Intro

Mike Schwartz: Hello and welcome to Open Source Underdogs. I’m your host, Mike Schwartz, and this is episode 46 with Joe Duffy, Founder and CEO of Pulumi.

Pulumi is a platform that lets organizations manage infrastructure in the cloud of their choice, using the coding platform of their choice. It’s delivered as either a cloud service or a software. Joe’s doing a fantastic job executing the Pulumi business plan. No point spoiling the show for you – let’s just dive right in. Joe, thank you so much for joining the podcast today.

Joe Duffy: Hey, Mike. I’m glad to be here, thanks for having me.

Pulumi Products

Mike Schwartz: In one of your past interviews, you described Pulumi as the name of the band, the name of the album, and the name of the song. We’ll take more into the business later, but can you describe the current Pulumi product offerings or maybe I should say super powers?

Joe Duffy: Yes, superpowers, yes. We just launched that sort of as a new marketing theme for ourselves. We started Pulumi because we really have this belief that everybody should be able to leverage the full capabilities of the cloud. The cloud is kind of changing everything about how we build software, and yet, we found that for most developers, the cloud was still sort of an afterthought, which harkens back to the days of virtual machines and N-tier applications.

And on the other side, we found infrastructure teams that are, well, frankly using not-so-great tools, and really what we thought what Pulumi is, “Hey, we can bring decades of programming language innovation, and great tools, and developer platforms, and apply that to the cloud infrastructure space, and really supercharge people’s ability to use the cloud in how they build software. We’re also breaking down some of these barriers between the different sides of the organization.

So that’s our focus, you know, open source was super important to us from day one. And we offer a SaaS for teams and Enterprises that are adopting that open source.

Seismic Changes In Programming From 2004 To Today?

Mike Schwartz: You started at Microsoft in 2004 as a developer and went on to lead teams as a director of engineering. Looking back, what are some of the most fundamental changes in software development that you’ve seen over the years, or what would utterly shock the 2004 Joe Duffy?

Joe Duffy: I think you know a lot has surprisingly remained the same, but the cloud really is the biggest change – it changes everything about what we can do. It’s incredible when I look back, I think at 2004 even, and I was a developer before that, but really back then, like multi-core, multiprocessor systems wasn’t even a thing. And I spent actually a good deal in 2000 working on that.

The fact that every piece of software is a distributed application now, every piece of software has access to infinitely scalable compute and data, and AI, machine learning – all of these capabilities are just an arm’s length away.

Whereas, back then, I mean, we couldn’t even dream of using anything close to those sorts of capabilities. And I think that’s partially why we started Pulumi – we were excited about supercharging people’s applications with those capabilities.

Insights From Microsoft?

Mike Schwartz: From a business perspective, what would you say are some of the most important things that you learned in your 12+ years at Microsoft, or what was most helpful to you to lead Pulumi?

Joe Duffy: It’s definitely interesting, I did not plan on being there that long. I was about to do my own startup before going to Microsoft, but I actually went in part because I knew it was kind of like an extended MBA program for how to build an Enterprise software company.

I think it sounds just, like seeing that sort of innovation at scale, seeing how you keep existing customers happy while still innovating and pushing the boundaries of what your platform can do was really fascinating to see that at Microsoft, and to see how you can effectively innovate and do research while you’re also doing product development. I think that’s a really key thing to be able to do.

Also, a lesson learned over the years was, it was really hard to figure out kind of like what business units actually made money, how did they make money, and how did the money get redistributed across the company. I spent a fair bit of time just reading the PNL breakdowns, and all the investor statements, and trying to figure out, okay, what’s actually making money.

And the funny thing is, there’s a lot of lost leaders in a company like that. In fact, a lot of the open-source investments, frankly, are sort of lost leaders for the real money-makers, used to be Windows, now it’s more Azure at Microsoft specifically. But you see the same pattern, you know, AWS, Google, Cloud, other major players in the cloud, where a lot of the developer tools are really just there to get you to use and pay for their computing storage, and that was an interesting thing to see from the inside at that scale.

Marketing

Mike Schwartz: Pulumi is still a relatively new venture. The marketing team is probably trying to catch up with a momentum of product and engineering – what have been some of the challenges with messaging and extremely complex IT offering?

