Martin Dougiamas is the Founder and CEO of Moodle, the leading open source learning platform. Moodle empowers educators to manage coursework, track class analytics, and communicate easily with students. In this episode, Martin discusses how Moodle leverages partners and revenue sharing to grow the business.

Transcript

Introduction/Background

Michael Schwartz: Welcome back to Open Source Underdogs, the podcast where we strive to teach the next generation of software entrepreneurs how to use open source software as part of their business model. Our guest today is Martin Dougiamas, Founder and CEO of Moodle.

If you aren’t familiar with the learning management system Moodle, here are some stats: There are around 100,000 Moodle sites out there, with around 150 million learners in 230 countries, who are taking 18 million classes.

Martin is one of open source software’s most passionate advocates.

After all the requisite trials and tribulations, he’s built a super successful global business that’s had an epic social impact.

Martin, thank you for joining us today.

Martin Dougiamas: Hey, Michael, it’s a real pleasure, thank you.

Michael Schwartz: So, how did Moodle get started?

Martin Dougiamas: My background is that I come from Central Australia, I grew up in the deserts out there, and my school necessarily was the school of the air, so over the radio.

There was no internet back then, shortwave radio bouncing off the atmosphere, and I was used to studying remotely and doing things that way.

When I got to the city at about age 12-13, I was a year ahead of other students. And fast forward back to university, I was helping the staff of the university I was working at, to engage with a new internet technologies, and I knew it could be a lot more interactive than it was.

As soon as the webcam came in, internet Skype came in, it became a very one-way transmission media. I was like, “no, no, it’s got to be more.” So, I started developing my own software for interactive learning and collaborative learning particularly. Then, I was doing a PhD in education on top of my background and computer science, and Moodle is right there in the middle of all that – it’s between the technology and education.

LMS V. CMS

Michael Schwartz: So, what’s the difference between a learning management system and a content management system – couldn’t one use a CMS for teaching?

Martin Dougiamas: Really, you could use email for teaching, if you’re good enough at teaching, you can use anything, you just use a whiteboard or a telephone.

What an LMS gives you is the affordances around the teaching processes and all the workflows.

The grading, we have tools in Moodle, for example, for peer assessment, so if you’re managing a thousand students, and you want them all grading each other, there’s a lot of management of that needs to happen, and that’s the kind of thing that Moodle’s good at.

Why Free

Michael Schwartz: The goal of the business is inherently to make money and return money to investors, and so, how do you align the social goal of doing this good to get the software into educator’s hands, the benefit of students, and making a return on equity?

Martin Dougiamas: I would disagree that that is the goal of a business. That is a model of business, a particular capitalistic model that has grown popular from the US.

Business is literally being busy. It’s an activity, so there are many ways to define business. The social good, and the social mission of a business defines the business. We aim to break even, we aim to pay for our activity, to pay all the people who are involved, that, essentially, are operating as a non-profit.

If there are excess funds at the end of the day, it goes back into the business for the next year.

It’s always operated like that ever since I bootstrapped Moodle, without any investors, 17, 19 years ago.

Investor Objectives

Michael Schwartz: You mentioned that, I think it was last year or the year before, that you managed to find investors who are aligned with this vision, but how do they feel about that? Because, at some point, they need to make a return on their investment.

Martin Dougiamas: The way that works is, as I said, we bootstrapped it for many years, so I was 100% owner of Moodle up until last year. What I found was that the motto we were operating under was growing, very consistently and very evenly, at a kind of a flat rate, not an exponential curve.

And it was starting to become urgent that we step up against some very large well-funded competitors in our industry, including Google’s, and Microsoft’s, and things like that.

So, to get that rapid acceleration, I did look for a financial partner who could help us out. I rejected 50 VCs. Really, around 50 that I talked to, because the conversations were always about, “How much profit will I make in so many years?” and they wanted all that kind of stuff.

I eventually met a family – actually that was in Tel Aviv, a conference I was at – a French family, who really understood the mission that we were aiming at, and supported what we were doing, and wanted to help.

From their point of view, it’s not about profits every year, if they want to return their investment, which they expect to be in decades rather than a couple of years. If it’s a growing business, and I own a percentage of it, in the future that percentage will be worth a lot more, and they can sell out and step off the elevator, if you like at that point, without any harm to the business because somebody else was stepping into the elevator at that point.

It really doesn’t have to be about profits to be a growing functional business that an investor can do.

Evolution Of Business

Michael Schwartz: Can you talk about how you generated revenues over the years, how did you generate revenues initially, and how that changed over time?

Martin Dougiamas: I had a computer science background first, I had the educator background, for the design and the content of the project second. And then, I was living on a scholarship actually, almost nothing, you know, a shoestring budget.

And then, I had to learn how to do business, so it was like this, the first stage was, people started asking me for help with the software, and I’d go, “Yeah, sure.” I was helping them for free as you do with a small project.

