Open Source Fundamentals
The open source community can provide valuable product feedback, early customer traction, and an effective go-to-market strategy for companies at any stage. In this resource, we delve into the dynamics of open source products, different GTM models, how they align with your business strategy, and developer relations frameworks that can boost product adoption.
Special thanks to Lightspeed Enterprise Partner, Nnamdi Iregbulem, for collaborating on this resource.
Product Implications: Open Source vs. Paid Enterprise Edition
There's a saying that goes, "With enough eyeballs, all bugs are shallow." With a large open source community you can quickly identify problems, resolve product issues, and encourage community contributions to the code base. However, it's essential to decide early on which features will remain open source and which will be part of a paid enterprise edition. Once a feature is in open source, it's challenging to restrict it later (both technically and in terms of loss of trust within the community).
Features focused on enterprise-class needs, such as observability, security, and governance, are good candidates for a paid edition. While some might consider placing production readiness behind a paywall, it's trickier than you might think.
Ideally, open source should be production-ready to attract a wide audience, including serious organizations that prefer not to pay for open source IP. Try not to leave potential demand on the table; make open source as accessible as possible.
One intriguing concept in open source is the "Eyeball of Open Source." This approach treats open source as a free trial, with the expectation that most users will eventually become paying customers. This differs from the traditional open source model where the open source version remains freeware.
Community Building: Your Secret Weapon
Community building lowers barriers for users to get involved with your product, accelerates product adoption, and serves as a source for new talent.
Early on, focus on community growth rather than business growth. If you address a significant need, your users may naturally push you to create commercial features, and your users' demands could make a compelling case for your product's value.
Be wary of relying too much on vanity metrics; instead, focus on consistent growth over time such as new users per month. Cumulative milestones, like total lifetime sign-ups or GitHub stars, can be misleading.
Project Stewardship and Licensing
If you're starting an open source project that didn't originate within your organization, it's important to address project stewardship. The sooner you gain control of the project, the better. This allows you to evangelize the technology beyond your organization's walls, adapt it to the wider community's needs, and ensure alignment with the project's goals.
Control over the project also prevents it from falling into "community rot." This occurs when a project lacks a dedicated organization committed to its commercial success, which can lead to community deterioration and misalignment with the project's original vision.
Licensing
Licensing can also be a complex issue. Address it early to prevent complications down the road.
Key considerations include:
- How to track and enforce usage.
- What to disclose to users during onboarding.
- What to offer in your free tier.
Keep in mind that changes in licensing can lead to pricing pressures and potential backlash, so tread carefully.
Diverse GTM Models
Now that we've explored the fundamentals of open source, let's shift our focus to GTM models and how they have been successful for different companies.
1. Confluent: Open Source Adoption with High ACVs
Confluent is a prime example of widespread open source adoption while monetizing a smaller segment with high Annual Contract Values (ACVs). Most Confluent users leverage open source solutions, with the Confluent platform offering enterprise-grade features around Kafka. They charge on a per-day basis and add support charges on a per-node basis. Despite the widespread open source usage, Confluent's revenue largely comes from these high ACVs.
Pros:
- Exceptionally high ACVs.
- Strong tie between usage and pricing, similar to a consumption risk model.
Cons:
- A portion of support revenue is masked as product revenue.
- Vulnerable to price competition, particularly from providers offering cheaper support.
- Potential cannibalization between self-hosted and cloud-based offerings.
2. GitLab: Seat-Based Model with a Buyer-Based Open Core
GitLab follows a more traditional seat-based GTM model, balancing a robust open-source community with various pricing tiers. It’s tiering structure is based on user roles: individual contributors (free), directors (premium), and executives (ultimate). This approach enables GitLab to serve a broad user base with different needs.
Pros:
- Provides a good entry point for users with different roles.
- Offers diverse pricing tiers for varying user needs.
Cons:
- Friction when upgrading between pricing tiers.
- Frequent price increases, which can lead to customer concerns.
- A small number of customers generate a disproportionate number of support requests.
3. HashiCorp: Popular tool as Loss Leader, Monetizes Highly-Valued Features
HashiCorp is known for its Terraform and Vault products, where Terraform is the dominant open source tool. In this case, Terraform is considered a "loss leader," as it may not generate significant revenue directly but is a powerful way to attract users and drive widespread adoption.
On the other hand, Vault focuses on security and governance features and is where HashiCorp prioritizes monetization. While Vault may have fewer users than Terraform, they are more willing to pay, especially from enterprises that value robust security solutions.
Pros:
- Clearly distinguishes what organizations are willing to pay vs. not.
