Michael Howard is the CEO of MariaDB, one of the fastest growing open source database platforms in the world. MariaDB powers applications at companies like Google, Wikipedia, Verizon, Deutsche Bank, Telefónica and more. In this episode, Michael describes how the “Business Source License” enables MariaDB to monetize software and reap the benefits of an open source community and development methodology.

Transcript

Introduction

Michael Schwartz: Welcome to Open Source Underdogs, the podcast where we bring you the wisdom of open source business leaders.

Today my guest is Michael Howard, the CEO of MariaDB Corporation, the company behind the fastest-growing open source database in the world.

MariaDB is used by more than 12 million developers worldwide and is the database of choice to power applications at companies like HP, ServiceNow, and Wikipedia.

Michael, thank you for taking the time to join us today.

Michael Howard: You’re welcome.

Michael Schwartz: Why don’t we start the podcast with just a brief introduction of how you happen to join MariaDB and maybe a little history about MariaDB.

MariaDB History

Michael Howard: So MySQL was named after Monty Widenius’s daughter.

Her name was My, something like that in Finnish or Swedish. And Maria is his second daughter. So that’s the naming convention here, it is through Monty’s daughters. And as a result of course, the group of engineers that build MySQL and MariaDB are very attached to their family.

And when MySQL was initially bought by Sun, and then ultimately segwayed through to Oracle, there was a rift in the family. And in about 2009 there was a fork of the MySQL project and that fork became MariaDB.

And then some years later in 2013 MariaDB amalgamated, or put together, all the different aspects of the programming group the foundation, a support organization called SkySQL and in late 2013 that’s the MariaDB Corporation as you know it now.

Michael Schwartz: How did Michael Howard end up joining MariaDB?

Michael Howard: Michael Howard in the late, all through the 90s and late 90s was a disbeliever of MySQL and anything open source.

So that’s the origin of my story, in that, I could never imagine a group of programmers building a general-purpose database that would be able to tolerate an accommodate and support the primary functions of a business.

And I truly believed that the only way that that could be done is assembling very straightforward proprietary approach and let’s say it, my PhD thesis of that came when I joined Oracle in the 90s, and that’s what I believed.

But then as the world changed, and this is after 2000, you could see that the world was dividing. There were a couple of important signs of that and that was the Hadoop or HTFS world coming to play. It was the NoSQL databases coming into play starting with the caching layer.

And my view changed along with that new ark of software. So I knew the guys at MySQL and MariaDB for many years, didn’t think that they could bring themselves forward into true OLTP enterprise fortitude workloads.

But the world has changed. And I changed with it.

Michael Schwartz: OLTP – Online Transaction Processing?

Michael Howard: Yeah, you got it. Should have said that, but yes.

Customers

Michael Schwartz: So tell me a little bit about today. Who are the customers of MariaDB?

Michael Howard: Almost every company in the world now is touching MariaDB in some kind of way, in that we have displaced MySQL as the viable default relational database in all the Linux distributions. So even mom-and-pop shops that use Linux automatically have access to MariaDB, we have an addition that goes in those Linux distributions.

Somewhere between 12 and 60 million customers are touching MariaDB today through this unique distribution. And this is by the way one of the unique things about open source, that your ability to propagate and touch people across the world is enormous.

But that’s how it’s happening with the Linux distributions, and so to with the clouds in that, since it’s a default mechanism in Linux suddenly becomes a default mechanism in many clouds.

So we span from small shops that you’ve never heard of to the Fortune 10. You could look at things like AT&T, Verizon, Barclays, New York Mellon Bank, Development Bank of Singapore, Alibaba, ServiceNow, I mean it just goes from the most consequential companies in the world, even running airports. It’s quite remarkable.

80/20 Rule For Customers

Michael Schwartz: Just to drill down a little bit. Is there an 80/20 rule? Who are the most important customers in terms of Revenue?

Michael Howard: That’s a matter of opinion, how you do the 80/20 on that.

Because one of the problems that, let’s say the Hadoop family has via Cloudera or Hortonworks, is that Hadoop has become kind of part of the 1%, not big part of the 99%. And for me coming from proprietary areas you don’t want to relegate a company like MariaDB to the top 1% or 10%.

Therefore saying that your top 10% or biggest customers are the most important because here we want, and I’m going to use the word extremely, an extremely well-rounded business model.

So for example, in our world about 40% of our transactions on a quarterly basis comes from mom-and-pop shops. They don’t really think too hard about databases, but they kind of go with what’s easy for them to include as part of their environment. Then there’s another 40 odd percent where they’re making more strategic decisions but it’s still appended to a mentality of, for example replacing MySQL.

And then if we use those percentages there, there’s another 10 to 15% which is big time, and literally replacing out the likes of DB2, SQL server or Oracle itself.

And so I guess you could apply the 80/20 rule in each of those categories, or sale segmentations. But you couldn’t come up with an 80/20 rule across the board.

So there is sale segmentation, if you look at our documentation for example, it’s free. So anybody who doesn’t have a support contract can use a magnificent amount of content. But if someone has a production application and they need some sort of identification that’s a different level of interaction with the company.

We can’t talk to all customers, it’s impossible. It’s a challenge that cannot be overcome by people. If you look at it from let’s say, a business perspective like margins and productivity per person, there has to be more automation.

There has to be more automation in terms of buying contracts or buying things through eCommerce.

We even have to have easier ways where people can instantiate and test out new features instead of going it on their own, so we’ll do some things in the cloud to facilitate that.

So there’s many levels of interaction that must take place. But I think what we need to do to improve, really big time, I mean we have some major steps to make to be able to handle the numbers that we’re talking about, and we’re not doing that right now.

You know you look at some of the big players like Amazon or Netflix or whatever, they are doing it. So that’s the funny thing we’re a small company, under 200 people but we have the same level of interactions as the cloud platforms do.

Because, and sometimes even more, because MariaDB is on all those clouds. It’s a fixture there, so it kind of gets multiplied many times.

Revenues

Michael Schwartz: What are the most important revenue streams? Is it license? Is it support?

Michael Howard: Well for me coming from the proprietary world and the SaaS cloud, I’m very formalistic about this.

So the most important from a just formalistic point of view is ARR, Annual Recurring Revenue, on a quarterly basis the amount of new annual contract revenue.

Things like TCV which is equivalent to bookings are less important to me, more important for let’s say my CFO who wants to make sure we have a certain amount of cash in our bank accounts.

So the most important thing is ARR, that’s the first level. Second level is what does that ARR constitute.

And again coming from where I came from, where the multipliers on services and manpower support is not as powerful, not as valuable to, let’s say listing the product at NASDAQ or having some big liquidity event in the future, the most potent value is product; license on product.

And that becomes a very interesting and almost somewhat contradictory or paradoxical conversation when it regards open source. So our subscriptions are the most important part, and those subscriptions come with many facets.

It comes with technology that cannot be procured or accessed in a general sense by just the Community Edition.

We save some stuff that’s private. It may or may not be licensed under something that we came up with which we believe in, very much not only for MariaDB, but for open source entrepreneurs world over, and that’s something called the business source license, which we should probably talk about.

So you have technology. You have things that are not necessarily available through the Community Edition. You have legal protections, I named one, in some cases limited indemnification issues come up in especially regulated industries for production applications.

Then of course you have the typical element which is, a typical element of open source which is support.

So that’s how we make money. Our revenue come solely from our subscriptions which has a spectrum of things in it to make it valuable.

Open Source Dilemma

Michael Schwartz: There’s a saying called the open source dilemma where customers only renew support contracts when they need help, when they have problems. How do you get customers to renew and retain them to get that revenue to be actually recurring?

Michael Howard: Right, there’s a… It’s an interesting topic because the good and the bad of open source is that it compels the engineer or the firm to build new things. So for example, in our latest release we have temporal processing, inversion tables, very sophisticated ways of supporting governance applications.

This is a very very, it’s a multi-dimensional data object, being able to be joined with a million other multidimensional data objects, the math is extraordinary; be able to do that in an optimized way.

When you put out features like that and you continually do so, you will compel, behoove, motivate very easily customers to continue with their contracts. So the virtuous cycle is inherent in your ability to innovate.

Channel

Michael Schwartz: Changing topics a little bit. Are there Partners who help you get MariaDB out there, or that you rely on for success? What is the channel?

Michael Howard: We do have channel partners but it’s not as mature as, let’s say older firms.

I think we’re just at the very beginning of it. And channel partners can come from an enormous number of different areas, for example it could be a cloud vendor that is actually a channel partner, right. Being able to serve a certain constituency, as you put it, through their Cloud. It could be your typical channel partner that has some kind of ecosystem, could be that.

The one that comes to mind, just kind of new, both I think for the world and for us is you take something like ServiceNow, where they’re serving 40% of the Fortune 2000. And many of those companies don’t even know that MariaDB is the engine behind every single workflow that is going on in those companies, which is quite extraordinary.

But in some cases they need to have on-prem support from us and so suddenly you have the world of cloud interacting with the world of on-premise and that becomes a channel play that you would have never envisioned before.

Value Prop

Michael Schwartz: Why do people use MariaDB?

