Open Innovation Software Platforms – Customer-Led Innovation

In just the last few years, enterprise data centers have undergone an unprecedented transformation that has impacted every layer of the technology stack. While the widespread adoption of cloud-hosted infrastructure and software-defined tools for storage, networking and security has been written about extensively, another and even more profound change in the data center is also under way. Specifically, the paradigm by which enterprise software is being developed, delivered and deployed is undergoing a radical makeover. Enterprise customers, faced with the daunting task of adapting their data centers to a data-driven, mobile and cloud-optimized world, now need their software to be more innovative, cost-efficient and robust. In response to this pressing customer need, a new breed of infrastructure software providers are employing a forward-thinking approach that we call OISP, and they are rapidly gaining traction. The push into open innovation software platforms is a direct response to what enterprise customers are asking for, and will form the basis for the next generation of leading enterprise infrastructure software companies.

The push into open innovation software platforms is a direct response to what enterprise customers are asking for, and will form the basis for the next generation of leading enterprise infrastructure software companies.

For much of its history, enterprise software was exclusively created and packaged by large, proprietary software vendors. This left enterprises in a bind, limited to adopting new technology only as fast, or as slow, as their vendors developed and released it. In the late 1990s, many open source software technologies emerged almost overnight to challenge this status quo, harnessing developers at large to drive rapid innovation. These open source offerings were widely adopted, but their purpose was less about driving innovation and more about leveraging the community to create open and free alternatives to existing technology layers (e.g., app server, OS, hypervisor, relational database). The rise of open source allowed customers to break free of their vendors’ development cycles and leverage robust, community-developed software that cost far less than existing, proprietary solutions. Today, the use of both open source and proprietary software solutions in the data center is the norm. Customers have evolved, though, and are now facing and solving new problems. As a result, many of these customers are looking to drive business value beyond just cost savings and find software that better serves their evolving needs.

This new era of software is being defined by an innovative new model: OISP, or open innovation software platforms. At the core of OISP are open source technology components. Customers benefit from an open core, which harnesses broad participation from the community and encourages the most forward-thinking developers to solve previously unsolvable problems. As we learned with earlier generations of open source, the rate of innovation dramatically increases when software ecosystems are open and encourage diverse engagement. For example, according to Open Hub, Apache Hadoop has seen more than 430 man-years of code contributed in just the past five years from a broad and strong community of developers. An ecosystem will quickly grow around these open source platforms because developers can build freely, unafraid of becoming attached to a niche, proprietary platform or balkanized standards. Working in concert, all of these elements provide customers with exciting, high-value technology platforms to drive their business forward even faster.

Unlike the first generation of open source software projects, which were largely replacements for existing technology layers (and hence easier to integrate and deploy), OISP companies promote a set of new technology standards and advances.

Like all disruptive technology, the cutting-edge innovations at the heart of OISP present challenges for enterprise customers seeking to adopt and deploy them. Unlike the first generation of open source software projects, which were largely replacements for existing technology layers (and hence easier to integrate and deploy), OISP companies promote a set of new technology standards and advances. Many of these modern open source technologies (such as Docker, Cassandra, Hadoop) were created within large consumer Internet data center companies like Google, Facebook and Yahoo, and were built to solve fundamentally new problems that couldn’t be solved by incumbent vendors. They grappled with a modern set of challenges, including massive Internet scale, vastly distributed environments and elastic/multinode resources, to name just a few.

A significant majority of enterprise companies today face a similar set of challenges (and opportunities), and as a result are rapidly adopting these same new open source platforms en masse. However, implementation and usage can be failure prone, particularly because the open source projects that underpin OISP companies typically lack the key features and functionality that enterprises need to take full advantage of their potential (which makes sense, given that many of these tools were created in Internet data centers and not optimized for external enterprise environments). Among these features are the ability to manage, secure, monitor, govern, drive SLAs, process chargebacks, audit, integrate into existing workflows and legacy infrastructure – the list is long for operating complex software at scale in an enterprise.

To deliver long-term value to enterprises, OISP-based companies need to have a sustainable business model. They can start by leveraging the ingenuity in the open source core, but they also must create a broad set of essential software features that enable this core to be effectively deployed. This requires developing proprietary software that can tailor the features noted above (governance, security, management) to the specific needs of enterprise customers across all types of industries. Driving the development of the open core, as well as the customized enterprise-specific tools that sit on top, requires considerable resources. Quite simply, the low-margin support-and-service-only model used by many open source companies in the past and still today can’t generate the revenue or high margin needed to do that. Further, the model does not provide the “help” enterprise customers need to fully realize the value of the new open source platform. This help could come in the form of traditional open source training, services, support or even hardware appliances, but also needs to include the proprietary value-add enterprise software functionality discussed above – delivered either on-premise or as a cloud-hosted infrastructure service.

OISP companies, however, generate high-margin, subscription revenue from their value-add software that sits on top of the open source core. These companies can then dedicate more resources to spur the ecosystem to grow and evolve.

OISP companies, however, generate high-margin, subscription revenue from their value-add software that sits on top of the open source core. These companies can then dedicate more resources to spur the ecosystem to grow and evolve. Additionally, OISP’s subscription pricing (no different from that of mainstream SaaS/IaaS providers) further reinforces the cadence of innovation; if innovation lags, customers will switch to another provider, particularly as the underlying platform that they’re leveraging is open source. If done right, an OISP-based business provides customers with everything they want—a fundamentally open platform, sustained and rapid innovation, high value, enterprise-grade software—and, just as important, a viable and successful partner that is in it for the long run. This life cycle of an OISP company is depicted in the figure below and is primarily comprised of an open core that encourages broad-based development, customer adoption and continuous innovation.

Figure 1: The Life Cycle Behind Open Innovation Software Platforms

Accel Partners' Image: Open Innovation Software Platforms (OISP)

Accel Partners' Image: Open Innovation Software Platforms (OISP)

Already, OISP has begun to emerge as the de facto business model for infrastructure companies — startups and industry incumbents alike. In the Big Data ecosystem, high-growth companies such as Cloudera, Couchbase and MongoDB are following this approach to fuel their growth, while larger companies like EMC Pivotal HD and IBM’s Big Insights are blending open source data platforms with their traditional enterprise products. Startups, such as Mesosphere and ClusterHQ in the emerging container ecosystem, are utilizing this model to build a successful and durable business. VMware, through its Nicira acquisition, is transforming the networking industry with its open core virtual switches wrapped by VMware’s hardened enterprise management capabilities. In contrast, Barracuda combines various industry-leading open source security and networking projects with unique proprietary software in an easy to deploy and channel-friendly appliance form factor. Even Microsoft is jumping on board by offering a variety of enterprise services and technologies (such as Active Directory) on Azure that support a range of open source platforms like Hadoop and Docker.

Thanks to OISP, infrastructure software vendors are now able to satisfy their enterprise customers’ growing desire to marry rapid innovation with the enterprise tools necessary to actually implement this technology in their demanding data center environments.

Thanks to OISP, infrastructure software vendors are now able to satisfy their enterprise customers’ growing desire to marry rapid innovation with the enterprise tools necessary to actually implement this technology in their demanding data center environments. At the same time, and equally important, OISP champions a sustainable business model that encourages innovation and success for both customers and vendors. Of course, not all technology layers should follow this new paradigm (SaaS applications are an obvious counter-example). It would be naïve to suggest a one-size-fits-all approach, because all enterprise problems require distinct solutions. Notwithstanding, OISP represents a fundamental shift in the way that enterprise infrastructure software is developed and deployed and portends a bright future for the entire industry and, more importantly, the customers they serve.