Eventually, I’d just start saying, “Look, I’d have to charge for this, you know.” And within a very small time, I had something like 70 clients, who were universities and businesses around the world. Silicon Valley Bank was one of them in the early days, in the early 2000.

And I was charging for services, and I got to the point with that 70 clients that I realized I was spending all of my time servicing them and not on the software, and I had to make a decision which way I was going to go. It was like, was I going to be the CEO of a big service company that made the software, or was I going to focus on the development, and I chose the second part.

What enabled me to do that was that some other people in the community were saying, “we’ve been doing this for a long time around education, technology, we’d love to do with Moodle – why don’t we become partners, and we’ll pay you a royalty?”

And with one or two of them, I developed a contract, which is a royalty contract, and they pay roughly 10% of the gross revenue on any Moodle-related services.

In return, they get to use the trademark that gets to be promoted around the community, they get to use the trademarks that we have all over the world, so that was such a real win-win situation, and that’s been the primary business model from, let’s say, 2004 until today.

We now have 80 Moodle partners around the world, but they range in size from very small companies with just a couple of people, up to large companies with thousands of people.

Royalty Collection

Michael Schwartz: And it’s basically on the owner system?

Martin Dougiamas: Yes, and that’s something that has been a slight problem enforcing the royalties. In the early days, it was much easier, the trust factor was very high, there were no problems. As we got more partners and things got larger, we started to feel the need to check up on these things, so just relying on royalties is not the only revenue stream in the future. We want to have a little bit more different control as we go forward.

Other Licensed Tool

Michael Schwartz: Are there any license components that you’ve developed, or are thinking about developing in the future?

Martin Dougiamas: There’s been none up till now, but there is something we have developed, which I can’t even tell you about, because it’s going to be launched next week in London. I’m going to be there.

Michael Schwartz: On February 27th, Moodle launched Moodle Workplace, a solution only available to a select group of premium Moodle partners.

Martin Dougiamas: But it’s a set of components that sits on top of Moodle for a very specific market, and markets include higher education, and K-12, and the workplace market. Workplace Learning is, in fact, where we get most of their revenue from.

So, it’s the workplace market where we were addressing with these extra products. And we feel okay about keeping those within our partner network, to give our partner added value. And it’s type of market that doesn’t mind paying for services like that.

Customer Segments

Michael Schwartz: You actually anticipated my next question, which was, how do you segment your customers?

Martin Dougiamas: I mean, it’s a lifelong learning, right from kindergarten right up through the workplace.

Moodle’s used in a lot of very interesting and diverse places. I was at the World Bank a couple of months ago, the World Bank was using Moodle in their development projects for 10 years. Every one of their development projects has an education component, and they usually use Moodle for that.

In the development space, in general, globally, there is a lot of use of Moodle. It’s also used by fire stations, in hospitals, everywhere you find learning and training, you find Moodle’s being used. We just focus on those three big sectors the most: K-12, higher education, and workplace, with the development side of things becoming rapidly rising one.

Moodle SaaS

Michael Schwartz: One of the previous podcast with MongoDB’s founder, Eliot Horowitz, he stressed how important it was for open source companies to launch cloud services.

I was reading a little bit about Moodle.net, which I guess is still in the development phase, but do you have any expectations around Moodle.net contribution to revenues in the future?

Martin Dougiamas: We already have a SaaS offering and have had for a couple of years, it’s called Moodle Cloud. And that’s, just press and go get a Moodle site very subscription-based, the traditional model of SaaS, which is very well understood, and that’s been growing continuously since we started, and we have something like 30,000 Moodle sites on that platform. It’s definitely the part of us going forward.

Moodle.net is actually the third step, it’s something I’ve been trying to build for many years. This is going to be the most successful because I’ve actually put a lot of resources fund at this time. And if you’d say it’s marketplace for content – pretty much – and a place for professional development of educators.

They are smart people, but any software that you put in the hands of people, it’s not going to be used until you are trained in it, and you have some support. So, just putting Moodle with all its many, many, many features in the hands of educators isn’t enough. We are really focused now on the professional development side.

Moodle.net is a social network that enables our community to help each other, in a very specific, direct way, so that, for example, a teacher who’s teaching Portuguese to German speakers can find another teacher, teaching Portuguese to German speakers, and then they can work together, share content, and share things they find on the internet with each other, as well as thinks they’ve developed with each other.

Now, in there, we have a whole plan to have a backup place of more advanced services, so that will bring revenue in the future. But for now, we’re just really focused on making it a really powerful, social network.

Moodle App

Michael Schwartz: You mentioned that most of the largest contributor to revenues was the service partner network is cloud number 2 – and is there a number 3?

