Cloud Foundry ❤ Kubernetes

Cloud Foundry, the open source platform-as-a-service project that more than half of the Fortune 500 companies use to help them build, test and deploy their applications, launched well before Kubernetes existed. Because of this, the team ended up building Diego, its own container management service. Unsurprisingly, given the popularity of Kubernetes, which has become somewhat of the de facto standard for container orchestration, a number of companies in the Cloud Foundry ecosystem starting looking into how they could use Kubernetes to replace Diego.

The result of this is Project Eirini, which was first proposed by IBM. As the Cloud Foundry Foundation announced today, Project Eirini now passes the core functional tests the team runs to validate the software releases of its application runtime, the core Cloud Foundry service that deploys and manages applications (if that’s a bit confusing, don’t even think about the fact that there’s also a Cloud Foundry Container Runtime, which already uses Kubernetes, but which is mostly meant to give enterprise a single platform for running their own applications and pre-built containers from third-party vendors).

a foundry for clouds“That’s a pretty big milestone,” Cloud Foundry Foundation CTO Chip Childers told me. “The project team now gets to shift to a mode where they’re focused on hardening the solution and making it a bit more production-ready. But at this point, early adopters are also starting to deploy that [new] architecture.”

Childers stressed that while the project was incubated by IBM, which has been a long-time backer of overall Cloud Foundry project, Google, Pivotal and others are now also contributing and have dedicated full-time engineers working on the project. In addition, SUSE, SAP and IBM are also active in developing Eirini.

Eirini started out as an incubation project, and while few doubted that this would be a successful project, there was a bit of confusion around how Cloud Foundry would move forward now that it essentially had two container engines for running its core service. At the time, there was even some concern that the project could fork. “I pushed back at the time and said: no, this is the natural exploration process that open source communities need to go through,” Childers said. “What we’re seeing now is that with Pivotal and Google stepping in, that’s a very clear sign that this is going to be the go-forward architecture for the future of the Cloud Foundry Application Runtime.”

A few months ago, by the way, Kubernetes was still missing a few crucial pieces the Cloud Foundry ecosystem needed to make this move. Childers specifically noted that Windows support — something the project’s enterprise users really need — was still problematic and lacked some important features. In recent releases, though, the Kubernetes team fixed most of these issues and improved its Windows support, rendering those issues moot.

What does all of this mean for Diego? Childers noted that the community isn’t at a point where it’ll hold developing that tool. At some point, though, it seems likely that the community will decide that it’s time to start the transition period and make the move to Kubernetes official.

It’s worth noting that IBM today announced its own preview of Eirini in its Cloud Foundry Enterprise Environment and that the latest version of SUSE’s Cloud Foundry-based Application Platform includes a similar preview as well.

In addition, the Cloud Foundry Foundation, which is hosting its semi-annual developer conference in Philadelphia this week, also announced that it has certified its first to systems integrators, Accenture and HCL, as part of its recently launched certification program for companies that work in the Cloud Foundry ecosystem and have at least ten certified developers on their teams.

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Microsoft gives 500 patents to startups

Microsoft today announced a major expansion of its Azure IP Advantage program, which provides its Azure users with protection against patent trolls. This program now also provides customers who are building IoT solutions that connect to Azure with access to 10,000 patents to defend themselves against intellectual property lawsuits.

What’s maybe most interesting here, though, is that Microsoft is also donating 500 patents to startups in the LOT Network. This organization, which counts companies like Amazon, Facebook, Google, Microsoft, Netflix, SAP, Epic Games, Ford, GM, Lyft and Uber among its well over 150 members, is designed to protect companies against patent trolls by giving them access to a wide library of patents from its member companies and other sources.

“The LOT Network is really committed to helping address the proliferation of intellectual property losses, especially ones that are brought by non-practicing entities, or so-called trolls,” Microsoft  CVP and Deputy General Counsel Erich Andersen told me. 

This new program goes well beyond basic protection from patent trolls, though. Qualified startups who join the LOT Network can acquire Microsoft patents as part of their free membership and as Andresen stressed, the startups will own them outright. The LOT network will be able to provide its startup members with up to three patents from this collection.

