Written by Archit Rathi, investor at Oxx
Open Source Software (OSS) is taking over the world. There’s hardly any piece of software being developed nowadays that doesn’t contain an Open Source library. Enterprises are obviously paying for it with around 50 OSS companies now generating $100m+ in annual revenues and diversifying across the IT stack. (Source)
Traditionally, Open Source businesses were mostly on the infrastructure layer. But as decision making continues to shift towards developers and gets more decentralised, we're beginning to see startups in a variety of verticals such as commerce, conversational AI, CMS, RPA and so on. And the commercial Go-To-Market model for OSS has itself evolved over the past few decades, from a professional services driven model, to open core, to now a Software-as-a-Service (SaaS)/managed cloud model.
In this post we will briefly cover the current state of the OSS market, why community matters in OSS and what metrics we recommend companies to actively track as they graduate from the seed stage to Series A, Series B and beyond. We have also covered what tools you can use to track your own commercial OSS (COSS) metrics both from a low code and no code perspective later on in the post.
Note: If you don't want to read the market overview, click here to skip to the next section!
Evolution of Open Source as a commercial model
Until the mid 2000s, Gen 1 OSS businesses like RedHat gave their product away for free while charging for professional services and support. The dollar value captured per customer was low in this scenario because the company was monetising services or people time, rather than software. Gen 2 changed this completely. In the Open Core model, companies gave a small part of their product away for free, but charged for enterprise features like Single Sign On, RBAC and advanced analytics capabilities. However you still needed to deploy the product and manage the infrastructure yourself. Gen 3 solves these pain points by providing a managed cloud version of the open core offering.
So, OSS companies basically operate much like SaaS companies now, with their OSS offering primarily acting as a distribution strategy to drive more users and increase top of the funnel activity.
What, then, is the key to OSS success? The team at Oxx have thought about this long and hard, and we've come to a clear conclusion. The key to OSS success is all about Product-Community Fit.
Bottoms-up adoption drives your initial sales and marketing strategy. You typically maintain two separate product roadmaps (open core/enterprise tier), and communicating transparently to your audience is table stakes. That makes tracking community adoption metrics mission critical.
Measuring Product-Community Fit: Awareness vs. Engagement
The ‘leading indicators’ of high growth OSS businesses at the initial phase include what we call Level 1 metrics: Stars, Forks, Watchers and Downloads.
In the early phases when getting to Product-Market Fit is crucial, these serve as good high-level indications of awareness and usage from the developer community. But as you reach the scale-up stage, tracking detailed levels of community engagement and adoption becomes critical. The true measure of success for a COSS startup is not just how many people know about your repository, but actually how many engage with it. The higher the number of people working on the underlying codecase alongside your team, the better quality it will be. Serious contributors open issues, contribute code, make docker pulls, engage on community forums, stack overflow and so on. We call these Level 2 metrics.
But measuring monthly engagement across all developer touchpoints, especially activities that show engagement and adoption from the user across all these channels, is not straightforward at all. By going through data on all 175,000+ organisations on GitHub, and backtesting how engagement varies as businesses graduate from the seed stage to Series A and beyond, we recommend tracking a second order metric that we call "#monthly active creators " – which is a true measure of meaningful developer engagement, especially on GitHub.
A distinct ‘creator’ here includes any user who might have created a GitHub Issue OR added Issue Comment OR logged a Pull Request OR created a commit - essentially helping you in either building or maintaining your OSS project. The creator numbers vary based on product verticals. For example, deeptech tools usually get lower contribution compared to others due to the higher amount of specialised skills required to contribute effectively. But 50 is the minimum creator count seen to raise a >$20m growth round and starting to show early signs of product-community fit. Infrastructure related tools tend to be in the 50-80 range, while frontend tools in the ~100 range generally.
More broadly, creator numbers serve as good indications of how developers and the market perceives your product offering:
Early signals of Product-Market Fit: 20 - 50
Strong emerging signs of Product-Community Fit: 50 - 100
Great product, market, community fit: 100 - 200
For some OSS projects, a community and product existed long before a company was formalised. These projects already have Product-Community Fit, and the newly formed company usually raises several VC funding rounds in quick succession to drive commercial traction, as can be seen from the below chart.
Initially the #monthly active creators increase, and once the project has reached maturity and scale they tend to go down over time. I'd be happy to share analysis on how creator numbers change as a business matures, adds more employees, etc. in a subsequent post that looks at an example such as HashiCorp - Tweet me if you'd be interested in reading that!
Fastest growing COSS businesses 2021
Using the #monthly active creators metric, we've tracked which COSS companies have seen the fastest growth in engagement this year. Below you'll find see our list of some of the most promising OSS startups of 2021. We've looked at COSS companies with creator numbers <100 in January 2021 (pre-scaling phase) and >40 in September 2021 (getting into Product-Community Fit territory) with under $100m in funding. Pulling this together does entail some manual review, so if you think we've missed a great company that should be on this list, let me know by emailing me here!
How to track your own metrics
Apart from extracting metrics from your own Github dashboard and community management tools, we’ve found these resources to be particularly helpful: