Open Source Explodes Enterprise Procurement
MOUNTAIN VIEW, Calif. -- OpenStack Days Silicon Valley 2016 -- Open source gives startups an opportunity to shoulder big vendors aside by leveraging the cloud to disrupt traditional relationships, says Martin Casado, a pioneering software-defined networking entrepreneur turned venture capitalist.
"It turns out one of the most difficult things for a startup to do is actually go to market," said Casado, a general partner at Andreessen Horowitz, in a presentation. "The incumbents have sewn up the go to market space."
Incumbent vendors have literally decades of relationships with enterprise customers, predating the Internet. These relationships transcend an individual salesperson -- a startup can't disrupt the relationship simply by hiring key salespeople. IT managers have worked with their vendors for 30 years, those vendors have come through every time, and the IT manager knows the vendor CEO personally. Enterprise procurement processes are "baroque." Big incumbents know how to navigate enterprise procurement, but startups don't, Casado said.
Big incumbents provide training and certification to IT staff, who then "put it on their business card, because they get a raise" for getting certified. Likewise, big incumbents have relationships with analysts, who can explain their products, and big incumbents lock in the channel.
"In my experience, building an enterprise company to take multiple products to market is the most difficult thing to do," Casado said.
And Casado knows. He co-founded Nicira Networks, which pioneered SDN, and sold the company to VMware Inc. (NYSE: VMW), where he headed their SDN effort until five years ago when he left to become a VC at Andreessen Horowitz.
But that model is changing. Developers are flexing their muscles in IT departments. And developers' buying methodology is different. They don't care about analyst reports and certification training. "I've never seen a developer with a certification on their business card," Casado said. "I have seen very few developers with business cards."
Developers don't have procurement processes. They just swipe a credit card to get the infrastructure they need, Casado said.
What do developers care about? Community, product elegance, open source and low friction in buying, Casado said.
And that's where startups coming in. "[Developers] care about things that are very much in your domain if you're a small technical startup, because you do many of those things anyway," Casado said. Developer-centric startups are starting to look very much like consumer companies.
"This more than anything else is going to shape the way the infrastructure community is going to look in the next five years," Casado said.
In this new world, open source drives startups to market, but it doesn't build sales. "If you're doing open source and you're attracting the developer, what you're really subverting is product marketing, not sales," Casado said. Developers try out open source and become champions if they like what they tried -- which subverts the marketing process -- but that doesn't mean they're willing to buy. Startups need a salesforce to sell..
And opens source is difficult to monetize. Casado quoted an estimate that $7 billion has gone into open source investment, but only $1 billion has returned.
The Red Hat Inc. (NYSE: RHT) model, providing on-premises open source software and selling support and maintenance, is obsolete.
The new model, which companies are succeeding with, is open-source-as-a-service. And that's where the cloud comes in. Vendors provide open source to build credibility and a user base, and then offer the same functionality as a service, over the cloud, using proprietary code, with open, standard APIs, Casado said.
One example of a company that has succeeded with this model is Github. "They didn't even build git. But they are certainly drafting behind an open source community," Casado said.
"I don't know what the next set of companies are but if you have a good idea please talk to us," Casado told developers.
— Mitch Wagner, , Editor, Light Reading Enterprise Cloud