All posts by Tyler Jewell

WSO2: The 8th Largest OSS Company – 2017 Results and 2018 Plan

I joined WSO2 because of Open Source Software (OSS)’ potential.

Open source enables a transparent innovation and business model. Intellectual property published with an open source license can be consumed with freedoms not available with commercial licenses. Customers buy WSO2 subscriptions with clarity that our business goal is their successful deployment of open source to address their digital challenges.

Can IBM or Oracle say the same?

We align WSO2’s interests with customers by IP transparency through open source and the Apache-way.

In public markets, a company discloses business and financial information regularly to the public with disclosures to protect investor, facilitate capital formation, and to maintain fair, orderly and efficient markets. Additionally, our customers, by purchasing our subscriptions, are making a dependency upon us. Their awareness and confidence in our business and financial health is necessary to establish an equitable engagement.

To further the alignment we have with customers, WSO2 will now annually report key business and financial results.

We are pleased to share that WSO2 is financially sound.

WSO2 is comprised of two businesses: OSS subscriptions and professional services. Subscriptions are renewable and we use SaaS metrics for tracking KPIs in pro forma financials. The ARR and customer metrics reflect our subscription business and our EBITDA is for the company.

In 2017, we will exit our Annualized Recurring Revenue (ARR) between $24.5 – $25.5M, a growth of 52%, up from 46% growth the previous year. Our gross margin for the recurring business is 88% and will increase in coming years. In 2017, we will turn our first profit with $603K EBITDA and generate $2.7M cash from operations.

We acquired 150 new customers in 2017 and more than 80 new subscription customers. Our new customers start with professional services during their technology evaluation and either continue consuming WSO2 open source or transition to a WSO2 subscription for access to patches, security updates and incident support.

We use dollar-based net retention rate to measure our ability to retain customers and expand their use of our subscriptions. Historically, customers have expanded their use of our IP and subscriptions over time as they realize the benefits of speed and innovation that come with engaging WSO2.

To support growth, we began significantly hiring in support, sales and marketing in Q3 finishing the year with a 482 headcount.

2017, by all accounts, is a successful year for WSO2.

We attribute the results to:

  1. The passion and commitment of the employees and partners that put customer needs ahead of their own. We track our NPS at 25. We are striving for a 50 NPS, which is rare for enterprise software given the spectrum of customer needs.
  2. Product and intellectual property expansion to service cloud-native architectures, which are, along with microservices, dominating customers’ future deployment expectations. This advanced architecture lets us process 5 trillion transactions, 40 million identities, and 200,000 APIs across our customers. We estimate that 25% of our customers are cloud deployments across our public cloud or within megaclouds.
  3. The continued rotation within IT from proprietary to open source software. We have seen a dramatic rise in the number of organizations which have open source mandates, especially in emerging market territories, public sector, and system integrators.
  4. Maturity and continuity of operations. We have 69 employees with >5 years service and 23 with >10 years. More than 2/3 of employees with us five years ago are with us today. Our employee mix is 33:67 for female:male creating a vibrant culture of diversity. Also, other than myself, the WSO2 management team has not changed since 2013. This has allowed a long-term open source vision to nurture in equal measures across the company.

WSO2 is the 8th largest OSS company and largest integration OSS company. An OSS company derives more than 50% of its revenues from OSS support subscriptions. The top OSS companies are:

  1. RedHat
  2. Pivotal
  3. Mozilla
  4. Canonical
  5. Hortonworks
  6. Suse
  7. MongoDB
  8. WSO2

Acquia, MuleSoft, Cloudera, Alfresco, Actian, Sophos, Forgerock, and Datastax were not included due to their open core model and dependency upon proprietary licensing.

We expect the coming year to continue playing to our strengths. Trends tied to growth in programmable endpoints across devices, identities, apps, APIs, and data will increase. Integration is now central to digitization. Every program is an integration and every developer an integration specialist. This compounds the challenges to creating and governing integration endpoints that is the emphasis of our business.