Martin Dougiamas: The third one would be, we have branded apps, so we have a free app that students use to connect to the Moodle side. If they want, they can also use the web, but the app has added the advantage of working offline, and, of course, it’s better on touch screen. Students can do there courses on their mobile devices.

We sell a branded app, and that enables the institution to make their app with their name and their logo in the app stores, and it’s something that we create and maintain for them. So, that’s another upcoming revenue source that’s growing too.

Team

Michael Schwartz: Switching modes a little bit, can you describe your approach to building the team – how does location get its way into the higher equation, and what else goes into you figuring out, like, who do you want to bring onto the Moodle team?

Martin Dougiamas: I started in Perth, Western Australia, we never made a big deal out of that, so I know a lot of people don’t know it, but the bulk of the team is here in Perth.

Over the years, people have been coming through the community activities, and got really interested in being part of it, and seeing more of a way. It’s a lot of the people we hire we already know they have some experience that prove themselves, by taking part in various things around the projects.

It’s not just development, we also have a lot of conferences, we do about 20 conferences a year around the world. There is a lot of training, and all the partners, and all that is activity support stuff.

People come from my network. Perth is not a good place to run a business from, it’s really the end of the internet. So, you go right to the end, and you turn left, and that’s Perth.

I’m traveling a lot up in the north hemisphere to be closer to where all the people are, up in Asia, and Europe, and North America, and South America, for that matter. And more, more Africa.

Second headquarters is now in Barcelona, and we have 20 people there already, and that’s growing rapidly. That’s a lot closer to where the action is. It helps if people are near one of the big offices, but probably, I think a quarter of the company work from home remotely.

Moodle In 20 Years

Michael Schwartz: Where do you see Moodle in the next 20 years?

Martin Dougiamas: For me, it’s nothing less than building the infrastructure of the future. I mean, what do we want our infrastructures to look like? It’s basic as road, water, and electricity.

Education is so important for us as a species that it underlies everything. You look at people voting at elections, it’s all based on education and information that they have, and giving people context.

I’m a strong believer that the more wisdom you can accumulate, the more compassion you have, the better human you’re going to be.

So, for us, empowering educators is really about improving the world and to making open source a really good, high-quality, free software be a part of the infrastructure, as easy as finding a power point in the wall and sticking your device in it, and it just works, and everything charges up.

Moodle is already the mainstream product being used in education everywhere in the world, and it’s a step from there. When I go to countries now, I find them able to open doors, talk to very high-level people about their infrastructure that’s underneath all of their schools and universities, and talk to them about how can we move forward together to build that infrastructure to a higher, more efficient level, so that they are not wasting money, purchasing licenses from some software that they’ll never own – but that they own and control their own infrastructure, and contribute to the development of that infrastructure. So that it’s simply the best choice.

That’s basically what most of my work is now, and there’s so many opportunities in that area that I feel very confident that open source really is the future, and it’s not just my industry, it’s all the industries.

Look at Linux, how, of course, based on previous flavors of Unix, and so on, but if you look at all of these .coms, and all the infrastructure that’s driving all the websites and, you know, this tool we are using now to record this, underneath it all is Linux, just silently sitting there, quietly doing its work and making stuff happen, and that’s terrific.

You know, no one really thinks about it, talks about it very much anymore, but that’s how the world should be.

Open Source V. Cloud

Michael Schwartz: Do you think that we’re fighting an uphill battle against the cloud though, where there’s sort of this move to centralization and not operating your own infrastructure?

Martin Dougiamas: I think actually that is a phase, and that the idea of distributed and federated systems was kind of ahead of its time at various points in the last decade or two.

But I really think it’s making a comeback. Things like the GDPR, and it’s public starting to realize the control that very large profit-focused companies can wield over us.

If it was easy to be part of an alternative, I think people would more and more. And so, as the technology improves, and as we improve, I think – I don’t want to sound like a zealous idealist because I really don’t think I am, I’m quite a practical person – I think as technology gets easier, and you can make a decision based on knowledge and wisdom then, why wouldn’t you?

For example, if you could be a vegetarian, and eat food that tasted like meat and had all the advantages of meat, but you were a vegetarian, I think a lot of people would switch because there would be no downside. So that’s what we have to get to.

Saasquatting

Michael Schwartz: You’ve probably been following some of the discussion in the community about licensing, and the move away from the GPL, and also the introduction by certain open source companies of new licenses, to prevent large SaaS providers from using their software, without contributing back in any way. Do you have any thoughts on that trend?

Martin Dougiamas: I’m mixed, because I’m still a bit old school, where open means open, and freedom means freedom, and you’ve got to give people a freedom.

But I’ve also experienced the case, where a lot of people take advantage of us, without giving back, I can put the gilts on them that goes only so far.