There’s one additional requirement here, though: to qualify for getting the patents, these startups also have to meet a $1,000 per month Azure spend. As Andersen told me, though, they don’t have to make any kind of forward pledge. The company will simply look at a startup’s last three monthly Azure bills.

“We want to help the LOT Network grow its network of startups,” Andersen said. “To provide an incentive, we are going to provide these patents to them.” He noted that startups are obviously interested in getting access to patents as a foundation of their companies, but also to raise capital and to defend themselves against trolls.

The patents we’re talking about here cover a wide range of technologies as well as geographies. Andersen noted that we’re talking about U.S. patents as well as European and Chinese patents, for example.

“The idea is that these startups come from a diverse set of industry sectors,” he said. “The hope we have is that when they approach LOT, they’ll find patents among those 500 that are going to be interesting to basically almost any company that might want a foundational set of patents for their business.”

As for the extended Azure IP Advantage program, it’s worth noting that every Azure customer who spends more than $1,000 per month over the past three months and hasn’t filed a patent infringement lawsuit against another Azure customers in the last two years can automatically pick one of the patents in the program’s portfolio to protect itself against frivolous patent lawsuits from trolls (and that’s a different library of patents from the one Microsoft is donating to the LOT Network as part of the startup program).

As Andresen noted, the team looked at how it could enhance the IP program by focusing on a number of specific areas. Microsoft is obviously investing a lot into IoT, so extending the program to this area makes sense. “What we’re basically saying is that if the customer is using IoT technology — regardless of whether it’s Microsoft technology or not — and it’s connected to Azure, then we’re going to provide this patent pick right to help customers defend themselves against patent suits,” Andersen said.

In addition, for those who do choose to use Microsoft IoT technology across the board, Microsoft will provide indemnification, too.

Patent trolls have lately started acquiring IoT patents, so chances are they are getting ready to making use of them and that we’ll see quite a bit of patent litigation in this space in the future. “The early signs we’re seeing indicate that this is something that customers are going to care about in the future,” said Andersen.

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How open source software took over the world

It was just 5 years ago that there was an ample dose of skepticism from investors about the viability of open source as a business model. The common thesis was that Redhat was a snowflake and that no other open source company would be significant in the software universe.

Fast forward to today and we’ve witnessed the growing excitement in the space: Redhat is being acquired by IBM for $32 billion (3x times its market cap from 2014); Mulesoft was acquired after going public for $6.5 billion; MongoDB is now worth north of $4 billion; Elastic’s IPO now values the company at $6 billion; and, through the merger of Cloudera and Hortonworks, a new company with a market cap north of $4 billion will emerge. In addition, there’s a growing cohort of impressive OSS companies working their way through the growth stages of their evolution: Confluent, HashiCorp, DataBricks, Kong, Cockroach Labs and many others. Given the relative multiples that Wall Street and private investors are assigning to these open source companies, it seems pretty clear that something special is happening.

So, why did this movement that once represented the bleeding edge of software become the hot place to be? There are a number of fundamental changes that have advanced open source businesses and their prospects in the market.

David Paul Morris/Bloomberg via Getty Images

From Open Source to Open Core to SaaS

The original open source projects were not really businesses, they were revolutions against the unfair profits that closed-source software companies were reaping. Microsoft, Oracle, SAP and others were extracting monopoly-like “rents” for software, which the top developers of the time didn’t believe was world class. So, beginning with the most broadly used components of software – operating systems and databases – progressive developers collaborated, often asynchronously, to author great pieces of software. Everyone could not only see the software in the open, but through a loosely-knit governance model, they added, improved and enhanced it.

The software was originally created by and for developers, which meant that at first it wasn’t the most user-friendly. But it was performant, robust and flexible. These merits gradually percolated across the software world and, over a decade, Linux became the second most popular OS for servers (next to Windows); MySQL mirrored that feat by eating away at Oracle’s dominance.

The first entrepreneurial ventures attempted to capitalize on this adoption by offering “enterprise-grade” support subscriptions for these software distributions. Redhat emerged the winner in the Linux race and MySQL (thecompany) for databases. These businesses had some obvious limitations – it was harder to monetize software with just support services, but the market size for OS’s and databases was so large that, in spite of more challenged business models, sizeable companies could be built.

