A first look at Twitter’s new beta app and its bid to remain ‘valuable and relevant’

Twitter has made a name for itself, at its most basic level, as a platform that gives everyone who uses it a voice. But as it has grown, that unique selling point has set Twitter up for as many challenges — harassment, confusing way to manage conversations — as it has opportunities — the best place to see in real time how the public reacts to something, be it a TV show, a political uprising, or a hurricane.

Now, to fix some of the challenges, the company is going to eat its own dogfood (birdfood?) when it comes to having a voice.

In the coming weeks, it’s going to launch a new beta program, where a select group of users will get access to features, by way of a standalone app, to use and talk about new features with others. Twitter, in turn, will use data that it picks up from that usage and chatter to decide how and if to turn those tests into full-blown product features for the rest of its user base.

We sat down with Sara Haider, Twitter’s director of product management, to take a closer look at the new app and what features Twitter will be testing in it (and what it won’t), now and in the future.

The company today already runs an Experiments Program for testing, as well as other tests, for example to curb abusive behavior, to figure out how to help the service run more smoothly. This new beta program will operate differently.

While there will only be around a couple thousand participants, those accepted will not be under NDA (unlike the Experiments Program). That means they can publicly discuss and tweet about the new features, allowing the wider Twitter community to comment and ask questions.

And unlike traditional betas, where users test nearly completed features before a public launch, the feedback from the beta could radically change the direction of what’s being built. Or, in some cases, what’s not.

“Unlike a traditional beta that is the last step before launch, we’re bringing people in super early,” Haider said.

The first version of the beta will focus on a new design for the way conversation threads work on Twitter. This includes a different color scheme, and visual cues to highlight important replies.

“It’s kind of a new take on our thinking about product development,” explains Haider. “One of the reasons why this is so critical for this particular feature is because we know we’re making changes that are pretty significant.”

She says changes of this scale shouldn’t just be dropped on users one day.

“We need you to be part of this process, so that we know we’re building the right experience,” Haider says.

Once accepted into the beta program, users will download a separate beta app – something that Twitter isn’t sure will always be the case. It’s unclear if that process will create too much friction, the company says, so it will see how testers respond.

Here are some of the more interesting features we talked and saw getting tested in the beta we were shown:

Color-coded replies

During the first beta, participants will try out new conversation features which offer color-coded replies to differentiate between responses from the original poster of the tweet, those from people you follow, and those from people you don’t follow.

In a development build of the beta app, Haider showed us what this looked like, with the caveat that the color scheme being used has been intentionally made to be overly saturated – it will be dialed down when the features launch to testers.

When you click into a conversation thread, the beta app will also offer visual cues to help you better find the parts of the thread that are of interest to you.

One way it’s doing so is by highlighting the replies in a thread that were written by people you follow on Twitter. Another change is that the person who posted the original tweet will also have their own replies in the thread highlighted.

In the build Haider showed us, replies from people she followed were shown in green, those from non-followers were blue, and her own replies were blue.

Algorithmically sorted responses

One of the big themes in Twitter’s user experience for power and more casual users is that they come up with workarounds for certain features that Twitter does not offer.

Take reading through long threads that may have some interesting detail that you would like to come back to later, or that branches off at some point that you’d like to follow after reading through everything else. Haider says she marks replies she’s seen with a heart to keep her place. Other people use Twitter’s “Tweets & Replies” section to find out when the original poster had replied within the thread, since it’s hard to find those replies when just scrolling down.

Now, the same kind of algorithmic sorting that Twitter has applied to your main timeline might start to make its way to your replies. These may also now be shown in a ranked order, so the important ones — like those from your Twitter friends — are moved to the top.

A later test may involve a version of Twitter’s Highlights, summaries of what it deems important, coming to longer threads, Haider said.

The time-based view is not going to completely leave, however. “The buzz, that feeling and that vibe [of live activity] that is something that we never want to lose,” CEO and co-founder Jack Dorsey said last week on stage at CES. “Not everyone will be in the moment at the exact same time, but when you are, it’s an electrifying feeling…. Anything we can do to make a feeling of something much larger than yourself [we should].”