Joe Duffy: Marketing has been the one part of the company that is constantly changing. I think the product – we’ve really had a very product-led approach in everything we do. The community is everything for us, and so, we lead with the community and everything we do. Even revenue, we only started focusing on last year, and we’re finding that a very inbound-oriented model with open source and SaaS, being a great combination, is working well for us.

So, the challenge really is, how do we find the right people – and that is, the people for which Pulumi is a great solution – and tell them the right story at the right time. Because you can’t be constantly changing your cloud platform every day, so there are particular times we need to find people.

I think that’s been a bit of a challenge. You know, in the early days, it’s probably very common, we tried to tell a more exciting sort of long-term story than the product truth. Especially with the open source, I think you got to get the product truth story nailed first. And we got a little ahead of ourselves. Thankfully, we course-corrected after talking to a lot of end-users. And frankly, I just got out there and went to as many conferences and talked to people as possible – that helped to hone that product truth messaging.

And then, over time, I think you got to be patient. You’ll get there for the longer-term messaging, and it’s important that people know what your DNA and what your company stands for. But even more important than that, on day one, especially with open source, is to understand, what does this product do, why do I care. Especially in the cloud space, where it’s like, there’s a new open-source project every week, if not more frequently than that. And it’s a lot to stay on top of.

Value Prop

Mike Schwartz: So, that leads into my next question, which is, what are the most important value propositions for your customers today?

Joe Duffy: Yeah. We started out thinking they were all technical, and it turns out actually the cultural sort of human component is turning to be important for us. I think the first is, our two main customers, are practitioners, are infrastructure teams, dealing with complexity.

Modern cloud transformation is complex. I mentioned it’s a difficult space to navigate, there’s so many options – many of them don’t work at scale. So, Pulumi, for them, helps them tame the complexity of modern cloud architectures, multi-cloud architectures, modern, even single-cloud but increasingly multi-cloud. So, on the infrastructure team, that’s the thing that’s really helping.

For developers, increasingly developers want to use the cloud in their software. They don’t want to go learn this completely foreign, frankly not as good toolchain. They’d rather just use the tools and techniques that they know and love, and really start incorporating the cloud more into their software. So, it’s great for them.

And then, if you look at the organization, it really helps those two sets of people collaborate and work together. And that’s the cultural part that’s actually fueling most of the growth within our existing customers.

Market Segmentation

Mike Schwartz: Do you segment the market at all? I heard in a previous interview, where you said at the time, you weren’t looking at vertical segmenting, but what about other ways, like size of customers, or how do you look at the market or break it down into something manageable or tackable?

Joe Duffy: This is something we’re learning over time. I think it’s naturally segmenting itself. We have an even spread of customers across SMB mid-market and Enterprise customers. And you know, the takeaway is, like, everybody’s doing cloud. So, everybody is a potential customer for us.

Honestly, running a company, it kind of makes it difficult sometimes to prioritize. The Enterprise needs are not always aligned with the community needs. And so, I think we’ve done a good job of balancing those. For example, we did SAML SSO identity integration very early on, which really was an enabler for us to add more Enterprise value-add features. So, we did a lot of the foundational work that helped us to cater to this broad spectrum.

I’ll also say, we see some verticals, just naturally emerging. And, again, they sort of fall along the same lines of what I was mentioning earlier. You know, folks that are doing modern cloud initiatives. And in certain industries, there’s more of that, like connected cars for example, we’ve got a number of customers in the connected cars vertical that we didn’t plan it that way, but it’s a great partnership with them.

I’d say that the number one thing though is, we listen to our customers, we listen to our community, and we try to let them take us where they need us to go.

Customer Interaction

Mike Schwartz: Interacting with different size customers can be a challenge. Large customers expect one level of support or integration and small customers another – have you seen a big delta there? Or, how do you manage the expectations for some of the larger customers who want more?

Joe Duffy: There’s definitely a very big difference in the engagement model. And I think for us, the key thing was community first for everything. So, we wanted to build a community, nurture the community, build a great community that has bodies or values and is a warm and welcoming place. And what that’s led to is, the community helps the community. And that helps actually, I mentioned this inbound model, where we’re really focusing on open source plus SaaS.