The successful adoption of Linux and MySQL laid the foundation for the second generation of Open Source companies – the poster children of this generation were Cloudera and Hortonworks. These open source projects and businesses were fundamentally different from the first generation on two dimensions. First, the software was principally developed within an existing company and not by a broad, unaffiliated community (in the case of Hadoop, the software took shape within Yahoo!) . Second, these businesses were based on the model that only parts of software in the project were licensed for free, so they could charge customers for use of some of the software under a commercial license. The commercial aspects were specifically built for enterprise production use and thus easier to monetize. These companies, therefore, had the ability to capture more revenue even if the market for their product didn’t have quite as much appeal as operating systems and databases.

However, there were downsides to this second generation model of open source business. The first was that no company singularly held ‘moral authority’ over the software – and therefore the contenders competed for profits by offering increasing parts of their software for free. Second, these companies often balkanized the evolution of the software in an attempt to differentiate themselves. To make matters more difficult, these businesses were not built with a cloud service in mind. Therefore, cloud providers were able to use the open source software to create SaaS businesses of the same software base. Amazon’s EMR is a great example of this.

The latest evolution came when entrepreneurial developers grasped the business model challenges existent in the first two generations – Gen 1 and Gen 2 – of open source companies, and evolved the projects with two important elements. The first is that the open source software is now developed largely within the confines of businesses. Often, more than 90% of the lines of code in these projects are written by the employees of the company that commercialized the software. Second, these businesses offer their own software as a cloud service from very early on. In a sense, these are Open Core / Cloud service hybrid businesses with multiple pathways to monetize their product. By offering the products as SaaS, these businesses can interweave open source software with commercial software so customers no longer have to worry about which license they should be taking. Companies like Elastic, Mongo, and Confluent with services like Elastic Cloud, Confluent Cloud, and MongoDB Atlas are examples of this Gen 3.  The implications of this evolution are that open source software companies now have the opportunity to become the dominant business model for software infrastructure.

The Role of the Community

While the products of these Gen 3 companies are definitely more tightly controlled by the host companies, the open source community still plays a pivotal role in the creation and development of the open source projects. For one, the community still discovers the most innovative and relevant projects. They star the projects on Github, download the software in order to try it, and evangelize what they perceive to be the better project so that others can benefit from great software. Much like how a good blog post or a tweet spreads virally, great open source software leverages network effects. It is the community that is the source of promotion for that virality.

The community also ends up effectively being the “product manager” for these projects. It asks for enhancements and improvements; it points out the shortcomings of the software. The feature requests are not in a product requirements document, but on Github, comments threads and Hacker News. And, if an open source project diligently responds to the community, it will shape itself to the features and capabilities that developers want.

The community also acts as the QA department for open source software. It will identify bugs and shortcomings in the software; test 0.x versions diligently; and give the companies feedback on what is working or what is not.  The community will also reward great software with positive feedback, which will encourage broader use.

What has changed though, is that the community is not as involved as it used to be in the actual coding of the software projects. While that is a drawback relative to Gen 1 and Gen 2 companies, it is also one of the inevitable realities of the evolving business model.

Linus Torvalds was the designer of the open-source operating system Linux.

Rise of the Developer

It is also important to realize the increasing importance of the developer for these open source projects. The traditional go-to-market model of closed source software targeted IT as the purchasing center of software. While IT still plays a role, the real customers of open source are the developers who often discover the software, and then download and integrate it into the prototype versions of the projects that they are working on. Once “infected”by open source software, these projects work their way through the development cycles of organizations from design, to prototyping, to development, to integration and testing, to staging, and finally to production. By the time the open source software gets to production it is rarely, if ever, displaced. Fundamentally, the software is never “sold”; it is adopted by the developers who appreciate the software more because they can see it and use it themselves rather than being subject to it based on executive decisions.

In other words, open source software permeates itself through the true experts, and makes the selection process much more grassroots than it has ever been historically. The developers basically vote with their feet. This is in stark contrast to how software has traditionally been sold.