Removing hearts + other engagement icons

Another experiment Twitter is looking at is what it should do with its engagement buttons to streamline the look of replies for users. The build that we saw did not have any hearts to favorite/like Tweets, nor any icons for retweets or replies, when the Tweets came in the form of replies to another Tweet.

The icons and features didn’t completely disappear, but they would only appear when you tapped on a specific post. The basic idea seems to be: engagement for those who want it, a more simplified view for those who do not.

The heart icon has been a subject of speculation for some time now. Last year, the company told us that it was considering removing it, as part of an overall effort to improve the quality of conversation. This could be an example of how Twitter might implement just that.

Twitter may also test other things like icebreakers (pinned tweets designed to start conversations), and a status update field (i.e. your availability, location, or what you are doing, as on IM).

The status test, in fact, points to a bigger shift we may see in how Twitter as a whole is used, especially by those who come to the platform around a specific event.

One of the biggest laments has been that on-boarding on the app — the experience for those who are coming to Twitter for the first time — continues to be confusing. Twitter admits as much itself, and so — as with its recent deal with the NBA to provide a unique Twitter experience around a specific game — it will be making more tweaks and tests to figure out how to move Twitter on from being fundamentally focused around the people you follow.

“We have some work to do to make it easier to discover,” Dorsey said, adding that right now the platform is “more about people than interests.”

While all products need to evolve over time, Twitter in particular seems a bit obsessed with continually changing the basic mechanics of how its app operates.

It seems that there are at least a couple of reasons for that. One is that, although the service continues to see some growth in its daily active users, its monthly active users globally have been either flat, in decline, or growing by a mere two percent in the last four quarters (and in decline in the last three of the four quarters in the key market of the US).

That underscores how the company still has some work to do to keep people engaged.

The other is that change and responsiveness seem to be the essence of how Twitter wants to position itself these days. Last week, Dorsey noted that Twitter itself didn’t invent most of the ways that the platform gets used today. (The “RT” (retweet), which is now a button in the app; the hashtag; tweetstormsexpanded tweets, and even the now-ubiquitous @mention are all examples of features that weren’t created originally by Twitter, but added in based around how the app was used.)

“We want to continue our power of observation and learning… what people want Twitter to be and how to use it,” Dorsey said. “It allows us to be valuable and relevant.”

While these continual changes can sometimes make things more confusing, the beta program could potentially head off any design mistakes, uncover issues Twitter itself may have missed, and help Twitter harness that sort of viral development in a more focused way.

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Testing times for second wave scooter startups

Investors are still pouring millions into scooter startups, albeit sometimes at flat valuations. At the same time a little cash is flowing the other way, in cases where cities have realized the importance of prioritizing the needs of the local environment and its citizens, over and above the ambitions of VCs for a swift and lucrative exit.

Scooter startups affected by such regulatory bumps in the road are, unsurprisingly, rather less keen to shout about this sort of policy friction and the negative cash and ride flow it generates.

In one recent incident in Spain, in the Catalan capital of Barcelona, El Pais reported that the town hall fined a local scooter startup, called Reby, for contravening urban mobility rules.

The startup is so new it doesn’t even have scooters available for public hire yet. But it’s already had some of its ‘test’ rides removed by police and been fined for breaking scooter sharing rules.

If it was hoping to copy-paste from an Uber 1.0 playbook, things aren’t looking good for Reby. (Indeed, that’s a very tatty manual in most places these days.)

Spain’s capital city Madrid also forced a temporary suspension on scooter sharing startups recently, as we reported last month, after changes to mobility laws that tighten the screw on scooter sharing — requiring already operational startups to tweak how their rides operate in order to come into compliance.

While Madrid authorities haven’t banned scooter sharing entirely, they have imposed more limits on where and how they can be used, thereby injecting fresh friction into the business model.

But compared to Barcelona that’s actually a free ride. Things aren’t so much bumpy as roadblocked entirely for scooter sharing in the latter city where regulations adopted by Barcelona town hall in 2017 essentially ban the on-demand scooter model, at least as startups prefer to operate it.