Really, it’s going to be about them finding the right leverage for people to be part of your project, and to bring them in somehow. And, again, you’ve got to make it so that it’s just as easy to do so. You’ve got to make it in their interest to do so.
And it’s not easy, but I think there is always a way if you’re creative and you look at it. And we have a lot of companies who didn’t have to be Moodle partners, but have become Moodle partners because their benefit’s there for them.

And we don’t have to go around strong-arming everybody for that to happen. We hopefully use more carrot and less stick. It will depend on every project, of course.

Moodle Users Group/Foundation

Michael Schwartz: Moodle did a great job partnering with external organizations, not just your system integrators, but, for example, there’s a Moodle Users Association. Did the foundation ever get started? And could you also talk about the Users Association?

Martin Dougiamas: Sure. The Users Association was actually launched by myself, I started it, and we handed it over, so we have no control anymore. We just created it as a structure and let it go. And it’s going well!

That’s an organization of users who pay membership to be part of a decision-making process that decides how to spend all that money from the membership. They are restricted to only paying for core improvements of Moodle.

We regularly get hired by the association to develop things. That’s what the users want. So, this is working out really well.

It also gave a lot of people a way to contribute to Moodle that was compatible with their organizations. Universities don’t just sign checks and give them away, they have to subscribe to things, they have to have types of structures to be part of.

The Moodle Foundation is for a different purpose, it’s for being part of certain research-based proposals and projects that happened, primarily in the EU, but also elsewhere.

In Europe, there’s millions and millions of Euros being applied to educational-related projects. And very often, people use Moodle to satisfy those projects. So, they’re like, “free is like funding.” They use Moodle, they build something. After 3 years, nobody cares. It just kind of has no major plan, and their project dies. It’s a complete waste of public money.

The Moodle Foundation is designed to be an actor in those situations, where it can bring in the value proposition that we will make sure that the money goes into this project, if there’s any development that occurs, that it gets done well, that we make sure it gets into the main code base, that it is supported by the main Moodle enterprise, for years and years to come.

That helps those projects be more successful, get starting in the first place. And it also means that public money goes toward open source software that everybody benefits. And sometimes a nonprofit organization needs to be doing this thing – it can’t be a company. So, that’s why the Moodle Foundation is a non-profit, and it’s based in Brussels.

Protecting IP/Brand

Michael Schwartz: Sometimes, the foundation is used to hold the trademark – have you ever thought about safeguarding the code base in any way, for using a foundation for that purpose?

Martin Dougiamas: I have, and I know that’s a bit more common to do it around that way, but there’s no downside with the way we’re running now.

The code base is actually under my own name at the moment. The Moodle Company is involved there, although we are the stewards of it.

I think if the Moodle Company disappeared, it wouldn’t have particular control over the software that the people couldn’t get around. So, yeah, we thought about it, it’s probably too much trouble to go to changing at all like that without any real benefits, so it’s probably not going to happen.

Closing Advice

Michael Schwartz: My last question is, do you have any advice for entrepreneurs who are starting a business around open source?

Martin Dougiamas: Yes. I would say, get a vision and mission, strike early, like, take some weeks when you’re doing nothing else and really, really, really think about what you’re trying to do if you want to have a very clear, social mission, in my opinion.

We are literally all living on a little pinprick of dust floating in space. So, keep that context in mind.

If you are creating your project, what are you trying to do with it? What problem is it really solving? How is it helping the planet? How is it helping the rest of us? And make it really meaningful for yourself, because if you don’t have some meaning like that driving you, you might not have the energy to keep going for years, years, and years when things seem grim, when things seem difficult. You’re going to need that clarity of vision.

I’ve refined our mission and vision a couple times over the years. The one we have now I feel very happy with, I’m happy to stand behind it, communicate it to anybody. We have very strong values as well, we have five values of education, innovation, respect, integrity, and of course, openness.

And having those in your mind, in your pocket, it helps you structure your organization, helps you plan your activities, helps you choose what to work on and what not to work on. I’d say that that would be the most important advice I would have given myself at the beginning. It is I knew the stuff intuitively, but I couldn’t express it all, I couldn’t lay it out, it wasn’t on that website. And it would have helped.

The second thing I would think of, I wouldn’t worry too much about monetization at an early stage. I would make something that people really want because if it’s wanted, if it’s needed, opportunities will come up. You would work it out later on. And you just have to find some way to stay alive. That may involve doing another job for a while, just, I don’t know, moving out into the countryside or something for a bit.

If you got a strong mission behind you, it’s not going to be a problem. The money will sort itself out once you have something that’s of value. So, it’s probably the two main things I think I’d suggest.

Michael Schwartz: That’s great. Martin, thank you so much for your time today.

Martin Dougiamas: Absolute pleasure, Mike. Thanks for the chat and the opportunity, and I’ll see you around the world somewhere, I hope.

Michael Schwartz: Okay, and best of luck with Moodle.

Transcription and episode audio can be found on opensourceunderdogs.com.

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