incumbents in categories that have traditionally been closed source vs. open source.

Quick recap: how did we get here?

Much has been said and written about the history of open source software (OSS) and companies with open source business models: e.g. big corporates looked down on it, no one thought you could monetize it, and it was mistrusted in production environments, yada, yada 👌

Quote from “The Business of Open Source” (2008) by Watson et al (link)

I’ll include one funny artifact above, a quote from the 2008 paper “The Business of Open Source” (link), where they note that “open source programs… are now in production in a growing number of corporate IS departments”.

It is wild how far we have come - just an example, early last year, open source overtook closed source databases in popularity, a core production category…

Open source databases overtook closed source databases in popularity in early 2021 (DB-engines.com, link)

Many open source companies have also achieved behemoth commercial scale. Just looking at companies we partnered with early at NEA: Databricks, Elastic, MongoDB, Mulesoft, NGINX, Anyscale, Pulumi, and many newer cos on similar trajectories… The OSSC index estimates that companies with open source roots have accumulated over $200B of market cap to date.¹

All of this has led to a massive increase in new companies, funding and deals, with over ~160 VC deals in 2021 and $4B of VC funding (note: the methodology used below is quite naive and likely a significant underestimation— working toward a more refined one).

Why open source wins

Open source is winning because it is often better and brings a ton of benefits across a variety of dimensions:

1️⃣ R&D and Innovation
2️⃣Community and Ethics
3️⃣Product and Features
4️⃣Distribution
5️⃣Security & Privacy

1. R&D and innovation

Open source leads to the best technical solutions winning — it is the ultimate ‘building in public’. Not only can everyone see your product, but they can see the underlying architecture down to each and every line of code. On the one hand, this raises the stakes and increases the needed pace of innovation. On the other hand, it invites extremely valuable feedback, collaboration and contributions.

Further, in infrastructure, transparency enables consensus. The best engineers in the world want to be sure they are using the best possible solutions to their problems. This decision-making process is usually a crowd-sourced, consensus-driven process that is only possible if they are able to see and understand the underlying architectures and innovations.

2. Community and Ethics

As has been quite well documented², community is incredibly important for any project. Open source is a major tailwind for community-building because members get real ownership, contribution and steering of the project. It is a truly collaborative environment for learning and creation. Finally, for reasons explained below, open source is often ethically better and common alignment around this ethos can serve as a backbone for community creation.

Note: ofc, real ownership should imply real monetary compensation in the case of commercialization! There have been broader attempts to make sure community members can get compensated for their work, companies like Tidelift, Aviyel, and Gitcoin. Airbyte has announced that they will work towards a ‘participative model’, where contributors are compensated for their work, but then must maintain SLAs (starting to sound like other platform/marketplaces?).³

3. Product and Features

Well-managed open source companies have the ultimate product feedback loop. In traditional closed-source companies, feedback can only be collected after each new release, often through inefficient tools and processes. In open source companies, feedback cycles are both shorter and span the full lifecycle of product development, beginning way before a feature is even released. Community members up-vote and down-vote feature requests. Users can easily suggest and build prototypes of fully fledged new features. Finally, when companies have need infrastructure or functionality customization, they are able to access the codebase and implement them easily.

4. Distribution

An obvious benefit of the open source business model is the low cost to experiment with software and the enablement of PLG, but this is also shared with any freemium products. An undervalued aspect on the distribution side is the viral effects of contributors who become champions of the project and software themselves — often influential developers or community members in their own right.

5. Data Privacy & Security

The data privacy aspect that gets quoted the most is really a conflation of self-hosted/on-prem software with open source. Cloud hosted and closed source software can be run on-prem, and/or on private clouds with stipulated localizations of data… This is all slowly converging, but for the time being, open source has an advantage.

As for security, open source NOT being secure is a major topic for another time (even the white house is discussing). The biggest threats are in regards to non-maintained or fully FOSS projects… Open source software backed by companies should not be any riskier than closed source software. Instead, transparency enables their codebases to be reviewed by anyone. This is partially the reason why Signal, the open source and private messenger system, is so popular within the security community.

Open source is also good for the world

Open source isn’t just a good model for commercial companies, but it is also good for the world.

Better for the 🌎 technically
🔹 Open source reduces redundancy and the need for the same code to be written twice across companies and organizations
🔹 The transparency reduces the noise of marketing and hype and allows greater insight for technical practitioners to determine what is truly the best next-gen approach or solution to a major problem
🔹 The transparency enables faster global iterations of innovation, e.g. if we can all see the underlying codebase of what is SOTA, we will more quickly be able to iterate on it as a society
🔹 Open source reduces barriers to innovation, a smart person interested in a topic can contribute at any time, you don’t need geographies or companies to bring these people together, they are brought together by their interest and ability to contribute to a topic

Better for the 🌎 socially
🔹 As someone who has lived between the US and Serbia, I have always been struck by the differences in access to SOTA technology across the world — open source enables thousands of students, researches, non-profit organizations, or even companies in the developing world to use the most cutting edge technologies as they are invented
🔹 It is also a powerful tool for learning and democratizing knowledge, anyone can study and learn from these systems, they aren’t hidden in the ivory towers of top tech companies
🔹 Open source supports social mobility and reduces frictions imposed by borders and others social barriers. Anyone from anywhere can start contributing to open source technology, create a reputation based on their merit, and secure employment and an economic livelihood

What is new in this wave?