Our 2018 operating plans include:

  1. Continue investing into Ballerina, and relaunch it with a developer GTM that focuses on solving integration problems for the next 20 years.
  2. Expand sales and marketing by opening offices in new territories, establish our first resellers and distributors, and growing our sales, marketing and channel organizations.
  3. Continue our investment in cloud-native architectures with the generational release of API Manager 3 and Enterprise Integrator 7 along with investing into cloud infrastructure installers.
  4. Invest into broadening the value of our subscriptions: launching a Technical Account Manager program, expanding our Long Term Support policies, bundling cloud-native operations tools within our subscriptions, broadening the scope of our managed cloud services, expand test grid coverage to incorporate ecosystem technologies, and exploring the inclusion of a security scanning service.
  5. Launch research initiatives into open source blockchain, AI, machine learning, and General Data Protection Regulation.
  6. Formalize the CTO office. Our co-founder, Paul Fremantle, will return full time as our CTO January 1st after completing his PhD in Computer Science. The CTO office will receive investment to formalize the production of our Corporate Reference Architecture, Corporate Reference Methodology, Global Technology Outlook, and Global Market Outlook.
  7. More than doubling our investments into marketing, enablement, and market education programs.
  8. Renewed focus on open source governance to better engage the community and their involvement in the evolution of our projects.
  9. Expanding our sales territories from 4 to 9 and separating our OEM ISV business.

We expect our ARR growth rate, EBITDA, and cash generation to increase in 2018. We’ll exit the year with approximately 560 employees.

All this means we can – and will – create a lot more open source that helps IT digitize assets.

We will be working to turn WSO2 into an IT-household brand, bringing our form of integration into every application and service you are building. If you are new to WSO2 or open source, 2018 will be a great year for you to learn more about how we can help you solve your digitization challenges. Get in touch with me directly: tyler@wso2.com.

Since this blog post includes future operating plans, predictions, estimates, and forecasts, this is a good time to point out that we have lawyers, and that our lawyers want you to know that this information represents our current judgment on what the future holds and it is subject to risks, uncertainties, and other nightmares. In other words, don’t be crazy by drawing conclusions that have undue reliance on this blog post and understand that we may revise anything.

The WSO2 Impact

Last week in London at the Royal Garden Hotel, 330 professionals gathered for WSO2’s EU Conference. It was our 12th conference, 5th to be held in Europe, and my 4th. We hold this conference to help our customers, partners, and employees better understand how to create an agile approach to shaping their digital business.

Preparing for microservice API gateways

In my opening keynote, we discussed the nature of WSO2’s impact on digital transformation over the past decade. With 485 employees and 6 global offices, we are finding new ways to help people get regulated financial services through PSD2 compliance and API management (Deutsche Bank, Societe Generale), get better health care by managing patient info and drug usage (Prime Therapeutics), get convenient shopping experiences (Far Fetched), getting to places faster through tube digitization (Transport for London), get efficient public services with digitized taxation (Her Majesty’s Revenue and Customs), or become more productive through integration (Travis Perkins).

WSO2 touches billions of people, identities, systems, and data daily

As part of this impact, 40 million identities login through our identity server. And given current projects underway with public sector and telco projects in Latin America and the EU, this will grow to more than 250 million in a few years. Dimuthu Leelarathne’s presentation on how IAM is a catalyst for digital transformation explains how identity has become the quiet backbone of nearly every transformation project.

In a couple years, 3 out of every 100 people will authenticate with WSO2

Increasingly, APIs are now the leading driver of digital transformation initiatives. APIs provide a common way for partners, developers and customers to access digital assets. WSO2 API Manager has become our fastest growing product, managing more than 20,000 APIs which in turn reach another 200,000 organizations. Engineers from WSO2 held sessions on how APIs are impacting microservice architecture, crafting API strategies with marketplaces, cloud-native API management, API gateways for microservices, building an integration platform strategy, and container-native digital transformation architecture.

In breakout sessions, WSO2 engineers discussed a future of micro gateways with billions of APIs…

APIs will have an even bigger impact on our future. As developers become comfortable with authoring microservices managed through orchestration, services will become recursive, both consuming from endpoints and becoming an endpoint themselves. The very act of writing small units of code generate new APIs. Centralized API management may not be sustainable forcing governance down into the services built by developers. Micro gateways, registries, and storefronts are emerging, embedding observability and control on the edge within each API into a topology of interconnected API managers.

If you are curious how APIs are altering the course of 6000 banks throughout the EU, see Seshika Fernando’s session on PSD2 and Open Banking.

WSO2’s Future Impact

Over the past few years, we have seen a new tension emerge:

  1. Rapidly changing developer consumption models
  2. Explosion of IT assets required for digital transformation

Did you know that there are now 286,000 SaaS applications and the average knowledge worker connects to 84 systems? These systems are now considered IT assets which must be integrated so that they become appreciating assets. But our range of IT assets has increased, where we must treat the billions of devices, millions of APIs, exabytes of data, billions of events, and billions of identities all as assets that are essential participants in our digital experiences.

In a few years, there will be trillions of endpoints participating in digital transformation

IT managers are facing new challenges.

  1. How do you increase agility across legacy assets and emerging technologies?
  2. How do you enable developer choice while increasing release velocity?
  3. How do you build and deploy services with Google SLAs when you have 3rd party dependencies?

