Enterprises run on data, so it’s no surprise that big data – and in particular, big data platform Hadoop – are today’s enterprise software battleground. This week’s news that Hadoop vendor Hortonworks filed their S1 with the SEC, indicating their intent to go public, ratchets this battle into high gear.
Yet, while Hortonworks and its primary competitors Cloudera and MapR are at the center of the skirmish, this battle is over more than which platform is better. Hadoop is open source, which means it’s free to use, and furthermore, anybody is welcome to contribute to its code base. It’s up to each vendor to decide how to make money on top of Hadoop – and each of the three Hadoop leaders has chosen a different model.
The spoils of this battle, therefore, do not go only to the vendor with the best offering. This war is also over how to build a successful enterprise open source software company.
Battle of the Open Source Business Models
Hortonworks’ S1 filing spells out their business model. “We generally make the Hortonworks Data Platform available free of charge and derive the predominant amount of our revenue from customer fees from support subscription offerings and professional services.”
Selling support and services is perhaps the most common open source business model, but it’s a difficult way to make money, as margins depend upon how much they can mark up what they pay for their employees’ time – and many users of their platform may not pay them anything. For a vendor who is going public having never turned a profit, therefore, people are predictably concerned that Hortonworks will never be able to achieve the growth necessary to warrant investment.
Competitor Cloudera is particularly blunt about Hortonworks’ chances. “They don’t have a defensible business model,” says Amr Awadallah, CTO and founder of Cloudera. “They’re not doing okay now. And while they might be gaining customers and revenues, to create a healthy business you have to always contrast the revenue to how much is the cost of getting that revenue.”
Cloudera also makes some of its revenue from services, but offers proprietary, value-added software on top of the open source Hadoop platform as well. “We have proprietary software that’s only unique to us, Cloudera Manager and Cloudera Navigator,” Awadallah explains. “Hortonworks doesn’t have anything like that software, which is a big disadvantage.”
In essence, Cloudera’s model is the upsell model: give away the basic platform for free, but charge for enterprise-class add-ons. The upsell model is almost as popular as the support and services model, but relies upon customers seeing the value in the add-on products. As the free platform matures, therefore, Cloudera will have to work hard to maintain a clear differentiator.
MapR has targeted this weakness in Cloudera’s strategy by building value-added capabilities on top of Hadoop that are essential for solving an important set of Hadoop-related challenges. In fact, “MapR delivers high value technology to customers that include must-have features and advantages,” according to John Schroeder, CEO and cofounder, MapR Technologies.
Read the entire article at http://www.forbes.com/sites/jasonbloomberg/2014/11/12/hortonworks-big-data-ipo-where-are-the-margins/.
Intellyx advises companies on their digital transformation initiatives and helps vendors communicate their agility stories. As of the time of writing, MapR is an Intellyx customer, but provided no input to this article other than John Schroeder’s quotes. All other organizations mentioned are not Intellyx customers. Image credit: Nils Rinaldi.