Michael Howard: I’ll give you an example.

Let’s say you’re a big company and have a huge server farm, and you want to start looking into ARM as your chip bases. You’re not going to be able to use a process space database on an ARM chip, it just won’t be economical.

Maria happens to be thread-based and the pooling resources for threads on ARM is as good as typical non-ARM chips.

So it could be that you are trying to have more compact space for your server farms, less real estate, less use of electricity, less heat. It could be that you realize after 20 years that you’re paying 60 times more than you should for basic SQL standards.

It could be that the basic philosophy of the company that you’re using is so out of touch with what a modern system is that you want to move forward with your own stack.

There’s an extraordinary number of reasons.

I mean the the primary one is that when you go into MariaDB you’re not only partnering with one of the best engineering firms in the world. You’re partnering with other great engineering firms in the world that are contributing to the MariaDB kernel. And you know that MariaDB will never be out of touch because of the extraordinary open source community that is contributing to it and there is no equivalent.

At Oracle everything goes through Larry; he is the Editor in Chief of Oracle.

Here you have a much more diverse set of curators.

MariaDB Foundation

Michael Schwartz: One of the things I wanted to ask you about was the MariaDB Foundation. It’s the ideal of a lot of Open Source projects.

Maybe you could talk a little bit about how that came about and what their role is.

Michael Howard: So the way I look at the foundation is they are the steward of the project’s repository. And they are the ones that teach people how to contribute to that repository.

Allowing freedom and equality for creativity, innovation through code, persisted in repository that is formalized under the foundation. And they’re advocacy to developers to help with that, their outreach to Linux distros. That’s the kernel of what they do.

Michael Schwartz: Where’s the line between the company and the foundation in terms of a decisions?

Michael Howard: Well I mean, there are simple lines, I’ll start with the simple ones.

They don’t do any support, you can’t go to the foundation and say I have a problem with something or bug, they won’t, they don’t have anything to do with that. That’s where the corporation comes in.

If there is a hot patch that needs to be applied because of a security issue, they’re not, they don’t act in that manner, they don’t respond that way; the corporation can.

Obviously you can’t get any legal privileges through the foundation. Let’s say you have a big idea that you want to put into the project, but it’s maybe a little bit over your head to really do it in the right way. You know just because there’s an open repository doesn’t mean that you can willy-nilly put something in there that’s mediocre.

But there are certain projects, I’ll give you an example: The Development Bank of Singapore wanted MariaDB to have a PL/SQL Oracle compatibility layer. That’s an extraordinary difficult project and could never be done themselves. And that’s when you enlist, for example, our engineers in the corporation.

Foundation Feelings

Michael Schwartz: So not to put you on the spot..

Michael Howard: You have so many times already!

Michael Schwartz: But nonprofits always involve politics and so how do you feel about how has it gone?

Michael Howard: I think it has pros and cons. I don’t think it’s a clean deal by any means.

I think that when you have independent entities they each have their own egos and they each have their own aspirations to spread their own wings. You know it’s just like when two people are discussing a subject, each one of them kind of wants to have their opinion supersede the other.

So it’s part of humanity to have that innate conflict but also innate need to work together.

Business Source License

Michael Schwartz: You mentioned license before, and I didn’t want to make this podcast a deep dive on license because you could probably do a podcast by itself just on the licensing part. But you did mention the business source license.

Maybe you could talk a little bit about what is the business source license and how does it relate to the other licenses perhaps at some of the other products or offerings come under?

Michael Howard: I’m going to start in a strange fashion on this narrative and that is: When I announced business source license I should’ve had a set of security guards from the open source community. I wasn’t sure what might happen to me.

Because it was disagreeable to them in some emotional ways in that, there are a lot of people out there that are pure open source zealots, and it’s an ideology like any political or kind of religion that can get the best of certain people.

But I felt that the company needed to be able to have as much financial resources as possible to make our products great.

And since we were stepping into the enterprise zone, which meant that we had to simulate or actually replicate many things that SQL Server via Microsoft or Oracle through Oracle does for their customers. And financial resources are extremely important to do that. And database features as you know, it’s not like a SaaS application.

Sometimes it takes many years to build one feature and those people are dedicated, like the version tables in the temporal processing that I mentioned, that was a very difficult feature, it took us years.

So how do you reconcile the world of free and the world of financial resources? How does an entrepreneur like yourself go to a VC and expect any funding if there is no business model. And at the same time if your whole company pivots off open source, again how do you do this?

After some deep thought the business source license seemed to be the best balance that I could find.

And what it is, is essentially very simply postponed open source. You get one of our products that uses the business source license, and for a certain set of time that particular version you pay for.

But at a certain point in time let’s say 36 months later it becomes open source. You can self support, you can do anything you want to it, and you’re not dependent on the corporation.

So it’s just trying to bootstrap product so it can meet the expectations, especially when these expectations have been built over 20 years with many billions of dollars.

Michael Schwartz: Sort of like a patent that expires, maybe.

Michael Howard: Yeah. That expires, that’s a good one.

Except I guess the deviation would be that even though the patent in this case is on for that amount of time, you can look at the code, it’s completely transparent just like open source.

Go to repository, our repository, it’s on GitHub, look at branch, you see it, you can contribute to it, you can do all those things. There’s even certain times when the license says you can use it for free, you know that kind of thing.

But, if you going to into like a production mode, and this is the case with a MaxScale, our database proxy. If you have many nodes that you’re serving with this proxy – you got to pay for it at some point. But that version will under the file name go GPL at a specific date.

License Enforcement

Michael Schwartz: What are your thoughts on enforcement? Is it on the honor system?

Michael Howard: So, right now it’s honor system. I think we’ll have to do some kind of home calls at some point and identifiers.

So there are times when certain customers try to take advantage. Where they’ll buy let’s say one or two copies of the paid version, but really the problem is emanating from thousands of free things that they’re using.

So right now it’s the honor system. There’s been some transgressions that I’ve seen. And of course the bigger the company you go to the less transgressions there happens to be. It’s more in the lower end where I see abuse.

Advice To Startups

Michael Schwartz: Any advice for entrepreneurs who are starting, who want to use open source as part of their business?

Michael Howard: So my advice is: It depends on what part of the stack you are.

So if you are in infrastructure you have no choice but to be somewhat commodity based or open source based. I don’t really believe that security for example has to be open source.

I see, you know I have a little security background. So listening to you, there was no reason to make, let’s say FireEye, open source. Just no reason, no one would expect it.

I think it’s interesting that you guys have gone in that area a little bit but the key management systems that I work with I never expect them to be open source.

On the SaaS level, you know you have one interesting juxtaposition between SugarCRM in Salesforce right. Has Sugar really gotten major benefit from its open source disposition?

You know I think what’s happened is the proprietary vendors have milked the industry so badly, that the time came when that practice had to stop. And MariaDB is sort of a symbol of that arrest.

Michael Schwartz: If you’re an entrepreneur, you’re saying if it’s infrastructure you should go open source.

Infrastructure & Open Source

Michael Howard: You don’t have a choice anymore.

Michael Schwartz: You have to, okay, that’s interesting.

Michael Howard: You really don’t. I mean you know, you have Intel maybe coming up with a chipset that’s not open source or their 3D XPoint, you know, that’s not open source.

But if you look at, you know let’s say a no more commodity-based analogs to that; they’re going to end up winning. I mean Intel will lose again because they’re charging too much.

So infrastructure I don’t think there’s a choice.

Funding

Michael Schwartz: Any thoughts about how do you stay true to the open source mission that maybe has helped build the culture around the company, and still fund the company, or build a business?

Michael Howard: Well, I think you see with very few exceptions VC’s funding open source companies. I think the market has already made that decision.

I mean there’s just no comparison between the funding percentages for open source versus lets say closed. There’s just no comparison. So I think the decision has already been made.

So then the question is if you have an idea at store at a storage software level, let’s say, or a container, you have no choice to be open source.

So then there are two things that come to mind. One is, you have to employ something like business source license and that’s the only way you’re going to get funded when you are presenting to a venture capitalist.

You have to have some way of bootstrapping your company with some revenue, a support meal ticket just does not make sense from a margin perspective, or the multipliers that VC’s are expecting in a liquidity event. So it’s dead on arrival if you go that way.

So it’s very simple you can’t just go open source, you have to have a business model behind it that makes sense. There’s only a couple ways you can do that.

Michael Schwartz: Thank you so much Michael for sharing your wisdom and best of luck to MariaDB.

Michael Howard: And to you too at Gluu.

Michael Schwartz: Thank you.

Michael Howard: Alright, bye.

Michael Schwartz: That’s it for episode 3. Transcription and episode audio can be found on opensourceunderdogs.com

Special thanks to the Linux Journal for co-sponsoring this podcast, to The All Things Open Conference for helping us publicize the launch.

Music from Broke for Free, by Chris Zabriskie and Lee Rosevere.

Production assistance from Natalie Lowe. operational support from William Lowe. Thanks for the Staff of MariaDB for logistical support.

Next week we’ll talk to one of the youngest startups in our series – Ian Tien, CEO and Founder of Mattermost, one of the leading chat and communication platforms.

