From Silos to Services: Cloud Computing for the Enterprise

Mar 31 2018   6:25PM GMT

Can Open Source and IPOs Fly Together?

Brian Gracely Brian Gracely Profile: Brian Gracely

Open source

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There was some buzz in the industry about a week ago as Pivotal finally announced their intention to file for IPO by filing their S-1 document with the SEC. This has long been rumored to be Pivotal’s plan, since they have taken $1.7B in funding (both from companies within the Dell/EMC/VMware family, as well as outside investors such as Ford, GE and Microsoft). This was the first time that Pivotal had to publicly disclose many aspects of their business (customers, revenues, costs, breakdown of the business mix, etc.); with more more detail than was provided when their numbers were reported by EMC back in 2015. We previously looked into those numbers in the context of the changing landscape in the PaaS and CaaS marketplace.

There has been no timeline established for when Pivotal might attempt an IPO, and there are also rumors that Dell or VMware may take actions to avoid an IPO. Lots of speculation happening before the traditional Dell World (previously EMC World) event in May.

But all of that aside, it brings up the question about how compatible today’s “open source centric” startups are with eventually growing a successful companies to IPO. Pivotal’s James Watters has argued that Pivotal isn’t an open source company. Other recent IPOs from companies that were open source centric, including Hortonworks ($HDP), Cloudera ($CLDR) and MongoDB ($MDB), have also gone the route of “open core” business models with relative success. All took large levels of VC funding (Hortonworks – $250M; MongoDB – $311M;  Cloudera – $1B), but have all been able to grow revenues since their IPO. And in most cases, those companies were primarily focused on being a software-centric company, while Pivotal has historically been more of a services-centric company that also sold software.

Venture Capitalist and Startup founder Joseph Jacks believes that there could be many more IPOs on the way. He tracks Commercial Open Source Software companies with more than $100M in revenues  (note: private companies revenues can not be verified as they are not publicly published) and believes this growing list is an indication that open source is becoming more mainstream in Enterprise accounts.

Of the companies on the list, more of them have been acquired prior to IPO than have completed the IPO process. When this happens, especially if the acquiring company is not strong in open source, they original company’s technology often no longer remains open source. It is often very difficult to merge proprietary and open source cultures and development models, as we recently saw DellEMC eliminate their open source focused {code} team.

Given the uniqueness of the Pivotal situation (high VC funding levels, Dell ownership levels), it’s not clear if their outcome – IPO or acquisition (or other) – is indicative of more open source centric IPOs in the future. We may have to wait for another 1-2 IPO declarations from that list before we can see any new trends emerging.

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