Interest in evaluating and investing in open source startups is on the rise again after a dip in the past couple of years. There is a huge shift toward using open source platforms, particularly in the networking space. New open source initiatives such as ONAP (Open Network Automation Platform), OSM (Open Source MANO) and OpenConfig are being driven by the service provider community and large enterprises. As a young growing company focused on open source for networking with a unique approach (that tier-1 service providers appreciate), we are invited to many network transformation discussions with industry giants. Because of this role in the ecosystem, we can see relevant market trends before most. Based on what we’re hearing from across the aisle, we believe now is the time that investors should look closely at opportunities to drive and benefit from the emerging wave in this space.
It would be easy to conclude that this trend is just the industry’s way to get cheaper software and shift profits from the large vendors (like Cisco and Juniper) to the network buyers. But that would be an oversimplification of the opportunity. Lowering CAPEX and OPEX costs are surely in play. However, equally important are:
- The need for better network optimization and automation tools
- The requirement to move faster than the traditional hardware-based networking vendors can move and
- The desire to co-innovate and take more control of the tools
These factors are driving the open source trend just as much, if not more than the cost factors. Wise investors should look at these drivers as opportunities. Companies that can deliver these benefits using open source software stand to gain significantly.
All of this raises questions about the business model of open source. Conventional wisdom goes something like: “RedHat is the only company that has been successful at monetizing open source”. Nothing could be further from the truth. Many companies have been successful using open source as the centerpiece of their product strategies. Elastic, GitHub, Cloudera and Mulesoft are recent examples of open source-based businesses. In the past several years, MySQL, Zensource, Springsource, Zimbra, JBoss and Suse have all had very successful exits while building a business on open source platforms.
There are many different types of open source products and services have proven to be valuable to customers and revenue-generating for vendors. Vendors that provide these types of services on an unchanged open source base are referred to as “pure-play” vendors. The intention of pure-play vendors is to ensure that the customers reap the full benefit of utilizing open source software, including no vendor lock-in. Let’s take a look at these types of these pure-play offerings:
- Product support for the open source code base – Examples of this include defect resolution, testing, continuous integration, extended support, upgrade and migration support and open source community advocacy. All of these are valuable services not typically provided by open source communities.
- Applications running on an open source platform – These applications perform specific use cases or user-facing functions. Typical applications perform zero-touch configuration, overlay/underlay network control, traffic engineering, planning, configuration management, inventory, analytics, service assurance, fault remediation or policy control. Narrowly-focused, these applications can be of great value to service providers and of even greater benefit when combined with other open source platforms.
- Device or systems integration – There’s a lot of value and ongoing benefit to assuring that the open source platform interfaces to various devices continue to operate across revisions as well as support for new network devices. It’s also no secret that deploying open source platforms is complicated. Working with experts in the space, and your named platform cannot only accelerate integration and deployment times but can be part of a knowledge transfer initiative as well.
- Custom software development – All network operators have functions or services that they want to be specific to their environment or service. Vendors are in a very good position to provide custom software development because of their deep understanding of the open source platform.
Are there questions about the business open source business model for the networking space? Yes, absolutely there are yet-to-be-answered questions. But by the time we have all the answers, the best investment opportunities will have gone. So, now is the time to look at investing in open source networking – call us if you want to understand more about this space.
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