Until then, thanks for listening.

Jamie Thompson is the President of Netgate, the company behind the popular open source firewall project, pfSense. Both Jamie and her husband Jim, who is also featured on this episode, have spent the last 15+ years making secure, high-performance network connectivity tools available to the masses. In this episode, Jamie and Jim discuss bootstrapping their company and Netgate’s unique business model that involves monetizing hardware that implements their open source software.

Transcript

Michael Schwartz: Welcome back to open source underdogs, the podcast where we interview leaders from successful open source software companies and bring their stories to you.

Today my guests are Jamie and Jim Thompson, founders of Netgate, the company behind the popular open source firewall project pfSense which is over 1 million installations.

Jamie could you start by telling us a little about Netgate and your journey founding it?

Founder Story

Jaimie Thompson: Sure. Netgate is a open source network security company, both contribute to and utilize open source software and create products from those projects.

About me personally, I’m too old. I’m from Oklahoma originally. I was peak woman, there was a peak year for women in computer science and that was the year I graduated with a degree in computer science. And that was 1984, a long time ago. And I have a master’s degree in applied cognition and neuroscience which is essentially experimental psychology.

Worked as a software engineer. Early my career switched over to doing more of the sales engineering, worked for Sun Microsystems. I’ve worked for here in Austin a company called Tivoli Systems, which was ultimately went public in the 90s and got bought by IBM.

And I guess we started Netgate in about 2002 and I’ve been doing it ever since.

Jim Thompson: So Netgate was originally the name of a firewall that we’d done.

The first time we had an open source company called SmallWorks here in Austin that started with open-source I think my first open-source contribution was a port of new E-Maxx to a convex supercomputer in like 1987.

And there I went to Sun and that’s where I and Jamie met. Building out their worldwide network and got pretty involved in network security, that point I download the first set of proxies. Around 1989 or so I did that, because we had a need internally.

Once we started hooking up all the sales offices and remote facilities to this internal WAN and everybody wanted access to what we now know as the internet. It was really more ARPANET then. So I built a proxy so that people could get out and go fetch the latest version of the X11 system or something like that.

And that sort of, I saw that and saw people use it and sort of identified a need for actually agreeing to build a packet filter for the Sun Systems that was sort of the origination of the original Netgate packet filter or firewall.

Jamie Thompson: So when we started, Jim came up with this packet filtering firewall back in the early 1990s. And it was also open source but in kind of a different way – when you bought it from us, we gave you the source code so that you could analyze it and make sure that there weren’t any backdoors and you couldn’t sell it further on.

But you could certainly take it and analyze it internally, and in fact one of our early customers was Wells Fargo Bank. So we’ve kind of been dealing with network security and firewalls and took a detour through wireless for a decade. And have always been interested in and involved in network security and how do you create both privacy and security, both for companies and for individuals.

Customers

Michael Schwartz: Who are the customers of Netgate today?

Jamie Thompson: Well it’s really interesting, the software is very lightweight on providing any sort of feedback for us. It is open source, you can download it off the internet and run it.

You don’t have to sign up for anything, we don’t create any not paywall, but there’s no registration wall, to get the software. So we don’t always know who it is unless they are either asking us questions, either on the forum or in support or if they need some professional services or they want a private port or something like that.

So we’re we actually are learning more and more about who the customer base is at this time, but we have everything from individuals who are running it in their home labs, and then those people sometimes will take it into their companies.

And we also have a lot of government entities who run it. And then there’s actually in entire governments that run it, not the United States government but portions of it actually do, yeah. So it is used both inside the US and then other government entities around the world. Lots of individual, yeah, lots of S&B. There are some service providers who also use it.

It’s also integrated into some other products, so you’ll see people who’re providing some sort of service and they use our software either for the transport or for a firewalling, that sort of thing.

Product

Michael Schwartz: Is there software that people can buy? Or do individuals just download the open source?

Jamie Thompson: Well both. They actually can download it for free or we also take that software and we package it onto hardware.

So Netgate utilizes the project and creates a product from it. And then the product is packaged either with hardware or in the cloud and we sell support and services around that. So really how we’re…

Jim Thompson: Some part of that is system integration. You know, product test and release testing. that kind of thing. We test primarily on the things we sell.

So there is a lot of system integration or ports to get on new hardware, so we expend the effort to get on some of them and make that experience. You know really clean and easy. But then we have to maintain that going forward.

So we test and release in part just on what we sell, we make a generic version available to anyone. But the actual, if you will, hard work of making sure that things really work has to be done on some hardware platform.

This we have to focus on, we sell or cloud platforms, virtualization, that kind of thing.

Support Services

Michael Schwartz: Do you sell support services?

Jamie Thompson: Not everyone who purchases hardware from us gets a support contract or needs professional services, a lot of people already know how to use the software. It’s straightforward enough that they don’t need any extra work.

So like a lot of other companies out there, we can’t sustain the project on just support and services.

Jim Thompson: There are both large and small customers on the forum. US Army Cyber School we discovered on Reddit. Literally, one day. They were already a customer and they are user of pfSense. We didn’t know it because we have no way of testing them.

So again, it’s sort of across the entire range of customer types or segments of the market, if you will. We only know and work with people who have approached us.

Now, we know the approximate attach rate for people that we sell to versus how many instances of pfSense are turning up in the world. We can’t measure on a very granular, non-granular or scale that we see, more and more IP addresses if you will, looking for updates, or downloading additional functionality via packages, that kind of thing.

So we can see in approximation of the size of the installed base on any given month, and we know who we sold. And you know that ratio is about 1 and 20.

OEM

Michael Schwartz: Are there some companies who are OEMing the product?

Jamie Thompson: Well, there are companies that have taken it – it is open source, and so they can integrate that into their own product or in the cloud.

We have versions of the software available on the public Cloud so they can utilize it and in their businesses or integrated as part of their own software as a service product offering.

Partners

Michael Schwartz: How about channels? Do you mostly sell direct, or do you have any integration partners who help you reach customers?

Jamie Thompson: We have both a set of hardware resellers. So there are people who wanted to be involved with pfSense and especially in other countries, or in other languages we don’t have the ability to speak with them directly, we have ported the, it’s not call port it’s a…

Jim Thompson: Endemic translations.

Jamie Thompson: Yeah we’ve done a bunch of language translations, do you remember how many?

Jim Thompson: It’s approximately 30.

Jamie Thompson: Yeah I was thinking 30 as well. So the software runs in these other languages and obviously we can’t speak all those languages, no one here is that good.

So we have in-country partners who can either sell support service, and we have both people who are doing straight reselling, we have people who are MSP’s or MSSP’s. We have people who are buying it direct and then daily lease it. So there’s all kinds of different models.

We also, in terms of channels on the cloud, we do support some of the cloud service providers. People who do the integrations to basically create an entire stack. So if you wanted to move your application or the set of applications to have as a company into the cloud you could do that and the cloud service providers, their partners would help you migrate all of your data and put together your infrastructure and help you monitor and manage it.

And our best partners right now are in Europe. Some of them again are MSP’s or MSSP’s and some of them are just selling direct or helping people integrate.

Value Prop

Michael Schwartz: What’s the value proposition of Netgate?

Jim Thompson: We are the developers of pfSense primarily. There are community contributions that you can actually go out and look at like the list of Git commits. And you filter out the ones that you know staff here have done. It’s you know 90% plus Netgate.

And so since we’re the developer a lot of people feel safer when they’re dealing with the people who actually make software, you know, why wouldn’t we give the best possible experience on things we sell.

Jamie Thompson: We employ a lot of engineers, we have people who have commitments for FreeBSD. We have people who are just fantastically gifted both in hardware and software. We couldn’t do it without the engineering team, they’re just fantastic.

And it’s, you know the kind of thing you can’t get from a community because it’s hard to prioritize that open source development over what you’re doing in order to be able to be paid so that you can eat, and have a house, and all those good things.

So we actually do employ a huge team of Engineers to work on this open source product. And do the testing and the architecture and we run the infrastructure and…

Jim Thompson: You’d be amazed at how low-level we have to go to fix some issues. You’re talking about, you know, peak of second timing on NMMC bus, or we run into in situations where Ethernet PHYs don’t have the right choke on them, and so you can see more power in the PHY than you otherwise would. And we’ve had to actually go back and debug designs we didn’t do.

So there are there literally three people on staff who are EE’s, know them and engaged with EE on a day-to-day basis. The 4th who knows enough about it he could, he used to design medical devices. So we have a depth here, the technical depth that some people would find astonishing.

Use Of Open Source

Michael Schwartz: Has open source served as the main distribution channel for Netgate?

Jim Thompson: Well principally it’s a licensing structure. It’s almost all open source licenses are based on copyright, the original, the ability of the original author for assigning to control that copyright or leverage it.

The original, if you will, of the GPL turned copyright on its head that’s why some people call it copyleft. They use copyright to enforce the fact that you can control the copying. It’s an interesting hack if you own the legal system.

