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OCS 2020 Keynote: Salil Deshpande

Salil Deshpande invests in infrastructure software, both traditional and decentralized, much of which is open source or open core. Over the last 15 years Salil has invested $350+ million into 50+ companies, early, including MuleSoft, DynaTrace, DataStax, Tealium, Buddy Media, SpringSource, Redis Labs, SysDig, Frame, Compound, Hazelcast, Gradle, Sonatype, ZeroTurnaround, Chef, RudderStack, and Quantum Metric. Salil was named to the Forbes Midas List of the 100 best-performing venture investors worldwide in 2013, 2014, 2015, 2016, 2017, 2018 and 2019. Over the last couple of years Salil has been advocating for the ability of authors of open source software to express a simple desire: "I do not want cloud infrastructure providers to run my software verbatim as a commercial service without my permission."

COSS Investments

ActiveState, Armory, Astromoner, Chef, Datastax, Dgraph, Earthly, Gradle, Hazelcast, Moov, MuleSoft, Netdata, Redis, Rudder Stack, Sonatype, SpringSource, TileDB and many others unannounced.

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JJ interviews Salil Deshpande in this extensive discussion covering Salil's career and 15 years investing in over 30 COSS companies.

  • Introduction — 00:00

  • Talk about your early academic school and college work, going from hardware and electrical engineering to software engineering. — 1:08

  • Rumor has it that you’ve raised a $300m fund, Uncorrelated, which is a large fund for a solo GP. But you never announced it. What keeps you so humble about the work you’ve been doing, and is this OCS keynote a place where you’re interested in announcing your fund? — 4:22

  • Share a little bit about how you learned about open source early on, and how you became so intensely focused on it. What does open source mean to you? How do you define it? — 6:52

  • When you think about open source as it relates to companies, what are the primary intersections? How does open source change the dynamic of building a company and going to market and growing a business, as compared to the older school tradition of building and selling technology? — 9:20

  • Your session at OCS 2019 was probably the most controversial and the least understood. Your focus was on how the lack of leadership in open source is resulting in more companies using source available licenses. Could you share your views motivating this very strong support of source available licensing and how you see that? — 13:03

  • Salil asks JJ a series of questions. — 14:30

Salil: Do you feel that authors of software who are publishing and distributing software with the source code should be able to express “I do not want a cloud infrastructure provider to take my software and run it as a commercial service?” Should they be able to express that?

JJ: I believe so, absolutely.

Salil: Then, the next question is, would it be nice if there were a standard open-source license that allowed you to do that?

JJ: "That’s where I disagree. To me, open source means something very specific … to me, open source really refers to a paradigm that is intensely focused on creating a mechanism that removes any kind of discrimation, from usage, consumption, manipulation, commercialization, any kind of collaboration dimension or usage dimension, in particular source code.

JJ: “I disagree that it would be nice if someone had an open-source license to express discrimination against a certain stakeholder, specifically a cloud provider, from doing a certain thing. … And the reason I disagree is not because I believe expressing that constraint is a bad thing, I actually think it’s certainly a good thing, but I don’t think that’s the place of open source. I think that open source is very specifically about removing discrimination.” JJ speaks about how the OSI is dealing with licenses that introduce discrimination.

JJ: “I think the spirit of your statement is valid and totally sensical, I just don’t think it’s the place of open source. I think it’s the place of source available or other types of mechanisms that might exist.”