Cons:
- Requires significant open source base to make up for lower ACVs.
- Too many different products can confuse product strategy and muddle prioritization.
Self-Hosted vs. Managed/Cloud Offerings: Why Cloud Products are Essential
Cloud offerings are essential for modern software companies. Although there were concerns about cannibalization in the past, it's now clear that cloud products are indispensable. The advantages are evident: cloud products improve user experience, reduce operational complexity, and streamline scalability. When you control the cloud offering, everyone operates on the same version. Additionally, you can provide managed services, making it more convenient for customers.
For infrastructure products, having a managed service has strong user experience arguments. These include handling scalability, controlling upgrades, and delivering a consistent user experience. By operating a cloud version, you ensure your product's quality, as the demand for reliability and uptime forces you to address user issues. It's a valuable exercise in maintaining product integrity.
When considering a cloud offering, especially in early-stage companies, it's important to keep the self-hosted and managed code bases in sync. A divergence between these 2 versions can lead to complications when trying to bring them back into alignment later on.
Founder-Led Sales Strategy
When dealing with open source and developer tools, the sales strategy often needs to be approached uniquely. Our recommendation is to have founders lead the sales efforts in the early stages. Hiring traditional salespeople too quickly is a common mistake – this industry has specific nuances that not all sales professionals are equipped to handle.
Sales engineers can be invaluable for technical products, as they can speak the customer's language and offer credibility with technical users.
Even without a dedicated sales leader, your company has a sales motion. This can be driven through various channels, including mining the open source community and developer relations efforts. It's important to have a pipeline and ensure that you are actively engaging with potential customers, even before the official sales team is fully established.
Developer Relations Flywheels
Building relationships with developers is essential for a developer-focused business. It's ideal to establish these connections early, sometimes even before you have a product to sell.
The goal is to create a developer community that grows and sustains itself over time, with enthusiastic members who feel like they are part of something bigger than themselves.Your role as a company is to kick start this process.
While open source plays a significant role in nurturing communities, it's possible to build developer relations even without open sourcing your product. The key is to create a sense of ownership within the community, where members take an active role in product growth and development.
Developer Relations Frameworks
Content: A Long-Term Investment
Content is a valuable asset for developer relations that gains value over time. It's unlikely that you'll publish a few blog posts and instantly see a surge in traffic. While it's possible, in most cases, the real benefits become apparent gradually. This is why it's crucial to invest in content early on.
Digital Ocean, a company known for its excellence in developer-focused content, has an interesting rule of thumb. They found that each piece of content they published could acquire a new customer for a month. This rule of thumb helped them gauge the return on investment for their content efforts. It's a testament to the long-lasting nature of quality content.
Content take many forms, such as blog posts, documentation, videos, and podcasts. Each of these has its unique value and return on investment. Videos, for example, are gaining prominence in developer circles, providing an efficient way to leverage YouTube influencers for product promotion.
However, the challenge is finding the right people to create it. Engineers, who possess deep knowledge and expertise, might not always be eager to write down what they know. Founders can be valuable contributors, but they are often pressed for time. To address this challenge, it's important to involve your entire team in content creation.
One effective strategy is to make content generation a natural byproduct of your team's ongoing work. When engineers write documentation for new features or create code for upcoming releases, consider turning parts of this process into blog posts. Share your experiences, insights, and even the challenges you encountered during the development process. Your audience will often appreciate this authentic content.
The Power of SEO
SEO (Search Engine Optimization) is a powerful tool to ensure your content reaches the right audience. Targeting the right keywords can help attract people who are actively searching for what your product offers. While SEO can deliver quick results, it also typically works like a compound interest investment, growing slowly but steadily over time.
While SEO is important, it's important not to overcomplicate it. You don't need to become an SEO expert. It's easy to get bogged down in details like keyword analysis and headline optimization. Focus on creating high-quality content, even if it's not perfectly SEO-optimized. A great piece of content that isn't perfectly optimized is often more valuable than a perfectly optimized piece that lacks substance.
Hiring for Developer Relations
Hiring for developer relations can be challenging because it requires a unique blend of technical expertise and excellent communication skills. These roles are emerging, and finding the right people can be tougher than hiring traditional engineers.
One strategy is to identify current engineers who have the potential to transition into developer advocacy roles. Look for engineers who are naturally inclined toward public speaking and community engagement. Many engineers don't want to write code forever and could be the perfect fit for this position.
Rather than trying to poach established developer advocates who are already famous on social media platforms, focus on up-and-coming individuals. Many talented individuals are on the cusp of breaking through and building their reputations. They're often more open to new opportunities and may be undervalued by other companies.