These rules require companies that wanting to offer scooters for hire must provide a guide with the ride (one guide per maximum two people), as well as a helmet. They must also verify that the person to whom the vehicle is hired has the ability to ride it properly.

Rides might scale if you’re able to litter enough cheap and easy scooters all over the urban place but a (human) guide per two rides definitely does not.

Yet, as we’ve written before, there’s no shortage of patinetes electronics weaving around Barcelona’s often narrow and crowded streets. Most of these are locally owned though. And the town hall appears to prefer it that way. After all, people who own high tech scooters aren’t usually in a rush to ditch them in stupid places.

In its 2017 by-law regulating various personal mobility vehicles (PMVs) — including, but not limited to, two-wheeled electric scooters — the city council said it wanted to foster safer and sustainable usage of scooters and other PMVs, pointing to “the growing presence of this new mobility which is taking up more and more road space”.

“Barcelona City Council is committed to a sustainable city mobility model which gives priority to journeys on foot, by bicycle or on public transport,” it added, setting out what it dubbed a “pioneering regulation” that forbids e-scooter use on pavements; imposes various speed restrictions; and gives priority to pedestrians at all times.

Scooters can also only be parked in authorized parking places, with the council emphasizing: “It is forbidden to tie them to trees, traffic lights, benches or other items of urban furniture when this could affect their use or intended purpose; in front of loading or unloading zones, or in places reserved for other users, such as persons with reduced mobility; in service areas or where parking is prohibited, such as emergency exits, hospitals, clinics or health centres, Bicing [the local city bike hire scheme] zones and on pavements where this might block the path of pedestrians.”

There’s more though: The regulation also targets scooter sharing startups seeking to exploit PMVs as a commercial opportunity — with “special conditions for economic activities”.

These include the aforementioned guide, helmet and minimum skill level rule. There’s also a registration scheme for PMVs being used for economic activity which allows city police to scan a QR code that must be displayed on the ride to check it conforms to the regulation’s technical requirements. How’s that for a smart use of tech?

“There may be specific restrictions in specific areas and districts where there is a lot of pressure from these kinds of vehicles or they pose a specific problem,” the council also warns, giving itself further leeway to control PMVs and ensure they don’t become a concentrated nuisance.

Despite what are clear, strict and freshly imposed controls on scooter sharing, that hasn’t stopped a couple of smaller European startups from trying their luck at getting rentable rubber on Catalan carrers anywayperhaps encouraged by demonstrable local appetite to scoot (that and the lack of any big Birds).

The opportunity probably looks tantalizing; a dense urban environment that’s also a tourist hotspot with clement weather, lots of two-wheel-loving locals and a small but vibrant tech scene.

In Reby’s case, the very early stage Catalan startup, whose co-founders’ LinkedIn profiles suggests the business was founded last July, has a website and not much else at this point, aside from its ambitions to follow in the wheeltracks of Bird, Lime et al.

Nonetheless it has racked up fines worth €5,300 (just over $6,000), according to town hall sources, after being deemed to have breached the city’s PMV rules.

Reby had put out up to a hundred scooters in Barcelona for ten days, according to El Pais, padlocking them to bike anchors (with a digital password for unchaining delivered via app) — presumably in the hopes of locating a grey area in the regulation and unlocking the pile em’ high, rent em’ cheap dockless on-demand scooter model that’s disrupted cities elsewhere.

But the Ayuntamiento de Barcelona was unimpressed. Its new by-law brought in a penalty system with fines of up to €100 for minor infringements, up to €200 for serious infringements and up to €500 for very serious infringements. (We understand Reby received 53 sanctions for minor infringements — costing €100 apiece).

Penalties are levied per infringement, so essentially per scooter deployed on the street. And while a few thousand euros might not sound that much of a big deal, the more scooters you scatter the higher the fine scales. And of course that’s not the kind of scaling these startups are scooting for.

We asked Reby for its version of events but it didn’t want to talk about it. A spokesman told us it’s still very early days for the business, adding: “We are a very small team and haven’t launched yet officially. We are doing some tests in Barcelona.”