We have benefited enormously as has, you know, RedHat and a slew of other companies you can name from, if you will, marketing via these you know user groups. They’re in control of their own conversation, there’s no marketing conversation in the room. There’s all this experimentation if you will, 10000 flowers.

Try the successful ones are successful, and the unsuccessful ones you never heard about. So yeah we’ve engaged that too, and the fact that the the software is open source and free has been quite a bit of the actual marketing.

People discovered it and use for their own purposes and introduce to people who we were never gonna here from unless they approach us directly. It spread largely through that if you will, word of mouth or word of forum, association of use pfSense, it’s great.

You can still see that going on today. There are hundreds and thousands of people I will never meet who are using software we create.

Activities

Michael Schwartz: What is the primary activity of Netgate?

Jamie Thompson: Software development is the primary activity. If you say what are you as a company? We would say that we’re a software company.

But in order to leverage that software, in order to be able to actually continue to develop that software we do need an income stream, we need a revenue stream. And since we are self-funded, we don’t have VC, we’ve had to do that by selling hardware and services and renting it in the cloud.

So just like any any other company would do, I’d say that our number 2 activity actually is probably hardware development, which is kind of weird.

We have hardware, we work with some of the ODM’s and OEM’s on hardware designs and so we’ll go to them and say well we need, an Intel box that has 4+ next, you know i350 and two i210’s, don’t want those i211’s.

So like Jim said earlier, we have a lot of hardware depth that you wouldn’t expect for a software company. And that really isn’t normal, I think that, you know, if you look back we’re kind of more of a throwback to the kinds of companies that you had in the 80s where you would, you would develop both the hardware and software together and sell tell the system.

So that’s what we’re doing, we’re selling appliances and we’re providing both the software and the hardware that it runs the best on.

Jim Thompson: Vertically integrated.

Jamie Thompson: Yes, oh there you go.

How Did You Figure Out How To Vertically Integrate And Self-Fund?

Michael Schwartz: Normally I would think a hardware company needs a lot of capital. How did you figure out how to vertically integrate and self-fund?

Jim Thompson: A lot of credit card debt.

Jamie Thompson: Yes there’s been a lot of credit card debt, that’s true. When we started down this path with the hardware we were taking components that were available, and we were basically integrating those components and we were doing it on a pretty small scale.

And as we were able to convince people that we knew what we were doing in terms of both the software and the hardware and the integration. And we just had some really good solid products out there. That, actually, stuff that we sold 8 years ago is still on the field running today. And we basically just slowly grew and slowly grew.

Then we would reach kind of the limit of that hardware or of the supplier. We had one supplier, so we were doing 500 a month and we’re like okay we need to go 600 a month. Well we can’t do that, we can’t manufacture that much.

Okay we have to go off and find a different manufacturing and we’ve slowly gotten to the point where it’s just been a pretty much continuous ramp to the point now where we can go to some of the larger people in China or Taiwan or wherever they happen to be. And say, okay we will sign up to this many systems over this period of time and …

Jim Thompson: We can write large PO’s and back them with financial strength of what we built together over the past decade.

But has taken reinvesting almost everything we made to continue to make the business grow. So we live, sleep, and breathe Netgate… While raising a child!

What’s Next For Netgate?

Jamie Thompson: Kind of more interesting thing is that over time we’re looking at the software which actually started with Manual Casper, manu wall back in the day. And we’ve improved the software, we’ve ported it as FreeBSD has changed, we gone along with that.

One of the big things that we’ve just done is we’ve all ported to PHP 7.2. So we were running with the older version of PHP and the current person that’ll be coming out here shortly we’ve had to to update to 7.2 because of course you know software end-of-life’s, over period of time it goes to a no-support model.

One of the interesting things we did about three and a half years ago, four years ago, is we sat down, we said you know – if we were going to rewrite this what would we do? Because the questions that were being asked and the requests we were getting from the customer base who talk to us are like you know, it’s easy to do one firewall.

It’s easy for me to sit down in my home lab and control the firewall for my house. But at work I’ve got 50 of these things and I have to go control them individually just have a GUI, rather than a GUI, do you have an API? Can we use rest RESTCONF for NETCONF, or basically as architectures have changed and people’s thinking about management has changed.

We saw that there really wasn’t a way for us to change that software because of the way that was originally architected. If would be really difficult to put an API in. So while we’re also moving pfSense along we’re also thinking in the back of our heads what do we need to be doing differently.

We have actually some new software and it’s also based on open source, it’s Linux-based. It’s called TNSR.

And TNSR is really the result of a lot of architecture discussions within the engineering group and looking out to see what other people are doing now in terms of managing their networks and providing security for their networks.

So now you’re looking at orchestration and automation. A lot of people are are looking at well how does this run with Kubernetes how does this run with containers.

How I manage 50 of these things at once, and so not only are we working with pfSense but we’re also working with TNSR is really, well it’s available today in the cloud, but it’s really trying to kind of solve the next generation of problems around network security.

Why TNSR Was Needed

Jim Thompson: In those environments computers and the networks they run on have disappeared inside a machine, there is no box, there’s just one box, it’s the big box that you don’t even know it or see it.

It’s on a cloud provider somewhere, so on Amazon or Google cloud or Azure or something, and you never see it, and you never see the networks around. You just have the sort of remote ability to control via an API so there’s no there’s no blinking lights, there’s nothing left to touch.

And so that ends up being very different environment, these Kubernetes environments have messaging rates sometimes that are you know hundred thousand messages a second you have to be able to tell what’s happening.

So TNSR, which Jamie started talking about, is sort of an answer to what’s starting to occur in-network.
How Much Profit Gets Re-Invested In R&D?

Michael Schwartz: How much profit gets reinvested in R&D?

Jamie Thompson: All of it, basically. Yeah.

So, basically as we’ve grown the company and have been able to add more people, or we’re really lucky and in the respect that we took whatever we had, and said okay, what’s the next thing that we can do to make ourselves be more useful to our customer base or to be more useful to enterprise.

One year we added 24/7 support. And suddenly, oh okay, you guys are real because you do 24/7 support now.

But we’re no more real the next day then we were the day before. It’s just suddenly people felt more comfortable because they can get a hold of us and they can we can help him walk through their problems. And of course no firewall problem ever occurs at noon on Monday it’s always midnight on Friday.

So going to the 24/7 support model was huge for us, starting a partner program, a worldwide program, to help support people in-country and in-language with our partners was another huge bump for us because we’re now able to actually answer the questions that people had in a way that was more comfortable for them.

As things have changed out if to focus more on the cloud and to focus on this automation and orchestration.

Non-Integrator Partnerships

Michael Schwartz: What are some of the non-integrator partnerships?

Jamie Thompson: We didn’t see a way for us to take the software that we had and move it forward so we started looking around.

We have supported the BSD Foundation in the past. We’ve also now joined Linux Foundation and we’re big contributors with LFN, with Fido. We also support Clixon. So, not only we are supporting the software that we have written, we’re also supporting groups and other software projects where we’re either contributing with monetary contribution or code.

So you actually if you got look at at Fido, you’ll see that we are in the top five maybe even top three contributors for VPP which is the vector packet processing, that LFN is doing.

So we’re trying to help contribute to the ecosystem not only the code that we’re writing and that we’re putting forward, but helping, trying to help move networking and security long a little bit further in ways that we couldn’t do on our own.

But we can we can contribute to it, we can help.

Jim Thompson: In the same way that we have a community for pfSense were part of other communities around some of these constituent technologies. There’s even marketing on that side as well, the Linux Foundation markets LFN.

Fido’s BPP is a big part of that. So we know we show up at conferences and occasionally talk and participate in various mailing lists, you know online conference calls about where should we go next and that kind of thing. So all that tend to count for contribution.

Making the technology move along even though that technology ends up in potentially competitors product system.

Like I said, in the same way we have a community of people that we support. We’re also constituents in a community of some of these technologies that we take advantage of.

VC Money Risks

Michael Schwartz: You’ve avoided raising venture capital, why?

Jim Thompson: As with almost any decision there are pros and cons to that particular decision. The money is what people tend to focus on, how do I get this thing bootstrapped to get enough people working on it while I have something.

I’ve been the CTO of two companies, that combined I helped raise over a quarter billion dollars of venture capital, over seven or eight rounds. One of those companies was in product and one of those companies was in services.

My best advice is while things are going according to plan, the venture capitalist are here to help. They will open the Rolodex and they’ll introduce you to additional partners, give you some legitimacy into accounts that potentially you didn’t, you couldn’t enter.

If you can’t execute on the plan that you told him about, that’s when things can take a turn.

Jamie Thompson: That’s when they change the plan. Sometimes.

Jim Thompson: You know, VC’s are financial engineers. They’re there to optimize return for their fund.

And so the best advice I have for anyone who’s looking at this is to go out and really understand what VC is and how it can help. And what the VC’s goals are versus what your goals are. And if you can find a way to line those it can be great.

If those goals aren’t aligned then it’s just money and there are potential other places to make that happen.

Jamie Thompson: If it’s something you can articulate and something that is a physical product you can always go Kickstarter, or crowdfund, or there’s all kinds of other ways to do it.