Our goal is that people can get up and running without needing a human to intervene, like they don’t actually need to talk to a sales person. They can download the open-source to get up and running very quickly. People tell us that getting and starting flow is one of the easiest they’ve ever experienced, and we spent a lot of time making sure that was the case.

We’ve got a community Slack, where literally thousands of people are helping each other, and the whole team is encouraged to participate. And so, that takes care of sort of that inbound transactional sort of customer and actually frees up our internal folks on customer pre-sales engineering and post-sales engineering, along with our sales force, to really focus more on those higher target accounts that do want a little bit more white glove service, might want to do a proof of concept, might want some more training and advice as part of the evaluation.

Monetization

Mike Schwartz: Let’s talk a little bit about monetization. Previously, I guess, you had a consumption-based model, where you were pricing based on number of services, but you’ve moved to a per developer pricing model. I’m actually curious, why didn’t the consumption-based approach work?

Joe Duffy: We thought long and hard about this, and we started designing the system so that the open source and SaaS work naturally with one another. So, we have a very high attach rate for people who download the open source. 80% of the people that do that actually use our SaaS, which is great, we have a free tier as well for unlimited individual use. And so, it’s only when you get to a team that you start paying, or Enterprise.

We invented this concept, basically pay-per-project was the previous model. What we found was a few things. And honestly, our hearts were in the right place. We really avoided per user for as long as we could because we want the whole organization to be able to use it freely, we don’t want to stop growing within a group, land and expand is important. But what we found with per project is, no two projects are alike.

Especially in a world of microservices, it’s very common to have mega-projects sitting alongside thousands of little tiny projects. And we didn’t want folks to feel like their architectures were influenced by the pricing model. That felt like an anti-pattern to us, and that was sort of some of the feedback we got on that pricing model.

Although we really did want it to be, “Hey, you pay for what you use.”, and the idea was, “Hey, if you’re using more, you’re seeing more success, and so, you would expect to be paying more.” Per user was just easier for people to model out, easier for people to kind of gauge how much they expect to be spending today versus tomorrow. And frankly, it’s just a familiar model for anybody who’s using a lot of other SaaS products that our customers are using, whether that’s PagerDuty, or Gitlab, or GitHub, or a lot of those other sorts of systems.

I’m not saying per user is perfect, it certainly isn’t, but it’s kind of the least bad that we found today.

SaaS V. Software Revenue

Mike Schwartz: Is most of the revenue from the SaaS platform or from the Enterprise software product?

Joe Duffy: It’s actually a good breakdown, you know. Honestly, it’s about 50/50. Now, it’s importantly, our Enterprise product is actually sold as a SaaS, as an option. So, you can either run, you can use the SaaS as the online hosted version, or you can use a self-host, on-premise version of that.

I’ve been pleasantly surprised at how many people are willing to use the online SaaS because the COGS for us to deliver that service are just so much lower than having to do on-prem support, and installation, and upgrades. And I think my takeaway there is, people now, even more so than even two, or three, or especially five years ago, they are used to depending on cloud services, whether that’s GitHub, or AWS itself, or pick your favorite SaaS.

I think these organizations are getting more comfortable with that sort of dependency. We also architected the system, so that you don’t need to share PII, or Cloud credentials, or anything like that with our SaaS. So, when we go through a security review with one of these Enterprises, they almost always walk away comfortable with where we’ve drawn those boundaries.

Single Versus Multi-Tenant

Mike Schwartz: In your SaaS offering, would you say it’s a single-tenant design, where, each customer has their own sort of database and infrastructure, or is it a shared multi-tenant type of platform?

Joe Duffy: It’s primarily multi-tenant. There are some resources that are per organization, things like, we have a Secrets Management element to the product, and each organization gets their own dedicated hardware encryption key for example. But for the most part, it’s a multi-tenant architecture, unless you use the self-host version, in which case, it doesn’t talk to any shared resources, it can run entirely behind your firewall, it never phones home, so kind of have those two basic models.

Is Pulumi Open Core?

Mike Schwartz: Would you say that Pulumi is open core?

Joe Duffy: I don’t say that, and although some people tell me I shouldn’t be so pedantic on this point because it’s a familiar model to people, but we don’t hold things back from the open-source platform. So, the way I see it is, the entire Pulumi platform is open source.

