What did we miss?! Apparently a lot. War, Oil, and Inflation have put a damper on the public markets and given the private markets a bit of pause as well (only 4 open-source deals in the last two weeks!). Tech stocks and the open-source index, in particular, have been hammered in recent weeks with investors moving to a risk-off posture amid broader macro uncertainty. Despite recent volatility in the markets, the velocity and pace of the open-source world have never been faster. Enterprises are continuing to adopt open-source solutions across their organizations and the ecosystem is being turbocharged by the cloud. A recent industry report noted that over 75% of organizations were more reliant on open source compared to 12 months ago and over a third had increased their open source usage “significantly”. Although the market will go through shifts over time, the underlying principles, applicability, and adoption of the open-source category will continue to persist.
Sidebar. If you have a chance, check out Jeen-Yuhs, the documentary on Kanye West. One of the fastest internal motors in the business and a lot of lessons on perseverance and grit that are broadly applicable to startups.
New segment alert! Over the next several months we are going to dig into the Netbox open source project that just crossed 10k stars! Netbox is a fully open-sourced platform for modern network automation and infrastructure resource management, with feature-rich, API addressable functionality for IP address management (IPAM), data center infrastructure management (DCIM), and more. Netbox was originally created at DigitalOcean by Jeremy Stretch who came onboard at NS1 to shepherd the project. Mark Coleman recently joined as the General Manager of Netbox and he will be interviewing leaders (Product, Sales, Finance, Marketing) within the organization to give insight into how the project the evolving within the context of various stakeholders.
The first segment is today where Mark interviews David Coffey, the Chief Product Officer at NS1. Check it out below!
Private Markets
Faros, building tools for the future of engineering operations, announced their $16M Seed led by Signal Fire, Salesforce Ventures, and Global Founders Capital.
Orkes, makers of the Conductor workflow orchestration tool, announced their $9.3M round led by Battery Ventures and Vertex Ventures.
Calyptia, an enterprise platform for observability from the makers of Fluent Bit, announced their $5M Seed led by Sierra Ventures.
Quickwit, a distributed search engine for databases, announced their $2.6M Seed led by FirstMark and firstminute.
Public Markets
To track the performance of COSS companies, we’ve created an equal-weighted index comprised of public names including Gitlab, Kaltura, Couchbase, Confluent, MongoDB, Elastic, Rapid7, Fastly, and Jfrog.
The COSS Index started out this year down over 50% [!!!] in the last 10 weeks.
COSS Index -51%
NASDAQ -20%
S&P 500 -12%
After several months of resurgence, the COSS Index nosedived in the last 10 weeks to drop below positive returns over the past three years.
COSS Index -12%
NASDAQ +65%
S&P 500 +49%
COSS companies traced back their valuations to pre-pandemic levels trading 3 multiple turns lower than their five-year average. While the NASDAQ came back in line with its historic average, the Emerging Cloud Index and the COSS Index are approaching the lockdown market nadir back in March 2020.
COSS Index: Current Multiple 9.7x | Five-Year Mean: 12.7x
Emerging Cloud Index: Current Multiple 7.5x | Five-Year Mean: 10.3x
NASDAQ Composite: Current Multiple 3.5x | Five-Year Mean: 3.4x
Interview with Mark Coleman and David Coffey
Introduction
Mark Coleman: Welcome to this, the first episode of many for the OSS newsletter. My name is Mark Coleman, GM NetBox at NS1, and I’m going to be speaking to various people from around NS1 about how open source adoption and innovation interplay with the various departments in a business. Today I'm joined by David Coffey, Chief Product Officer at NS1.
David Coffey: Thanks for having me, Mark. You know I'm really looking forward to having this conversation and being your first guinea pig. I think we can have a lot of fun with this.
Mark Coleman: Maybe you could tell us a little about yourself and how you came to NS1?
David Coffey: I've been the CPO at NS1 for almost a year and a half now. With DNS and core networking services, you’re operating at a really low level and end up tackling a variety of hard problems for customers who are moving as fast as they can by utilizing brand new technologies, or who are taking older infrastructure often involving very large heterogeneous networks and figuring out how to solve at the software, instead of the hardware layer.
This is really fun and really challenging at the same time, and one of the reasons why it’s so fun is that you get to work with some of the best businesses in the world. That’s how we started to notice what NetBox was doing in the industry, by being a stable open-source project that enabled people to solve real-world problems and make it their own at the same time, which to me is really what open source is about right? And then on top of that, what made sense to us was the alignment between NetBox and our mission.
Interview
Mark Coleman: So, I think it’s interesting that NS1 was initially a fully closed source company, in terms of the software NS1 shared as opposed to consumed, yet now outside of NetBox there are a number of open-source projects out there. From your perspective as CPO, how do you think about that mix?
David Coffey: There are a few ways to look at this Mark. To name a few; there’s how you run a product organization including open source projects, how to solve problems for customers, and then how you make money is a third.
So if you look at solving problems for customers. Customers are going to solve the problem one way or another, and I hate to say it that way, but if there is a way to solve the problem customers will figure out how to do it, even if it looks like a Rube Goldberg at the end of it all. But there are a lot of problems being solved out there, elegantly, and that’s really where I think open source is often filling those needs, by bringing people together who are working on the same hard problems.
You’ve got to view open source as being hugely beneficial, both in enabling people to take part to solve their own problems, but then also taking part in the overall project or product direction, but only if open source communities are well run.
But if you think about comparing that type of model and engagement with customers to what we typically might call traditional software, you still want all of the same levels of engagement and input, and cooperation in partnership with customers as well. So as long as the customers are aligned, there’s really no conflict between the two approaches.