  • Salil shares a flowchart in response to JJ, sharing opinion on the difference between “source available” and “open source” and the brand around open source, and how that distinction originated and has manifested in the ecosystem. — 18:25

  • Salil shows the Is-Kind-of Hierarchy for Licenses. — 21:14

Salil: “I thought it would be nice to have a standard way that allows authors of open-source software to express that ‘I do not want someone to take my code and run it as a commercial service.’ … What we have instead is not a standard way, we have a way, but if you express it, it’s not open-source.” — 23:45

JJ: “The first thing that jumps out to me is … the sort of statement that, open-source is a kind of source available license. What I take objective to is the reverse of that.” — 24:45

JJ: “When you stretch the permissiveness tradeoffs to discriminating against commercialization, you violate the essence of open source and the fundamentals that have made it so successful. If open source in general were understood to be as wide ranging as you can express anything … if you were to do that, my feeling is if you had a counterfactual and could go back two decades, I don’t think open source would have been able to have that kind of impact on the world that it has. Not even remotely close.”

Salil: “I think what’s changed is about infrastructure providers. From time to time things happen, and definitions that are very valuable, important, and sacrosanct in the past, need to be reexamined and perhaps modified, perhaps not. We did that with the definition of marriage.” Salil elaborates on examples such as Pluto’s definition as a planet, trapezoids. “Just because you feel that some aspects of the open source definition is sacrosanct, and that was very useful in the past, doesn’t mean we can’t look at them and evolve them and change them.” — 29:10

JJ: “I agree with that. I think the one constant in life is change and evolution.” Going back to Salil’s flowchart, JJ disagrees with the notion that all value accrues to cloud providers.

JJ: continues by walking through the $1B ARR software company list and explains his point.- 31:30

JJ: “In general, I think the observation that cloud providers capture all the value in software is wrong.” — 34:40

Salil: “My flowchart only applied to companies publishing source code. Most of the companies on [the $1B ARR software list] do not publish source code. … If you’re publishing source code, and you cannot express that my source code should not be used by a cloud provider as a commercial service, then all value will accrue to cloud providers.”

JJ: “What I would say is that I don’t believe we have nearly amount of the data needed to make the assertion you're making. … What I do think we have data on, is the last decade of COSS companies, growing from as a category around $10 billion to over $200 billion, and all of those companies choosing open source licensing at the core and continuing to grow incredibly fast, and I don’t think source available has slowed that down.”

Salil: “I think we do have enough data. … Before source available licenses became popular. So in 2018. Open source companies were afraid to distribute software under a source available license, because it wasn’t as in vogue as an open source license. So what they did was use an open source license to distribute their source code, and they could not express not wanting a cloud provider to take their code and run it as a commercial service. … We have a number of very popular open-source projects that are being run by cloud providers as commercial services. Using triangulations and proxies, we can figure out how much revenue is being siphoned off by cloud infrastructure providers, it’s billions of dollars … if not more than a hundred billion. So we do have enough data from the onset, say 2012-2017.”

Salil: “When you have a dozen companies using a source available license, when they had been using an open-source license, that’s a symptom and an indication that this is a serious problem. And many of them solved the serious problem by [choosing source available licenses].” Salil describes company announcements and blog posts explaining to users and customers about how source available doesn’t affect them, and just prevents cloud infrastructure providers.

Salil: “We have the evidence of tens of billions of dollars of revenue being siphoned off by cloud infrastructure providers.”

JJ: “I take objection to the siphoned-off part, because I think open source is fundamentally positive-sum. The only way that it works is for anyone, without discrimination, to be able to benefit from it value-capture wise, commercially speaking, in any kind of way. … I actually think that every COSS company should use source available and every COSS company will use source available licenses. What I do not think will happen is a replacement of open-source licenses in favor of source available. What I think we’re going to see is a hybrid. At the heart, at the core, the only way to benefit from open source are to use open-source licenses. For commercial purposes, I’m a huge fan of source available that are more business differentiating, but are still very valuable to provide transparency and visibility for an ecosystem and for an industry. I’m particularly a fan of how Confluent has been doing this.” JJ elaborates on the Confluent example.