Virtues of the Open Source Business Model

The resulting business model of an open source company looks quite different than a traditional software business. First of all, the revenue line is different. Side-by-side, a closed source software company will generally be able to charge more per unit than an open source company. Even today, customers do have some level of resistance to paying a high price per unit for software that is theoretically “free.” But, even though open source software is lower cost per unit, it makes up the total market size by leveraging the elasticity in the market. When something is cheaper, more people buy it. That’s why open source companies have such massive and rapid adoption when they achieve product-market fit.

Another great advantage of open source companies is their far more efficient and viral go-to-market motion. The first and most obvious benefit is that a user is already a “customer” before she even pays for it. Because so much of the initial adoption of open source software comes from developers organically downloading and using the software, the companies themselves can often bypass both the marketing pitch and the proof-of-concept stage of the sales cycle. The sales pitch is more along the lines of, “you already use 500 instances of our software in your environment, wouldn’t you like to upgrade to the enterprise edition and get these additional features?”  This translates to much shorter sales cycles, the need for far fewer sales engineers per account executive, and much quicker payback periods of the cost of selling. In fact, in an ideal situation, open source companies can operate with favorable Account Executives to Systems Engineer ratios and can go from sales qualified lead (SQL) to closed sales within one quarter.

This virality allows for open source software businesses to be far more efficient than traditional software businesses from a cash consumption basis. Some of the best open source companies have been able to grow their business at triple-digit growth rates well into their life while  maintaining moderate of burn rates of cash. This is hard to imagine in a traditional software company. Needless to say, less cash consumption equals less dilution for the founders.

Photo courtesy of Getty Images

Open Source to Freemium

One last aspect of the changing open source business that is worth elaborating on is the gradual movement from true open source to community-assisted freemium. As mentioned above, the early open source projects leveraged the community as key contributors to the software base. In addition, even for slight elements of commercially-licensed software, there was significant pushback from the community. These days the community and the customer base are much more knowledgeable about the open source business model, and there is an appreciation for the fact that open source companies deserve to have a “paywall” so that they can continue to build and innovate.

In fact, from a customer perspective the two value propositions of open source software are that you a) read the code; b) treat it as freemium. The notion of freemium is that you can basically use it for free until it’s deployed in production or in some degree of scale. Companies like Elastic and Cockroach Labs have gone as far as actually open sourcing all their software but applying a commercial license to parts of the software base. The rationale being that real enterprise customers would pay whether the software is open or closed, and they are more incentivized to use commercial software if they can actually read the code. Indeed, there is a risk that someone could read the code, modify it slightly, and fork the distribution. But in developed economies – where much of the rents exist anyway, it’s unlikely that enterprise companies will elect the copycat as a supplier.

A key enabler to this movement has been the more modern software licenses that companies have either originally embraced or migrated to over time. Mongo’s new license, as well as those of Elastic and Cockroach are good examples of these. Unlike the Apache incubated license – which was often the starting point for open source projects a decade ago, these licenses are far more business-friendly and most model open source businesses are adopting them.

The Future

When we originally penned this article on open source four years ago, we aspirationally hoped that we would see the birth of iconic open source companies. At a time where there was only one model – Redhat – we believed that there would be many more. Today, we see a healthy cohort of open source businesses, which is quite exciting. I believe we are just scratching the surface of the kind of iconic companies that we will see emerge from the open source gene pool. From one perspective, these companies valued in the billions are a testament to the power of the model. What is clear is that open source is no longer a fringe approach to software. When top companies around the world are polled, few of them intend to have their core software systems be anything but open source. And if the Fortune 5000 migrate their spend on closed source software to open source, we will see the emergence of a whole new landscape of software companies, with the leaders of this new cohort valued in the tens of billions of dollars.

Clearly, that day is not tomorrow. These open source companies will need to grow and mature and develop their products and organization in the coming decade. But the trend is undeniable and here at Index we’re honored to have been here for the early days of this journey.

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Alphabet spins off moonshot project Malta with backing from Gates’s BEV fund

Malta, the renewable energy storage project born in Alphabet’s moonshot factory X, is now on its own and flush with $26 million from a Series A funding round led by Breakthrough Energy Ventures .

Concord New Energy Group and Alfa Laval also invested in the round.

Project Malta launched last year in Alphabet’s X (formerly Google X) with an aim to build energy storage facilities that can support full-scale power grids. The independent company spun out of Alphabet is now called Malta Inc.