But like Jim said I mean we’ve both been involved in companies that have been VC-backed and we’ve seen them sling the company around to try to meet whatever their goals are.

And so that’s actually one of the things that we’ve talked about occasionally, is okay are we at the point now where we can’t continue to bootstrap it ourselves, are we at the point where we should take some money and so we can do some additional marketing.

And we were real hesitant on that. Trying to decide.

How do we move forward and how do we maintain the spirit and the feeling of the company. How do we maintain our open source roots because we were all very focused on security and privacy and we believe that everybody should be able to have security and privacy if they want.

But if a VC makes it, if a VC says okay well now you have to get everybody to register, well you know we’ve got people who don’t want to do that.

Startup Advice

Michael Schwartz: Any advice for entrepreneurs starting an open source software business?

Jamie Thompson: It’s harder than it looks. It can be fun, it can be difficult.

But if you have what they call today grit, if you have that ability to stick with your idea and keep going but yet, if someone is able to influence you and you change your mind help steer you in a new direction, that’s great.

But it really, it’s on you and you find, they would say find your passion, but find a thing that’s really interesting to you and stick with it.

Jim Thompson: Businesses survive at the will of their customers. Solving customer problems and providing value to the customer is literally why you have a business. Because without that nobody is sending money your way unless they feel bad for you.

As an entrepreneur you have to be willing to engage with and talk to your customers and prospects. You have to be willing to take the call that says your code is broken, fix it now. You have to be able to hear rejection when somebody chooses another solution and get up the next morning and go back to work.

These things all sounds trite but a lot of people the computer field are into the computer field because they like working with computers, not other people. They have friends but population at large can be scary to approach because what if they say no.

The best thing you can do for yourself as a business or as an entrepreneur is to be willing to interact with the people who think your product is interesting. And they would like to find a way to use it and they have potentially other ideas about how it could be used and you have to be willing to listen.

If the number of bright people on a given body of people is, I think as Bill Joy famously said, is the log of the number of people in a group, so the number of smart people in a group is log of number of people in a group, and he didn’t say what the base was, but it’s this diminishing returns, a larger group you have the fewer smarter people you have per out of basis.

But these ideas occur everywhere. And open source is really one of the answers to the question of how do we adopt other people’s ideas. Somebody can have an idea and they can develop an open source project and it flourishes or it doesn’t. If it flourishes it was a great idea, incorporate that into their technology stack.

It’s the same thing with customers, some customers will help you focus your products in ways that you weren’t going to think of. And so that ability to be open to hear both positive and negative messages about the thing you’re doing with your life or that part of your life is really critical.

Michael Schwartz: Jamie and Jim, thank you so much for sharing your insights and best of luck with Netgate.

Jamie Thompson: Thanks for having us.

Jim Thompson: Thank you.

Credits

Michael Schwartz: That’s it for episode 2. Transcription and episode audio can be found on opensourceunderdogs.com.

Special thanks to the Linux kernel for co-sponsoring this podcast, to the all things open conference for helping us publicize the launch.

Music from Broke for Free, Chris Zabriskie and Lee Rosevere.

Production assistance from Natalie Lowe. Operational support from William Lowe. Thanks for the staff of Netgate for logistical support.

Next week we’ll talk to one of the superstars of open source business, Michael Howard CEO of Maria DB. Until then, thanks for listening.

Peter Wang is the Co-founder and CTO at Anaconda, Inc. Anaconda is the world’s most popular Python data science platform and is the industry standard for data scientists. In this episode, Peter discusses Anaconda’s fast growing business, and how they use enterprise tools to monetize their open source software.

Transcript

Founder Story

Michael Schwartz: For our introductory episode of Open Source Underdogs I’m sitting here with Peter Wang, CTO of Anaconda, a distribution of Python math libraries used by data scientist all over the world.

Peter could you start by telling us about your background and how Anaconda got started?

Peter Wang: My background is actually in physics and I end up going to software after college because I really like coding. And I sort of found my way to doing consulting using the Python scientific DAC if you will, that was kind of in the early and mid-2000s and as I did more work in that area I realize that there were significant commercial adoption opportunities for Python.

But the scientific stack was you know, it was still coming together at the time, right, there is some significant gaps and difficulties and how to use it. Then once I saw the Big Data wave starting to hit I recognized that enterprise data analytics would be something that Python be very good at, and people already starting to self service and use Python for.

But there were gaps, and so we started actually as Continuum analytics in order to promote the use of Python for data science and data analytics beyond just scientific computing that we want to do some innovative projects to fill some gaps and holes, things like that. And then also to build a enduring and sustaining open source software company.

Customers

Michael Schwartz: Who are the customers of Anaconda?

Peter Wang: Our customers are large medium sized companies that buy our enterprise software, so that is a machine learning and AI enablement platform. It’s a very different pile of bits the that most people in the open source world who download free Anaconda are used to thinking about and so that’s you know the Enterprise customers buy that in order to support their data scientists that are using Anaconda internally in their businesses.

Value Prop

Michael Schwartz: What’s the value proposition of Anaconda?

Peter Wang: When you look at what data scientists need to do there’s a lot of data they need access to, there’s a lot of compute they need to run their stuff on. They need to do a lot of different things that actually traditional Enterprise IT is not very well equipped to support them in.

So our Enterprise platform comes in, and gives IT an easy way to provide a governed and secure computer environment for data scientists. They can collaborate, build models, build notebooks, build interactive dashboards, gives data scientist an easy way to also deploy those in a production way.

Now in businesses lot of data science can put toys together, they can’t it for them to then throw it over the fence to get IT to make something that actually runs for other people’s business to use, that can take a very long time.

So the Enterprise platform eases the deployment, it gives IT a way to manage and to govern the kind of data science it’s done, gives data scientists access to packages and software internally inside the enterprise firewall. And then for people who have only lived in the open source world that may sound really strange but lot of people they live in corporate environments that are very logged down, they can’t get access to software.

So with Anaconda Enterprise we provide a way for IT to feel good about there being a vendor to provide the software and the data scientists are happy because they get the latest and greatest versions of all the packages they want.

Challenges Of Open Source

Michael Schwartz: What have been some of the challenges of using open source as part of the business model?

Peter Wang: So one of the things is that we both use open source in building our Enterprise product, we also, what Enterprise product does is makes open source available for people to use, right, so there’s things like machine learning libraries like scikit-learn that we don’t write and we provide. So there’s challenges associated with simply providing open source to Enterprise users.

Then there’s additional challenges of just using open source software in our proprietary enterprise software, right, there’s sort of two sets of challenges. With the former, with the distribution open source software I would say that most businesses are actually starting to understand that open source software is a key part of the software development stack.

For machine learning and AI applications in particular, it’s an integral part of it, you can’t do without using open source software, so Enterprise IT is starting a clue into the fact.

The challenges run into are that even though they are clued into this, there’s still procurement and legal and security and governance questionnaires that come down to us that sometimes you’re just like WTF, you look at this like you know like there’s no way we would make reps and warranties on a piece open source software that has global contributors, right, or yeah we have customers asking for unlimited indemnity of something or the other.

It’s like we don’t even write half of the software, it’s your users internally that want to use it. You know, we’re just making this available for you.

So there’s like some of those kinds of, I would say disconnects and impedance mismatches between enterprise expectations.

The biggest challenge I would say is that enterprises, they think of data analytics providers and vendors like SaaS or someone like that, that comes in with a big giant piece of shrink wrap, very expensive shrink wrap software.

That’s all just that vendors bits and so they’re used interacting with vendors in that way. So when we come in and we say we’re a vendor that’s an enablement platform, we have our pile of bits, we indemnify and support and provide you warranties, but then part of that is we provide fluid rapid access to a ton of additional capability in the open source ecosystem.

They really have a hard time, it’s really legal oftentimes that has the challenge of separating, you know, the bits that the vendor wrote and the bits that the vendor’s providing access to. They have a really hard time disambiguating those two sometimes.

Anaconda Platform

Michael Schwartz: Can you talk a little bit more about what makes or what defines a platform and what does that mean exactly to you?

Peter Wang: So for me a platform is something that, it’s like a market right and so it facilitates an interaction between providers of value and consumers or users of value and it makes it from an M times N problem to a smaller like M plus N kind of problem.

So in our case, we have you know, there’s hundreds and hundreds of developers of open source libraries that want people to use their software, and that you know there’s a lot of capability there. And then there’s thousands, tens of thousands, millions of people inside businesses that want to use the software. But they don’t know which software they should use, they don’t know what software is secure to run, what versions are the most up-to-date, things like that.

Our platform essentially is a bridge between the open source innovation space and development around these machine learning libraries to the Enterprise, very governed environments, in which the software needs to run.

So creating a place where people can bring their goods so to speak, so in this case software packages and capabilities, notebooks, it could be datasets, whatever. And then where the consumers of those things can come and actually pick what they want, that’s what makes it a platform.

So we ourselves of course we built quite a bit of functionality into the platform but really letting this additional generated activity happen inside it.

It’s not merely, oh here’s a big pile of software and then we have some extension points so that people to plug-in things, it’s not a plug-in ecosystem.

It really is a platform that provides people with this bridge that lets people go both ways.