A more established European scooter startup, Berlin-based Wind, has also clashed with city hall. El Pais reports it had around 100 scooters seized by police last August, also after abortively trying to put them on the streets for hire.

Town hall sources told us that, in Wind’s case, the company’s rides were removed immediately by police, not even lasting a day — so there wasn’t even the chance for a fine to be issued. (We contacted Wind for comment on the incident but it did not respond.)

The bottom line is legislative hurdles won’t simply vanish because startups wish it.

Where scooters are concerned city authorities aren’t dumb and can also move surprisingly fast. The dumping grounds some urban spaces have become after being flooded with unwanted dockless rides by overfunded startups chasing scale via max disruption (and minimum environmental sensitivity) certainly hasn’t gone unnoticed.

At the same time, keeping streets flowing, uncluttered and safe is the bread and butter business of city councils — naturally pushing PMVs up the regulatory agenda.

You also don’t have to look far for tragic stories vis-a-vis scooters. Last summer a 90-year-old pedestrian was killed in a suburb of Barcelona after she was hit by two men riding an electric scooter. In another incident in a nearby town a 40-year-old scooter rider also reportedly died after falling off her ride and being run over by a truck.

The risks of PMVs mingling with pedestrians and more powerful road vehicles are both clear and also not about to disappear. Not without radical action to expel most non-PMV vehicles from city centers to expand the safe (road) spaces where lower powered, lighter weight PMVs could operate. (And no major cities are proposing anything like that yet).

Add to that, in European cities like Barcelona, where there has already been major investment in public transport infrastructure, there’s a clear incentive to funnel residents along existing tracks, including by tightly controlling new and supplementary forms of micro-mobility.

If the Barcelona city council has one potential blind spot where urban mobility is concerned it’s air pollution. Like most dense urban centers the city often suffers terribly from this. And savvy scooter companies would do well to be pressing on that policy front.

But there’s little doubt that would-be fast-follower scooter clones have their work cut out to scale at all, let alone go the distance and get big enough to attract acquisitive attention from the category’s beefed up early movers.

Even then, for the Birds and Limes of the scooter world, multi-millions in funding may buy runway and the opportunity to scoot for international growth but policy roadblocks aren’t the kind of thing that money alone can shift.

Scooter startups need to sell cities on the potential civic benefits of their technology, by demonstrating how PMVs could replace dirtier alternatives that are already clogging roads and having a deleterious impact on urban air quality, as part of a modern and accessible mobility mix.

But that kind of lobbying, while undoubtedly benefiting from local connections, takes money and time. So there’s no shortage of challenge and complexity in the road ahead for scooter startups, even as — as we wrote last month — the investment opportunity is shrinking, with investors having now placed their big bets.

In some cities, scooter ownership also appears to be growing in popularity which will also eat into any sharing opportunities.

One regional investor from an early stage Madrid-based fund that we spoke to about scooters had no qualms at having passed over the space. “We’ve looked at various companies in the space and in Spain but we’re not very attracted by the market given our fund size, competition and regulation question marks,” KFund‘s Jamie Novoa told us.

So those entrepreneurs still dreaming of fast following the likes of Bird, Lime and Spin may find the race they were hoping to join is already over and park gates being padlocked shut.

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Gillmor Gang: Service Station

The Gillmor Gang — Keith Teare, Esteban Kolsky, Doc Searls, Michael Markman and Steve Gillmor . Recorded live Saturday January 12, 2019. OK, it’s 2019 and we’re talking yet again about RSS, the social decline, and whatever micronetworks is supposed to mean.

Produced and directed by Tina Chase Gillmor @tinagillmor

@kteare, @ekolsky, @fradice, @mickeleh, @stevegillmor

Liner Notes

Live chat stream

The Gillmor Gang on Facebook

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Our dystopian cyberpunk here and now

We in the West love our apocalyptic science fiction, in which cartoonishly evil authorities ruthlessly oppress all who so much as wonder about its absolute power, enforced via ubiquitous surveillance technology. Think The Hunger Games, Blade Runner 2049, V for Vendetta, just to pick a few. Well — to trot out that infamous William Gibson line, the future is here, it’s just unevenly distributed.