So, you can use Pulumi entirely offline, and you’re not missing out on any features that are in the platform itself. It’s just that we have a SaaS product that you can choose to use. And that service itself is not open source. So, it’s almost like sort of GitHub. GitHub, you get the Git tool, Git is 100% open source. And then, you’ve got GitHub, and GitHub is a SaaS that you can choose to use or not when you’re using Git, often it’s the easiest way to go.

But that thing is not actually open source. So, that’s the model that we have adopted, where the SaaS, and importantly, the SaaS provides value. And that’s the other thing, where I kind of have some qualms about, where we’re not artificially hampering your experience. The SaaS is there, and you might pay for it because it actually provides significant value that’s worth the money. It’s not that you’re forced to pay for it. So, that’s I think a key distinction as well.

Has Open Source Materially Helped The Business

Mike Schwartz: SaaS provides a lot of the features of a try by fly. So, has open-sourcing really materially helped the business?

Joe Duffy: Yes. I would say especially in the space that we’re in. And I think it would be different for different SaaS products. Like, if you look at PagerDuty, there was something where everything is about the SaaS, and there might be some ancillary tools around it – we’re sort of the inverse of that.

I think it’s table stakes for our space, for developers to change the way they’re writing code, for infrastructure teams to bet their whole organization on this – they need to have something where they have confidence that they’re always in the driver’s seat. And if they need to take things and go, they can do that. So, that was important to us.

The community I mentioned, everything is about community for us. Because of the bet on real programming languages that we made, we allow people to share and reuse packages and contribute to the ecosystem – we have tons of extensibility points. So, if you want to — we’ve had community members bring up, integration with Datadog for example, great, you can do that sort of extension.

If you want to integrate with Spinnaker – we just did a Hackathon with Armory a couple weeks ago, where, if it wasn’t open source, that vibrant ecosystem around it just would have never come to be, and that is essential not only today for how we scale the business, but the long-term sustainability and differentiation of the company itself in large part depends on that.

Foundation?

Mike Schwartz: I was reading today about Google, looking at different foundations, where they might contribute Estio. And I’m wondering, when you have an open-source product, and you’re also hosting it, it’s sort of like enlightened despotism. You know, you’re controlling the roadmap, and you’re making the code open source, but that could always change. We’ve seen a change in some companies.

What are your thoughts about a long-term – does Pulumi ever move to a different governance model, where the roadmap almost becomes part of the community too?

Joe Duffy: I think, never say never. It’s not something that we’re looking at now. I would say if the community takes us in that direction and it’s important to the community, we would definitely go in that direction.

There are a few things. Like, one, we are open in our planning process, we are open with our roadmaps, we are very community-oriented, and how we do all of that. And so, I think, because of that, our end-users feel like they’re part of that process, probably even more so than if it was in a foundation, frankly.

Because a lot of times, in foundations, there are special interests. They’re just not as visible. I think Google definitely has some influence in the CNCF, and so, it’s not a bad thing. You kind of have sponsors, you can have people in the driver’s seat, but I’m just saying it’s not, like, in one model you have no influence, in the other model you do have corporate influence – in all the models you have that level of influence. And I think, really, our community trusts us, and our task now is to make sure we preserve that trust and nurture that trust.

But if there are strategic alignment in projects, I think we would be more interested in partnering up with a foundation. But it’s not something that’s on the immediate radar.

Team

Mike Schwartz: Switching tracks a little bit, is most of the team in Seattle?

Joe Duffy: Yeah, we’re about one-third distributed as far as Europe, East Coast, sort of all over the world, but the two-thirds of the team is here in Seattle.

Mike Schwartz: What are your thoughts about growing the team in the future?

Joe Duffy: The situation, at least at the time of the recording, with the Covid situation, we’re all getting really good at working remote. And that foundation of starting with a third of the team being remote, I think instilled a lot of the foundation we needed to be successful in this new environment.

I wouldn’t say we’re actually suffering too much from it. And I think, if anything, it’s actually helped with our existing remote employees feel like they’re more included in the daily dialogue, we’ve introduced a lot of new practices.

So, in terms of growing the team in the future, I think we’re going to be a lot more flexible in terms of, I don’t know, if we’ll go 100% all remote, you know. I think some people have said they actually enjoy working with people in person, but I think we’re definitely going to be a lot more remote going forward.