Malta Inc. has developed a system designed to keep power generated from renewable energy or fossil fuels in reserve for longer than lithium-ion batteries. The electro-thermal storage system first captures energy generated from wind, solar or fossil generators on the grid. The collected electricity drives a heat pump, which converts the electrical energy into thermal energy. The heat is stored in molten salt, while the cold is stored in a chilled antifreeze liquid. A heat engine is used to convert the energy back to electricity for the grid when it’s needed.

The system can store electricity for days or even weeks, Malta says.

Malta is going to use the funds to work with industry partners to turn the detailed designs developed and refined at X into industrial-grade machinery for its first pilot system.

BEV, the lead investor in Malta’s Series A round, was created in 2016 by the Breakthrough Energy Coalition, an investor group that includes Microsoft co-founder Bill Gates, John Doerr, chairman of venture firm Kleiner Perkins Caufield & Byers, Alibaba founder Jack Ma, Amazon founder and CEO Jeff Bezos, and SAP co-founder Hasso Plattner.

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Analysts weighing in on $8B SAP-Qualtrics deal don’t see a game changer

SAP CEO Bill McDermott was jacked up today about his company’s $8 billion Qualtrics acquisition over the weekend. You would expect no less for such a big deal. McDermott believes the data Qualtrics provides could bridge the gap between his company’s operational data and customer, data wherever that resides.

The idea behind Qualtrics is to understand customer sentiment as it happens. McDermott sees this as a key piece to the company’s customer management puzzle, one that could propel it into being not only a big player in customer experience, but also drive the company’s underlying cloud business. That’s because it provides a means of constant feedback from the customer, one that is hard to ascertain otherwise.

In that context, he saw the deal as transformative. “By combining this experience data with operations, we can combine this through Qualtrics and SAP in a way that the world has never done before, and I fundamentally believe it will change this world as we know it today,” McDermott told TechCrunch on Monday.

Others who follow the industry closely were not so convinced. While they liked the deal and saw the potential of combining these types of data, it might not be the game changer that McDermott is hoping for after spending his company’s $8 billion.

Paul Greenberg, who is managing principal at The 56 Group and author of the seminal CRM book, CRM at the Speed of Light, says it’s definitely a big acquisition for the company, but he says it takes more than an acquisition or two to challenge the market leaders. “This will be a beneficial acquisition for SAP’s desire to continue to pivot the company to the customer-facing side, but it isn’t a decisive one by any means,” Greenberg told TechCrunch.

Customer experience is a broad term that involves understanding your customer at a granular level, anticipating what they want, understanding who they are, what they have bought and what they are looking for right now. These are harder problems to solve than you might imagine, especially since they involve gathering data across systems from a variety of vendors that deal with different pieces of the puzzle.

Companies like Adobe and Salesforce have made this their primary business focus. SAP is at its heart an ERP company, which gathers data by managing key internal operational systems like finance, procurement and HR.

Tony Byrne, founder and principal analyst at Real Story Group, says he likes what Qualtrics brings to SAP, but he is not sure it’s quite as big a deal as McDermott suggests. “Qualtrics enables you to do more sophisticated forms of research which marketers certainly want, but the double benefit is that — unlike SurveyMonkey and others — Qualtrics has experience on the digital workplace side, which could complement some of SAP’s HR tooling.” But he adds that it’s not really the central CEM piece, and that his company’s research has found that SAP still has holes, particularly when it comes to marketing tools and technologies (MarTech).

Brent Leary, who is founder at CRM Essentials, agrees that SAP got a nice company, especially when combined with the $2.4 billion CallidusCloud purchase from earlier this year, but it has a ways to go to catch up with Salesforce and Adobe. “Qualtrics does provide a more broad perspective of customers because of operational data from back and front office systems. The Callidus acquisition helps to turn insights into certain B2B-focused customer experiences. But I think more pieces may be needed in terms of B2C experience creation tools that companies like Adobe and Salesforce are focusing on with the marketing/experience clouds,” he explained.

Whether this is an actual game changer as McDermott suggested remains to be seen, but the industry experts we spoke to believe it will be more of an incremental piece that helps move the company’s customer experience initiative forward. If they’re right, McDermott might not be finished shopping just yet.

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