Salil agrees with JJ and elaborates. “Open source licesnes have been a key to the success of software and computing. So I’m not saying it’s a competition between source available licenses and open source licenses. They can both exist and will both exist. All I’m saying is, it’s okay to want to express, ‘Hey I do not want you to be able to take this source code and run it as a commercial service.’ … So I was simply saying it’s a missed opportunity for the open-source brand not to have a standard solution to express something like this. As a result, we have a couple dozen source available licenses, and there will be more in the future.” Salil also speaks about how GPL and AGPL stretch the definition of open source, and talks about the possibility of solving this definition problem for the industry.

Salil: “A big part of making this work long-term, making it sustainable, is making it so COSS companies can make money. Unlike in the past, a lot of enterprise OSS is made by people who work for companies who are paid to work on OSS software. For this to work, enterprises need to make money … in order for enterprises to be able to make money, these companies need to be able to express that they don’t want cloud infrastructure providers taking their source code and running it as a commercial service.”

JJ focuses on agreement around the fact that we have too many open-source licenses, and the need for standardization.

  • What are the most pronounced differences between closed core and open core and these two types of companies? — 47:40

Salil: “I really think there are fewer and fewer differences. There are a few crosscurrents … but the open source companies are no longer pure open source, they’re all open core. … In the end, companies sell software, and customers don’t mind paying for value. So the fact that these open core companies get there through a path that involves first providing the customers and establishing credibility with the customers by providing them with open source software, that is interesting but not earth-shaking. The closed source companies are also establishing credibility with customers through other ways, not by distributing open source software. It’s go-to-market, it’s pricing model … I don’t think it’s fundamental anymore.” Salil elaborates on the diminishing fundamentality of open source, in terms of cloud infrastructure being available as a SaaS through APIs, and open source doesn’t come up as much. “You use the APi, and it doesn’t matter what’s behind it.”

JJ: “I think COSS companies are fundamentally different on almost every dimension, but I recognize that you feel there is more similarities than not.”

Salil: “I’m not saying there aren’t differences, I’m just saying the differences aren’t fundamental. Just like two closed source companies can have different recruiting strategies or pricing models, you can have differences in closed core and open core company, but those are not fundamental differences, those are incidental differences.”

  • What observations would you make in the last 20 years of investing in open source? — 53:35

Salil: “I think it’s become mainstream, and I think that supports my previous point. It’s not something exotic or special or unusual now, for a company to be open source or open core company. It’s just an infrastructure software company. … We just call it a software company. It may be using the open core or open source tactics as go-to-market, or it may not be. I never thought of open source as a category, I never thought I’m an open source investor, and I had absolutely no prejudice when looking at a software company about whether it is or isn’t open source or open core or should or should not be. At the end, customers will happily pay for value, and you just have to figure out how to get that value in their hands. So I think the numbers you’re quoting are true for all software, they’re not special to OSS software, software in general is doing well and those numbers are a symptom of that.”

  • Do you have any point-of-view on the opinion that open source is eating software? — 56:38

Salil: “I don’t know if that rate is higher or not. I think open source software may be eating the world at the same rate that software in general is eating the world. Therefore open source is not eating software. I think open source is just an aspect of software.” Salil makes an analogy. “You could argue Javascript is eating software. That is not incorrect, but it’s not useful either.”

  • Would you be interested in sharing some detail behind the equation on your shirt? — 58:40

  • Salil speaks about how he and JJ first connected through Salil’s articles on TechCrunch, and the beginning of the relationship. — 1:00:00

JJ: “What convinced me that your points of view are much more nuanced is Kevin Wang, and his guidance and perspective and being a friend of mine, and him saying great things about you and to not write you off. So a lot of credit to Kevin on that. And I think that really paid off for me.” JJ speaks about the value of Salil’s balanced and nuanced way of looking at the world.

JJ: “Try to really understand any contrasting point of view to yours, and you’ll really get at the heart of understanding yourself better and understanding the world more.” JJ speaks about the importance of respectful disagreement and conversation. — 1:02:00

JJ: “The more people can understand each other and develop nuanced points of views, I think the world is going to be better off.”

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