And frankly, from here, most of our focus on growth is in the go-to-market side of things. We’re Series A- funded company, we’re looking to that Series B in the not-too-distant future. And really, as we start to build more scalable and repeatable go-to-market motions, we’re going to scale up marketing, we’re going to scale up sales, and so that’s really the focus for us, at least for the next 18 months.

Partnerships

Mike Schwartz: Are there partnerships right now that are critical to Pulumi as business model?

Joe Duffy: I would say all partnerships have been essential. And we’ve done a fair bit of partnering. And that’s an area that, as we look to repeatability, I think one of the challenges is, sometimes I say, “Hey, we’re really good at standing on the top of our own roof, shouting into a megaphone in our own neighborhood, like writing blog posts and tweeting to our existing followers, and nurturing our existing users and helping them be successful – you got to do that. That’s super important.

But what we’re starting to get better at now is leveraging those partnerships to, you know, get into adjacent channels, where there’s actually natural synergy between them. I think that it’s a tough thing to do, you got to nurture those relationships over the long term, but then, some of them start to pay off.

So, the major cloud providers have been great partners with us, but we’ve intentionally built our system to integrate with a lot of other systems, whether those are source control systems, CICD systems, cloud infrastructure providers – in each one of those is a partnership opportunity that we’re just now starting to learn how to leverage to basically grow top of the funnel, while also giving customers a more complete solution because each of these is just really one piece of the puzzle.

Pandemic Impact On Open Source

Mike Schwartz: As you mentioned, we’re recording this episode in April 2020, in the midst of this unprecedented global pandemic. Is there a scenario where the new world that’s emerging will somehow be more fruitful for open-source startups?

Joe Duffy: I think we’re learning to flex a bunch of new muscles, especially when it comes to marketing, more online digital campaigns, events were huge for us in the past. And I think in open-source generally, QCon, it’s great to connect with your colleagues and learn what they’re up to, see how you can incorporate their ideas into what you’re doing. 

DevOpsDays, a great conference that’s very open source oriented, that I personally went to almost a dozen of them last year – those things aren’t happening now. They’re all moving online, and I’ll say it’s a little bit of a stark contrast. It’s not quite the same watercooler kind of informal conversation, it’s kind of hard to have these large group settings, connecting over Zoom, where it’s 30 people on a screen, taking turns, talking to each other.

I think we’re going to invent tools, we’re going to invent new ways of basically moving that conversation online. I think we’re going to come out much better afterwards in that dimension. And that will benefit marketing, that will benefit open source because open source really is about that community dialogue. So, yeah, I think we’ll come out stronger afterwards.

Advice For Open Source Entrepreneurs

Mike Schwartz: Any advice for new entrepreneurs who are launching a business with open source as part of their business model?

Joe Duffy: I would say, we thought long and hard about the monetization strategy. I think the temptation is to launch the open-source project as soon as possible. And frankly, that is a good strategy, you always want to get out there sooner, so you can start getting that sort of virtuous cycle of customer feedback and community building. But it’s really tough to get in a situation where you’ve launched an open-source project is growing vibrantly, but you have no idea how to monetize.

For me, I wanted to build a product company, I didn’t want to build a services organization. That’s a very different playbook. It’s low-margin, lots of people, very expensive to get to scale. You really want to focus on selling product. And if you’re going to do that, it requires really thinking deeply about where that boundary is between what’s free and what something people would pay for.

And my advice is, the thing that people pay for has to be something of value that they want to pay for. You can’t trick somebody into paying for something – it really needs to be valued. And that means you can’t necessarily open source 100% of your value.

Closing

Mike Schwartz: Joe, thank you so much for sharing all these insights today, and thanks for your time.

Joe Duffy: Thanks, Mike. I had a good time. I appreciate the chat.

Mike Schwartz: Special thanks to the Pulumi team for wrangling Joe onto the podcast. Editing by Ines Cetenji. Transcription by Marina Andjelkovic. Cool graphics by Kamal Bhattacharjee. Music from Broke For Free, Chris Zabriskie and Lee Rosevere. The podcast. Our Twitter handle is @fosspodcast.

Next episode we talk to Tracy Miranda, Director of Open Source community at CloudBees, the company is behind Jenkins. Stay safe everyone. Until next time, thanks for listening.