Cloud Offering

Michael Schwartz: On your website I noticed Anaconda.Org mentions a cloud offering. Is that a direction that you think is is promising? Or is the main focus the enterprise software suite?

Peter Wang: I’ve always been very interested in data science in the cloud.

Actually one of our first offerings as a company in 2012 was a cloud-based on demand and notebook computation system called Wakari. And then we eventually shut it down because it was a very hard way to make money at the time and it takes a lot of capital to actually get a software-as-a-service company going.

And so right now Anaconda Cloud as it exists is mostly a place for people to host packages and notebooks and to share those with people but we don’t actually execute those notebooks on people’s behalf.

In the future I cannot make any promises about our long term product roadmap, but I do feel like cloud-based execution of notebooks and of models, things like that, it’s a natural need that emerges and you know we may do something in that space.

What’s Next

Michael Schwartz: What are the most promising areas that you’re investing in or looking to innovate in, in the future?

Peter Wang: Well, you know, the space moves so quickly and it’s evolving quite a bit so we really are looking at I think for most Enterprise software companies would be, because of a very short time windows, or innovation sort of new, de novo innovation work.

We’re mostly right now investing in the existing projects that we have. We’re also investing, there’s a new project we just released for data access, to really solve that data reproducibility and data sharing problem; lightweight data catalog and data access library called intake that we are very excited about.

But moving forward we will be looking at doing, you know more things with regard to model management and helping people share models in a more reproducible and seamless way. And you know beyond that it really depends on how the business evolves.

Revenues

Michael Schwartz: So of those different areas where you could generate revenue, which one is generating the most revenue as a percentage? Is it license?

Peter Wang: We’re primarily, the vast majority of our revenue comes from software licenses.

That’s wasn’t always the case, we actually made a pretty dramatic change over the last year. Flipped almost completely 180° around from being mostly consulting with some small amount of, relatively small amount of software revenue to the other way around. Where it’s mostly software revenue and a much smaller amount of consulting, training, services, things like that.

License Model

Michael Schwartz: Can you share any details about how you went about licensing?

Peter Wang: We start as a company to support and promote the growth of Python for data science.

So we’re something that’s very much of a community, right, it’s not like Travis and I sat down and said: Oh, aha, we have this genius idea for some crazy new cool technology, we build it and then we’ve vend it.

It’s, we’re of this community, we built more innovations to help, amplify the the efforts of the community, we’re always of the Python data science community. So, the ethos of that community is to license everything permissibly so MIT, BSD licensed, LGPL sometimes.

And so it wasn’t really feasible to do any kind of open core business model around that. Some communities, R as different right, the R Data Science community, R is all GPL based. And so classically there have been two companies, one got acquired by Microsoft, that were heavily doing work in R around open core model.

In the Python world I don’t feel like the community has an appetite for open core business models. And so we very quickly came to understand either A) we have to sell something directly to the community so our users and they’re our customers.

Or, we figure out some kind of enterprise software that we sell, that is a proxy need, fills the proxy need or as a proxy to the open source of free stuff that we give away.

So the business model we converged on was essentially that. We give away this stuff you know, you give away burgers and you sell the Coca-Cola or something like that, right.

It’s not, you get a free burger but if you want two patties, or if you want the burger with cheese then you pay extra, right. That’s not the model we have, so Anaconda, all the work I do are around Anaconda and the packages the distribution of the testing with all that stuff give away for free.

We will give it away for free forever, because we know that when businesses start using this stuff more, and more, and more, it will drive proximate need for for other kinds of things. And the first significant proxy need that showed up was the need for a management platform or some way of managing and governing the use of open source data science packages inside the business then it became managing the collaboration around Jupiter notebooks and things like that.

And now lately it’s evolved much more into deploying models and looking how models are running, you know, the actual models in production is a much larger part of what’s driving business pain and so those are prominent, all three of those things I mentioned the repository package governance, the collaboration and then the management of models of production.

All three of them are core components of our platform offering in our Enterprise product.

Tools

Michael Schwartz: Would it be fair to describe that as tools around the open source?

Peter Wang: I don’t think it’s tools as much as it’s, I mean the nature of the software itself is to provide an infrastructure for you know spinning up servers, deploying things. It’s not, they’re not really tools as such.

I mean actually the end user experience, when they’re sitting there, like if you’re a business user, as a customer that’s bought Anaconda Enterprise, you’re using the browser login to our Enterprise platform and you get the the Jupiter notebook experience there.

You can also use Anaconda as you always used it on your laptop or something, and the Conda package manager will connect your internal package repository. So it’s not like you’re getting extra tools, you have the same tools you’ve always had from an actual data science day-to-day perspective.

But using them in an Enterprise environment is much easier for you now.

Marketing

Michael Schwartz: Maybe switching gears a little bit to the marketing side. Does Anaconda just sell itself? Because the community has a strong underlying, you know science Python community? Or what are some of the channels that you use to get the software out there?

Peter Wang: Well, so the enterprise software – so very few things in the world sell themselves. And the reason is two-fold, one if there’s not much demand for what you’re doing, then you have to go and tell everyone about what you’re doing.

If there is a lot of demands what you’re doing you’re going to competitors that race in and provide messaging around why their product is better than yours, right.

So in both cases if there is or there isn’t a demand and you’ve got to be doing some kind of selling.

Now for us the the machine learning platform, data science platform, that term is now a term of trade, right, in the business so we have people at the CIO level, CTO level, that are like, okay we need a data science platform, right. They know what that is, they know it’s something they need to do to support their data scientist.

Now it does help us that those data scientist will tend to already be Anaconda users, we do have access to their mail list and social media and whatever else. We have a pretty visible, pretty well-known as a brand, so the brand everything is top-notch. We’re known for our investments, interaction with the open source community.

So all of that stuff helps us in the actual sales process. But in the end of the day we do have to do marketing, we do have to inform people about what the features are, why they would buy.

It’s like any other piece of software you’re trying to sell, there’s real activity you have to do there.

Sales

Michael Schwartz: So without going into actual prices, but maybe just around pricing philosophy – were you able to quickly figure out what your price should be? Have you changed a lot over time?

Peter Wang: It’s changed a lot of over time. Depending on who you’re selling to, it really, you know, we’ve always been in the enterprise sales sort of mode, for our support training, things like that, as well for our products.

So from the beginning we had this understanding that enterprise sales is a different kind of animal than you know consumer sales, setting prices and all those things.

There’s a whole process to sales and sales strategy, and neither my co-founder nor I would claim to be experts in that, although we have some perspective and some background in it. So it’s important to actually work with sales people who kind of know what they were doing. And we’ve been evolving overtime, we’ve been learning overtime, how that whole thing works.

Partnerships

Michael Schwartz: Maybe we can talk a little bit about partnerships. Do you have a strong partner network or who are the partners that you’ve built up over time that you think have been important to you, getting out there and getting to market?

Peter Wang: So Partnerships, we’ve always worked with some other companies, but in terms of actually driving to sales success, that’s been a fairly target activity over only the last couple of years. Because using partners as a channel – their sales people have to know how to sell your product, right.

They have to know how to close a deal and include your product in the pricing so you have to have really, really clear definition of what is the product, how to talk about it as an integrated part of the partner offering, all those different things. And I would say that’s again, that’s something we’ve only been doing relatively recently.

Prior to that our partnerships really consisted of technology partnerships and sort of marketing and exposure kinds of things.

I mean the data science field itself is also relatively new, at least in terms of enterprise adoption of this stuff. So we actually partner with, there’s sort of two classes of folks: One of them are hardware vendors, actually. So Intel and Nvidia Microsoft, the cloud vendors like Microsoft, Google, Amazon all that.

But the hardware vendors AMD, Intel, Nvidia and gosh I probably could use some others there, IBM obviously, they have hardware. So with those we are partnered on technology as well as some go-to-market activities.

So we have a compiler called Numba that have distributing computing system Dask. Those are very, very exciting for these hardware partners because they want to showcase their chips running at scale, they want to showcase the kind of performance wins.

Now if they require end-users to have to write extremely low-level code in order to get those wins it’s a non-starter, right. So the idea, it’s not just performance but it’s performance as accessible.

So using our tools and technologies they can get your average data scientist with not some like C++ optimization nerd. Your average data scientist can use some of our libraries and then be running these things you know and really showcase their performance.

That’s some harder partnerships, then the cloud partnerships as well as some others. They’re really around the data science tools, around notebooks or visualization. Some cases they’ve been with our enterprise platform as well so it really depends.

So like with Microsoft for instance, we are partnered multiple ways.

So our Anaconda distribution is installed on Azure, it’s available as the Python runtime inside sequel server itself which is pretty cool. It’s something you can install as part of the default Visual Studio installer if you say I’m data scientist, and you select that profile, it will install Anaconda for you. So that’s a really cool partnership.

And then on the flip side of it, we’ve included the VS code editor inside the Anaconda distribution installer so that that’s one of the editors and ID’s that’s available for end-user.

So there’s multiple aspects of Microsoft relationship, but those are probably the most significant ones. But these partnerships are very exciting for us, they’re still in the early stages, you know, right now we would love to see driving more revenue through those.

We are investing in those relationships because we believe we will be able to drive a lot more revenue through them.

Ecosystem Partnerships

Michael Schwartz: What about non-, let’s say business partnerships, any organizations, or foundations, or other communities that you found that had been really useful for you to promote the product?

Peter Wang: Oh yeah, well so we primarily stay in the data science space, right, in the Python ecosystem.

We’ve been growing our inclusion of the R ecosystem as well because many data scientist use both Python and R. And so we’re trying to find better ways to play nicely and be a good participant in that ecosystem.

But on the Python side we’re actually I would say pretty unique in that we started the company in January of 2012 and then by March we started the effort to create a non-profit to support and sustain several open source projects in the Python ecosystem.

That nonprofit is called NumFOCUS and that’s been a really good partnership of ours.

When I started the PyData sort of global community sort of effort, we attached that essentially to NumFOCUS as well. So now NumFOCUS runs as a center point of coordination for PyData meetups, PyData conferences all around the world.

It’s really grown, just really blown up. So that’s a constant and really great partnership with that foundation. That’s, I would say probably the primary one at this point.

There’s a lot of community events and things like that, that we do as well just to be good stewards you know, and show up. But those drive a lot of awareness for us.

One of the challenges from a business perspective is, if you say too close, just mingling with your friends, you’re not going to sell much because, in our case our friends are all users of the free stuff, right and they’re not really the people who are signing the procurement checks to go and buy the enterprise software. So yeah, that’s one of the dynamics there.

Keeping Current

Michael Schwartz: How do you stay current on what’s a very hard domain?

Peter Wang: Yeah it’s tough. I mean I don’t… I wouldn’t go so far as to say I am current. I am current on some things and there’s other things that I’m not as current on.

We have just a very, very broad range of technical expertise under one roof here. So we have people working on compilers, people working on distributed computing, people working to visualization.

People who are working on JavaScript front-end things for the enterprise software with people who are working the back-end. So many things – containers and all the back-end coordination orchestration kinds of things.

Our consultants and trainers who go out in the field and talk to customers they get exposure to a wide variety of different kinds of modeling problems, optimization problems, what’s the state-of-the-art in machine learning, in deep learning, all these things.

And I just have the great privilege of being able to talk to all these people and kind of glean from their learning as much as I can. Now I do some deep dives myself on some things, I have more time now than I’ve had in awhile. That’s part of it.

But, most recently I’ve actually spent the last I would say 3 or 4 months really nerding out on, believe it or not, the physics and the anthropology and the human ecology around open source and open source ecosystems, communities, and how we do sustainable open source; how we continue innovation while maintaining stable software.

The nature of software businesses as a whole, especially as it pertains to open source. So these are areas that I’ve been actually thinking about quite a lot and I found that my physics metaphors or my physics intuition has helped me a lot in thinking about the System Dynamics of that human ecology.

Open V. Commercial

Michael Schwartz: What are some of the challenges you think of starting an open source business or, I should say a business that uses open source as part of their model, versus straight commercial software company?

Peter Wang: I have a snarky answer – which is that the challenges that face an open source company are no, really, theoretically, no different than what face in a commercial company.

In practicality they’re different. Because a commercial company one tends to have a fairly reasonable expectation that the investors of the company and their shareholders are the ones that the company’s optimizing for.

If a company does a great job that’s measured very quantifiably in returns to shareholders. That’s the American model of capitalism, that’s what a company does. So if you screw up the company. The only people you’re going to piss off are your shareholders and your investors. Probably your employees too.

But in the open source side, open source software company there’s actually much more explicit or intentional vision that matters.

Most companies, they have a lot of like vision, mission, blah blah blah. For the most part once you get to a certain size employees are all like, yeah this is to make money. Unfortunately, you know, that’s just the reality of it. Now some businesses have highfalutin goals, most don’t actually even attempt to play to those.

But it open source companies the founders and the people who are stakeholders in it, there’s a broader set of stakeholders.

So who you piss off is a much bigger range than just the shareholders and employees. And so I would say that’s the thing – is that failure means different things.

And for open source companies usually – it’s sort of like you split the whole world of living things and prokaryotes and eukaryotes, right. Like in the world of companies, of open source companies, I would say you can cleave it in to those that do open source as a means to an end; and those for whom the open source bodies part of the ends itself.

And how open source embodies an ends – now that itself can vary. For some people there’s a religious belief that all software should be free and by golly, we’re going to build this thing to be free.

And those companies sometimes can struggle because there’s this reluctance to charge for software because you believe software is free, and so they are limited to a particular kind of growth curve because the corporate financing is available to them is of a particular stripe because they’re consulting or services company.

The ways that they can fuel innovation is also limited because they cannot go and sell a product as easily as someone else could.

So those for whom just open source because, it’s open source, those companies who have that ends, you know they’re kind of constraint to one part of the landscape.

Then there’s other companies for whom open source is an ends and a means and part of it is that it embodies some technical vision that the founders cared about. That technical vision is either only achievable through open source or gathered momentum and gathered user base, and a way of doing things, a technical perspective, that is now at this point so steeped – like the open source is part of its DNA – that it would seem like a violation and a rejection of everything that the soul of the company is, to walk away from that. That’s a different kind of ends, right.

And then there’s others like, I think for my perspective we’re little bit of that, but then also, from my perspective there is a fairly opinionated view for us that open source is, it’s a statement that were not going to lock people out by closing the software.

So it’s almost like a statement of – we may fight as a business and compete in a landscape that’s rich and filled with many kinds of competitors but one thing we’re not going to do, is we’re not going to use closing down access to software as a means of either charging rent or fighting dirty, or a way to charge rent so we don’t have to innovate anymore.

So in that sense being open source company means that you are essentially committed, there’s a covenant to your customers, to your users, to the ecosystem, to your employees. There’s a covenant that you are going to innovate, because it’s so much harder to be just a rent seeking monopolist as an open source company just around the software itself.

So, it has a bit farther range than you’ve expected from the answer, but…

Competitors

Michael Schwartz: Actually, you brought up one thing I wanted to ask you. Does Anaconda actually have a lot of competitors?

Peter Wang: There are some things that we do that are unique in the world. So on certain aspects of the technology and some of our product features I would say we are very unique.

Now there are certain other things that we do, in particular the software that we sell that, you know we think we’re the best but there may be other companies who think they’re our competitors, right. And so I think that from that perspective, and certainly it’s up to the customers and not us, to say.

So there are times when customers will you know bank us off on other things and so we definitely have competitors in the enterprise space.

FOSS Development

Michael Schwartz: And you mentioned open source as requiring you to innovate. But has it also helped you to innovate?

Peter Wang: Software is a collaborative creative activity. And then some, for some problems, for some kinds of projects, the kind of open collaboration that open source represents are the most effective way to harness collective intelligence and get something really useful out.

In other cases open source is actually, the open source development methodology if you will, a way of engagement. It’s actually not necessarily the most effective to harnessing innovation.

And the dirty truth is if you look at the way the open source project actually roll. For all you know, all the Kumbaya aside, you know how they actually roll.

The most successful ones are launched by one, two, maybe three person founding team. I mean 3 is pretty rare, usually it’s one or two people, usually one actually, and they like a blaze of glory, they dropped this code in the world. And other people start glomming on and that initial nucleation site around the initial feature set, the collaborative dynamics of that. That really sets the future, like the seals the fate of the project a lot of times.

But usually open source projects they launch when it is a blaze of glory sort of innovative leap from one person’s brain.

And even now like, if you look at there’s a really sad or interesting way of looking at this, like the maintainers of some of the most critical open source projects in Python that are used daily by millions and millions of people that back billions of dollars of commercial infrastructure activity whether it’s power grid whether it’s keeping satellites up, whatever… I could fit all those maintainers in my minivan.

Now one can say, wow witness the amazing leveraging power of open source but you could also look at that say wow that’s really sad, we’re under supporting and investing these projects. So I am a big believer in open source, I don’t want this to sound like I’m like poo-pooing it, I’m a big believer in it but I’m also a realist.

And I think that open source in the early days had a lot more of the, you know, the OSI, FSF kind of days and all that.

I mean a stallman, coming out and planting a stake in the ground and saying we’re doing open source, the commercial Unix people can go you know, they can go pound sand, and we’re doing open source. That was important as a stake in the ground at the time, and over the 90’s as, you know, the Linux folks tried to educate everyone about, hey open source, okay here’s what it is, here’s free software, here’s open source.

Now, there’s a very different dynamic, as businesses are like, yeah we don’t care. Like the golden era of software is over, its services, it’s machine learning enabled services. These are where the top end of the value chain are.

There’s a real squishing compression dynamic on software that’s happening, specifically just on open source software. And if we’re not cognizant of that dynamic, if we don’t step up as fans of open source software who love the collaboration dynamics of the community, if we don’t step up and defend that and say actually, if you’re going to rely on this infrastructure you need to be paying for the maintenance of it and not rely on volunteer labor.

You know I think that’s a conversation that the free software world needs to have with the commercial world.

