“Open source is eating software faster than software is eating the world”
We believe there are exactly two types of technology company:
Closed Core (CC) and Open Core (OC)
These distinctions transcend / are orthogonal to monetization model. And, yes, Crypto/"Web3" startups fall into the OC category.
— CC co’s are based on a fundamentally closed-source, permissioned, proprietary technology core. 🚫
— OC co’s are based on a fundamentally open-source, permission-less technology core. 🔓
This chart visualizes a few key things:
1: Vertical axis = Aggregate market capture across all public & private CC/OC tech companies 💸
2: Horizontal axis = Timeframe from 1970 to 2020+ 🕰
3: Examples (not exhaustive) of CC/OC companies on each wave 🌊
Two big assertions are proposed:
While the area (value-capture) under the CC curve is $20T~ in 50 yrs, the growth rate is slowing 📉
In parallel, the area under the OC curve is relatively smaller ($10-500B~, mostly since 2010), but notably the growth rate is accelerating 📈
If these parallel trends continue for another decade or so, Open Core companies may flip Closed Core companies on an aggregate market cap basis. 🤯
We already see this happening in plain sight:
COSS startups raised more than $25B in the public and private markets over the last 18 months alone. 🔥
While VC exuberance may have gotten ahead of itself over the last few years, to see 100+ COSS companies materialize from zero to meaningful scale (millions to tens of millions in revenue each, and 20+ IPOs) is nothing short of phenomenal. 🌏
While it may be hard for some to intellectually understand the distinction of “Open vs. Closed” tech core as a way of classifying one kind of tech company over another, the differences are deep, meaningful and multi-faceted/dimensional.
Many tech co's are “hybrid” CC/OC, meaning they have evolved to multi-product scale or large services portfolios consisting of fully proprietary offerings AND open source core based offerings (Microsoft embracing Linux, GitHub, .NET, Kubernetes, etc.. for e.g.).
Ultimately, however, it is abundantly clear enough, for me, and has been for many years, that at a categorical level, it is very possible to split the world of tech companies of all types into these two CC/OC buckets.
Open Core companies are still very misunderstood, niche and a small fraction of the overall tech ecosystem. For every 30 closed core startups, there are maybe 1 or 2 open core startups.
I predict this will change rapidly over the next several years.