I’m thinking of Xinjiang, northwest China, which, according to panoply of reports over the last year, has become an oppressive surveillance police state: Georgetown professor James Millward conjures it:

While on your way to work or on an errand, every 100 meters you pass a police blockhouse. Video cameras on street corners and lamp posts recognize your face and track your movements. At multiple checkpoints, police officers scan your ID card, your irises and the contents of your phone. At the supermarket or the bank, you are scanned again, your bags are X-rayed and an officer runs a wand over your body […] The system crunches all of this into a composite score … [Based on it] you may or may not be allowed to visit a museum, pass through certain neighborhoods, go to the mall, check into a hotel, rent an apartment, apply for a job or buy a train ticket. Or you may be detained to undergo re-education.

It’s the little details which really drive home the real-life dehumanization of the surveillance state. “Installing cameras in some people’s homes.” “Officers recorded their voices, took pictures of their heads at different angles and collected hair and blood samples.” Targeting “people who have received a phone call from overseas.” (Both from NYT.)

Fuel stations are surrounded by barbed wire. Passengers must dismount outside the station; only the driver is allowed inside after strict ID and security checks […] One tourist who tried to buy a knife uploaded a video on how the knife was registered to the buyer’s ID, the ID number was then laser-emblazoned onto the blade, and his face recognition recorded

— Suhasini Haidar, in excellent travelogue piece in The Hindu.

The first thing that strikes you on arrival to Xinjiang, driving from the airport into the city, is the propaganda. It’s everywhere […] The other thing that is always in your field of sight is the police. Oh, the police. They are literally (literally) everywhere […] Xinjiang is a police state, and it’s open about it. Blatant […] “your conversations are being listened to, your GPS is being recorded. If you do anything stupid on the phone, police will come in less than 30 minutes and take you away” […] Inside both entries and exits, there is a metal scanner, an ID card reader, and in some (not many) places a facial recognition camera. All places have a computer and a small box which is reportedly used to download all information from smartphones […] (Xinjiang still uses 3G signals, not LTE, I wonder why) […] if [restaurants] want to keep things private by blocking the windows, they have to have surveillance cameras inside […] We saw life under a complete, multi-layered surveillance system that has basically no blind spots at all.

— Vadim Mikhailov, in another fantastic first-person travelogue published in Palladium

There exist “many credible reports that China had detained a million or more ethnic Uighurs in the western region of Xinjiang and forced as many as two million to submit to re-education and indoctrination.” “The Australian Strategic Policy Institute analysed 28 camps across Xinjiang and found they had expanded 465% in size since 2016,” reports The Guardian.

Wait, it gets worse: “Highly educated intellectuals and academics and scientists and software engineers are being held in these facilities,” says Maya Wang of Human Rights Watch. “Satellite images and previously unreported official documents indicate that growing numbers of detainees are being sent to new factories, built inside or near the camps, where inmates have little choice but to accept jobs and follow orders,” according to the NYT.

Why the crackdown? Partly because Xinjiang is a key hub of China’s massive new “Belt and Road Initiative,” China’s massive $900 billion project being built by China to improve infrastructure connections and spur trade with other nations. (See also the NYT report on McKinsey in China, and their choice of Xinjiang for a corporate retreat last year last year.) Partly because two years ago Xinjiang’s leader was replaced by notorious soldier-turned-politician Chen Quanguo.

(It’s easy to imagine that this appointment was to some extent a strategy directly out of Machiavelli’s The Prince: “To clear himself in the minds of the people, and win them over to himself, he desired to show that, if any cruelty had been practised, it had not originated with him, but in the cruel nature of his minister.”)

But also, partly because they can: because this dystopian surveillance police-state technology is now cheap and reliable enough to roll out at massive scale. Hard not to be chilled by that … or by visions of what the next generation(s) of scalable technology will be used for. Xinjiang isn’t just a humanitarian crisis, it’s a living warning for us all.

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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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