The Open Source Challenger Landscape 2021

Note: the above landscape is certainly not a comprehensive overview of all top open source companies today (a list of ~200–300 top OSS companies is separately maintained, and NEA has partnered with many of them). Instead, I am highlighting the emergence of open source companies that directly challenge existing and well known incumbents in categories that have traditionally been closed source vs. open source.

A. OSS takes over the application layer

Going very early back in open source history, there really weren’t that many open source application-layer companies, with the notable exception of a few players such as Automattic (raised a couple months ago at a ~7.5B valuation) with Wordpress.

I surmise that there are a couple different reasons for this:

  • Distribution: non-technical end-users of applications usually aren’t developers. They simply don’t care about open source in and of itself, reducing the virality and PLG benefits.
  • Product: UI and UX design has traditionally been difficult to solve and work on in open, distributed and decentralized way within open source communities.

Clearly, something has changed. At NEA, we have been early backers of several highly successful open source application layer companies, including Rocket.Chat and Metabase. In the last 2–3 years, a wild number of open source companies have emerged across a much wider range of categories. So, what gives?

The distribution component can be outweighed by the composability and extensibility of open source. Closed-source application companies are all now trying to become broader *platforms* for developers to build applications and plug-ins on top of, Slack, Notion, and Calendly, are all moving in this direction. However, it is much easier to get traction with developers if you are open source. Further, many open source-first companies are simply good at marketing to developers, documenting their codebases, and designing interfaces that are ergonomic and intuitive for developers…

Many players also position themselves or operate in categories that are more adjacent to or used by developers. For example, chat platforms like Rocket.chat or business intelligence analytics platforms like Metabase. Similarly, cal.com pitches becoming the “stripe for time”, essentially the infrastructure component for anything that involves scheduling in an embedded application. Meanwhile NocoDB, the Airtable challenger, is arguably in a bit of a hybrid category, intended both as an application, but also by developers as well…

There are interesting innovation on the UI/UX side, I have seen top OSS companies create dedicated slack channels for #creatives and design. I have seen top OSS companies circulating figma designs for commentary, suggestions and input. Communities like Open Source Design (link) should certainly help. Also, as UX and UI becomes more code driven, componentized and collaborative (think storybook), I think this chasm will be reduced as well.

B. The end of closed source software categories

Many of these new challengers are competing in categories where leading closed source companies are still nascent themselves, young, private, growing fast and hyped in the valley 😅

For example, Retool, a closed source framework for the development of internal company tools, was only founded in 2017. By most measures, it appears to be doing quite well, and just raised a Series C round last month. However, there are already three different open source challengers, all with VC funding and decent community traction.

This shouldn’t be surprising, it is a huge category and particularly well-suited due to proximity to developers and the modular nature of the product. As a category, it should also eventually be somewhat comparable to componentized web front-ends (e.g. storybook), of which there are millions and all are open source. Ofc, this is just for internal company tools vs. external websites, but that is still a large category…

I think this is both a reflection of the heated state of the venture market and the competitiveness of tech more broadly, but also that the benefits of open source are increasingly understood and discerningly leveraged. I am excited to see how this unfolds and to continue to partner with the boldest and best companies in the process!

If you have any thoughts, comments, corrections, or would just like to discuss open source and related topics, please feel free to reach out! You can find me at @rajko_rad

Glossary
OSS — Open source software
SOTA — State of the art
PLG — Product-led growth

References
[1] The COSS $100M+ revenue company index by OSS Capital (oss.cash)
[2] Community-Led Growth: The PLG Expansion Pack by Corinne Riley (link)
[3] A New License to Future Proof the Commoditization of Data Integration (link)
[4] Orbit evangelized and enables identifying open source champions (link)
[5] White House hosts tech summit to discuss open-source security after Log4j (link)
[6] Automattic Announces $288 Million Funding Round (link)
[7] How Do the Open Source Communities Address Usability and UX Issues?: An Exploratory Study, 2018 (link)
[8] Raising less money at lower valuations, Retool(link)

Acknowledgements
Thanks for some of the original inspiration on these topics:
[ ] tweet by Chad Whitacre from Sentry
[ ] tweet by Astasia Myers
[ ] all the inputs and help on this thread started by Houssein Djirdeh

Thanks to Myric Lehner (Data Engineer @ openigloo) and Majda Radovanovic (IB @ Citi and my sister) for reading an advance copy of this post!

Update: Runa Capital has launched a cool Github repo called Awesome OSS Alternatives, check it out for an updated landscape over time!

This post and the information presented are intended for informational purposes only. The views expressed herein are the author’s alone and do not constitute an offer to sell, or a recommendation to purchase, or a solicitation of an offer to buy, any security, nor a recommendation for any investment product or service. While certain information contained herein has been obtained from sources believed to be reliable, neither the author nor any of his employers or their affiliates have independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author and all employers and their affiliated persons assume no liability for this information and no obligation to update the information or analysis contained herein in the future. (I have copied the disclaimer used by Jamin Ball in his great newsletter Clouded Judgment)

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Data, infra & OSS; Support great teams @NEA | Ex @BCG | @Harvard Ec/CS

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Rajko Radovanović

Rajko Radovanović

Data, infra & OSS; Support great teams @NEA | Ex @BCG | @Harvard Ec/CS