Venture Capital

Michael Schwartz: We found sometimes that being open source actually is a hindrance to us. Do you ever feel that, like that open source makes your life more difficult?

Peter Wang: Yeah. For venture capital fundraising, open source is a huge liability, absolutely. Because VC’s don’t understand open source. The big ones, I would say.

Like, smaller funds that have maybe a little bit more, that can take a bit more of an opinion, be a bit more of a gambler on business models, things like that. Maybe, certainly there’s angels, you know there are angel funds that they believe in the technology or something like that.

But the but the vast majority of VC’s, they’re there to really pattern match against known business models, known growth curves, you know things like that.

So if your business model is working to charge the software they’re going to ask, well how much value is the software? What do we believe the predictable growth curve looks like for this.

If your business model is we’re going to get users, they don’t care if give away the software, right.

So it’s all about, when you talk to the VC’s, how do you present them with articulation of your long-term value or not long-term value, but the returns you generate on their investment. That’s often the only conversation they really care to have.

So if they’re investing in software and you just giving it all away it literally looks like you’re just giving away their money.

In fact – if you were to say we’re going to take the money, buy iPhones and give it away to everyone, they would at least understand that a little better, because it’s something tangible in an iPhone right, they can say well we’re going to get on the other side of it.

You know, or you’re going to give away anything like MoviePass or whatever, I wanna give away free movie tickets to people and lose money on movie tickets. VC’s are not afraid to lose money, they want understand what that money is buying them. Right.

If it’s buying something else, some other number – eyeballs, or users, or something else, which you can then show how that converts in the long-term revenue, they are happy for you to give away the money.

But if it’s simply we’re funding software development and you’re giving it all the way, and you can’t show conversion that they believe in to revenue then it’s not going to fly.

VC Alignment With FOSS

Michael Schwartz: Were you ever concerned that perhaps the investment would come with strings that would make you to give up some of the mission or culture of open source?

Peter Wang: As we were talking to investors that was certainly one of the concerns.

I mean that with the reason we picked the investors we did was because we felt that they were mission-aligned and that was that’s a real luxury, we were very lucky in that.

And we worked pretty hard of the fundraising thing, especially as first time founders, not knowing what we’re doing. We talked to a lot of people. Probably screwed up a lot of meetings but, we ended up with some folks that actually really understood, not only the commercial potential of investing this, in the space in this company but also the mission, so we’ve been pretty lucky with that.

Again I would say that it’s rare to find that.

Advice

Michael Schwartz: What advice would you give someone who wants to start an open source software business today?

Peter Wang: Ultimately the act of going into business, it’s not separable question from why are you going to business at all, right?

Like if you’re going to start a business it’s because you either A) want to fund some activity; B) you believe you have some unique thing that you can sell to the world or some unique service you can provide to the world.

There’s actually very few, a small set of valid reasons for starting a business, in my view. And attached to each of those reasons, if you do open source as core activity the question you have to ask yourself is, am I doing this as a means to an end or am I doing this, is this one of the main things I’m starting business to do. If it’s the latter which I think is really where the meat of your question is, if someone says I want to do open source software but I also want to make money doing it somehow.

There’s many people who can, by building open source software, use it essentially as a marketing or brand awareness tool and then they can freelance, they can build a very healthy consultancy from getting their name out there and being known. That shouldn’t be downplayed as a valuable thing, and you can build a reasonably good small business around that.

But that’s not going to get you into unicorn billion dollar valuation territory, it just won’t, because to get to that level you have to somehow get to a certain size of revenue.

How do you take down certain amount of revenue, either you produce something like a piece of software that’s extremely valuable that you sell a lot of. Or you have a ton of people doing a lot of work.

Scaling up a consultancy is highly non-trivial, most software geeks who care a lot about technology are not wired to scale-up, a lot of meatware if you will. Once you get to a certain number of headcount you have got to figure out as an entrepreneur and as a technical entrepreneur how to let go of parts of it and let someone else actually help you grow that and that will change the culture and that will probably change part of the mission too.

So if you want to scale the certain revenue sizes you’ve got to do that either the basis of providing a really valuable, scalable service, or software.

I would just say understand the dynamics. Don’t blindly rush in with a whole bunch of optimism and then just curse your fate like, there’s a real dynamic here.

Investors coming in to help put more gas in your gas tank. They want to understand what roads you’re on, how far you’re going to go. If you can’t communicate to investors on the basis that they understand, about what your business model revenue models are, then you have no business asking for them for their money. You know, don’t get mad at them, right.

So, I mean it sucks in a sense that we live in this world where people do not think more about investing capital in socially-aware activities or in a generative sort of effective labor. That’s a broader conversation outside the scope of this interview probably, but that’s a systemic thing which I hope will resolve in 20-30 years time. But at this point of time it’s just the reality of the investment you know field, what it looks like.

Comparables

Michael Schwartz: What were some of the businesses that you looked to as you were looking to scale Anaconda as businesses that you could model after?

Peter Wang: We recognized that actually because we were not doing open core that took a lot of our peer crowd of open source companies off the table, right. So like, MongoDB is an example.

Michael Schwartz: Could you just define open core real quick?

Peter Wang: It’s where the core of the software is open source and then to use, to put more data through it, or to run it on certain kinds of machines with more cores, or to do blah blah blah you know additional features and additional whatever, charge money for it.

Michael Schwartz: So like an enterprise version and a community version.

Peter Wang: Yeah, community version only supports 100 users, enterprise is unlimited. Community version can only run in the cloud, enterprise version can run on prem, like things like that, open core yeah, it’s best way to define it I guess.

Michael Schwartz: I see.

Peter Wang: The core of it is still open source, you know it’s still legit open source.

Dual licensing I think also falls under that. Right, so like you basically, the core is open source GPL and then commercial license. That’s that dual licensing is also something, something that people do.

So you can use it for free for to a non-commercial setting but as soon as you take it in the house in a commercial environment your lawyers and their total like allergy to GPL will cause you to go and give IT a call to go buy the commercial license of the software so you don’t have to risk, you know, virally contaminating your internal software with GPL. Those are the kinds of models, and so we felt like many things in the data analytic space were in that kind of model.

And certainly databases have this a bunch. We didn’t really, we didn’t see those as comparables. And when you look at platform software there’s RedHat. Really not that much else to compare to.

Now we look at some of the Java framework companies that manage to sell, some got acquired by RedHat, some got acquired by Oracle. For the most part I mean once we figured out that we’re just going to sell enterprise software, you know by seats, sometimes by notes to customers.

It actually became pretty straight-forward how to think about the business, so in that case it was really drive a lot of usage of the open source stuff and that’s going to drive a smaller but correlated usage and demand of the enterprise stuff, that was it.

Final Thoughts

Michael Schwartz: What did I miss? Or is there anything else you want to add?

Peter Wang: I would say that right now I sort of just glanced by this comment earlier but I really do think that right now the world of software is in transition, so people who want to start open source based software companies now should think long and hard about what is the value chain for software actually look like.

It may be better just to do a software-as-a-service kind of thing and then you get to own the customer relationship, you own much more the value chain, etc.

Now there’s downsides to that as well but that’s something to think about because I think that the, and Jason talks about software eating the world, and that may be true, but I think less and less of what it eats has really high caloric value right; more more the high calorie stuff is going to other kinds of things.

So I would encourage you think strong about what it means to be a software business in the modern-day, especially as things like Amazon, Google, Microsoft eat the world of cloud services.

The second thing is understand what it is about open source that you love, that’s intrinsic to your mission and figure out, be very, brutally honest with yourself about what of that you want to preserve and what are the right mechanisms for preserving that.

Don’t assume it’s just a money problem don’t assume it’s just, oh if I got out from this like horrible soul-crushing corporate job I could do open source all the time.

There’s always going to be a whole bunch of yak shaving from a business and management perspective no matter what you do. Understand why you’re taking that particular road if you’re gonna take that road.

And the third thing is open source doesn’t exist in vacuum. It exists in a human ecology of users, contributors, competitors, and evolving technology landscape.

You need to understand to think strongly about whether or not the thing you’re building has long-term sustaining ecology value and if it does then it’s worth investing. Otherwise you might want to think about how to pull various other pieces of your ecosystem together to something that’s more valuable as an agglomerate.

Michael Schwartz: Peter Wang, Founder of Anaconda, thank you so much for sharing your wisdom with us. Best of luck.

Peter Wang: Thank you very much, thank you.

Michael Schwartz: Well that’s it for this first edition of Open Source Underdogs. Special thanks to the Linux Journal for co-sponsoring this podcast.

To the All Things Open conference we’re launching on October 21st.

Music from Broke for Free, Chris Zabriskie and Lee Rosevere.

Production assistance from Natalie Lowe. Operational support from William Lowe. And from the staff at Anaconda.

Next week we’ll talk to Netgate, a rare bootstrapped open source company who’s also based in my hometown of Austin, Texas.

Until then, thanks for listening.

In this episode, we introduce the podcast and hear from Doc Searls, Chief Editor at the Linux Journal, the original magazine for the open source community, and one of the sponsors for this podcast.

Transcript coming soon!