Mark Coleman: And what about making money from open-source software?
David Coffey: Making money from, or adding support for open source initiatives by working with the community to figure out ways to fund it is another way to look at it.
So when you look at how to make money, via any model, if the value-add on top of that is significant enough people will pay for it, but first and foremost, you don’t want to negatively impact that open source project. You want to make sure that you maintain the open-source ethos, culture, and identity which made it great to start with.
Mark Coleman: When I was doing some research before this call, I started thinking about the closed source and open source being much more of a spectrum, than a yes/no choice…
David Coffey: You know I think that's absolutely correct. The customers, or the users that deploy the software, and where they sit in that spectrum, can shift over time, as can the broader community.
I think it was Andreessen that coined Product-Market Fit and whether it’s closed or open-source, you need to understand what the market is and what that market wants to accept, and then understand the capabilities of your software and how it fits together. You really have to pay attention to what the market is demanding so that you can meet the market where they are and that market is constantly shifting, when you look at some of the best products that are out there, they’re always following and understanding how the market is changing, the trends that are emerging, how the market might be deviating and what the adjacent markets are.
So if you’re running an open-source project, if you have a great open source project, you’re in tune with the community, and that’s no different for closed source.
Mark Coleman: I wanted to touch on open source through the lens of consumption here at NS1. I can only remember one company when I was a programmer, where we had strict rules about which open source libraries could be consumed, but where I’d often see push back was with larger open source projects like frameworks, etc.
David Coffey: You know, there are a ton of situations with open source, where you have great user experiences, and as a developer, you have a pretty decent degree of freedom over what you’re doing to reach your end goal, because you’re incentivized to deliver features.
Companies must pay attention to having great processes in place that support and protect engineers, ideally in an automated way. In my career I’ve been caught out, on multiple occasions, where something has gone from open to closed due to a license change, and then the companies behind those tools will start seeking compensation.
I would never suggest not using open source for that reason because that's kind of worrying about a “What If” scenario and a very distant edge case, but I would suggest automated processes to support and protect engineers.
Mark Coleman: So I got a message the other day which said “I’m sure this is a stupid question but, does NS1 own NetBox?” and I thought, open source is both incredibly popular, but also unintuitive, which is probably why this person felt like it might be a stupid question. But really, it’s a very good question, don’t you think?
David Coffey: I do. It’s kind of like you don't actually own the project, or that owning the project also means owning all the responsibility and accountability behind the projects as well. I think it’s more like, we’re the stewards of the project. We’re funding the project in order to move it in a direction that we think is in one way beneficial to us, but we’re also being good stewards of the project, by concentrating on not breaking what made it great in the first place.
Mark Coleman: Right, and after not really knowing how to answer the question succinctly at first, I started thinking about it a little more and thought back to my time with the CNCF and Kubernetes and all the other tools, like Tinkerbell that I was more directly involved in.
You could go and fork many open source tools and then you’d have a copy of the code, but outside of the code there is a lot of value in everything that goes around it, like the maintenance, documentation, community contributions, and a lot of other things.
The huge amount of human hours that go into keeping an open source project healthy means that while you could fork a project and have similar value on day 1, you’d find that value reduced quickly, unless you were able to replace that human input.
David Coffey: Yeah I think I think what you just highlighted, though, is “what's the value of the project” and for everybody, the value of the project is going to be different. Some people could get value from the bits they’re using right now, but who’s responsible for all those other things and if they’re valuable to you as a member of the community, the fork might not be for you.
So at NS1 I’m responsible for the direction of the products, responsible for making sure that we deliver the products and I'm responsible, ultimately, to our shareholders to make sure this is moving in a positive business direction.
And that's the same kind of mindset people have when they're driving stewardship of their open source project and if you fork a project, and don’t replace those things you shouldn’t be surprised if your fork doesn’t share the same popularity as the original, and maybe that’s ok for you.
Mark Coleman: So when we talk about the importance of taking over all the responsibilities for a fork of a project and not just the code, it’s hard not to think about some very well-funded technology companies like AWS.
David Coffey: I would argue, you never really want to be in direct competition with Amazon, and it’s always important to understand what direct competition means, because it’s pretty specific, but if you are in direct competition, Amazon can throw more resources; more bodies and a lot of other things at the problem. That’s going to be difficult to win.
But let’s flip that again for a second. A very important question is whether or not you’re really competing, for example, they are focussed on managed services in their own environments and that is the value that they are providing.
Open source has a high degree of flexibility and it’s free, and free is a hard thing to compete with, and then again it’s always good to come back to product market fit and understanding the market you’re in as we discussed earlier. If you can understand the pain you're solving for with the people and the feature sets they care about, you can accentuate those [solutions] and grow them in a different direction.
Mark Coleman: So to lean on your product career, if somebody is reading this and they’re looking to be a product professional for an open-source project, what should they be aware of?
David Coffey: That's a very good question Mark, and you know, there are a couple of different things but the main guidance I would have is to keep an open mind. It’s an open-source project and that means that it has grown somewhat organically, which also means that the user personas are going to vary greatly. You’re going to need to know why they find the product or project valuable, and you’re going to have to preserve that value, keep it stable, or change it.
It’s going to be messy, but it's very rewarding when you do it well. The only other thing I would say is, talk to other people in the industry. They love to share and they’re very committed and passionate about open source projects. And within the open-source community, you’ll be engaged with, they will likely be very welcoming to people that genuinely want to help. Make time to go in and talk and build those relationships and have those conversations and keep them up because they are very worthwhile.