Digital transformation starts with unlocking your IT assets. But with so many different assets to be managed, there is growth in 3rd party providers, which has lead to significant infrastructure specialization to achieve hyper-scale, which leads to a large number of specialized development frameworks required to program these IT assets.

It’s no wonder that according to IDG and the Cloud Native Computing Foundation that IT managers now report a 60% skill gap that is expected to increase in future years. The breadth and volume of technologies that a developer must understand has grown faster than our industry’s ability to absorb those technologies. With developers gaining bargaining power to choose their programming language, development methodology, and tool chain, IT managers are stuck in the middle choosing between recruiting available talent that brings unique development standards versus standardizing their IT stack for group-wise productivity.

At WSO2, we view APIs, events, and streams as technologies that allow IT managers to standardize how all of their IT assets are made available to developers. These technologies are a standard language that allow developers to unlock any consumption model, programming language, and tool chain.

More than just technology, these assets are the foundation of the serverless IT operating model. Today, most digital transformation projects are still server-based which has your services deployed as servers with reserved capacity, upfront commitments, and weak task isolation that creates an economic incentive for architectural bundling of tasks together. IT seeks out an optimal bundling of tasks to avoid overpayment for idle server time. However, APIs, events, and streams offer a simplification of IT architecture that allows for individuals requests to be aligned with microservices. This creates a potentially new type of operating model where costs are allocated per request, payments are made in arrears, and there is strong task isolation leading to economic behaviors that encourage us to split tasks instead of bundling them.

Build APIs, events, and streams to prepare for the world you are imagining…

Serverless programming models, still in their infancy, offer the promise of altering the IT cost structure to align costs with transactions. We heard from dozens of customers and partners that they are beginning their serverless journeys with WSO2.

Whatever your destination may be, APIs, events and streams are a way where you can advance your digital transformation journey. They unlock different programming models including servers, VMs, microservices, and FaaS; allows your services to be authored in different programming languages; creates composable “digital building blocks” with recursive consumption built-in; and modernizes your distributed architecture without disrupting bi-modal IT.

If you haven’t already, I’d encourage you to consider WSO2 for your digital agility and transformation initiatives. We are the only provider that can connect all of your IT assets into APIs, events, and streams and then also provide a comprehensive governance. Our open source licensing model makes it easy to get started with WSO2 and forces us to align our subscription value to your project’s success.

WSO2 is the only provider that connects all IT assets into APIs, events, and streams

In Paul Fremantle’s keynote, he dove deeper into the concepts of APIs, events, and streams on how they are shaping an adaptive future for all of us. I wonder if we should be scared that he titled his session, “Darwin Ate My App”.

In Sanjiva Weerawarana’s keynote, he discussed the role of Ballerina, a new programming language designed to make it simple to program cross-cloud distributed transactions.

After my keynote, I was able to take private meetings with dozens of our customers and partners, and network with speakers and attendees. This group, collectively, makes up our ecosystem.

220 delivery partners, 50 technology partners, and 100 open source projects make an incredible ecosystem

I’ve never attended a conference where so many people were grappling with digital projects of such complexity and scale before. It’s incredible that we see WSO2 at the heart of all these projects and the excitement the community feels for how we can contribute even more significantly in the future. I’m eager to participate in our next conference and to further this vision, together.

I’d like to send a special thank you to the more than 100 WSO2 employees who participated in conference planning, logistics, organizing and speaking. Such an event is not possible without all of your passion and commitment.

Why I Joined WSO2

On Tuesday, it was announced that I joined WSO2 as its CEO. This is an exciting and proud moment as it creates an opportunity to work with the (almost 500) geniuses employed by WSO2 and to engage our customers, partners, and competitors that are collectively contributing to making the massive and growing middleware segment better.

I joined WSO2 because I was inspired by the challenge to help us become a #1 provider in a competitive and technically challenging market.

My first experience with middleware was in the 90s while working at BEA, now owned by Oracle. It was an amazing experience to witness BEA’s transformation from C-based platform (Tuxedo) into the Internet, Java and JavaEE leader with Weblogic. Scott Dietzen, then the BEA CTO and recently the CEO that put Pure Storage (NYSE: PSTG) through its IPO, lead BEA’s transformational efforts to create a strategy that leapfrogged BEA ahead of alternatives.

Due to:

  1. The rapid rise of cloud, and;
  2. Rapidly changing consumption models for developers with containers, microservices, serverless, and APIs, and;
  3. The rising complexity from streaming and analytics of real-time event-driven architectures attached to exabyte architectures connected to millions of systems, and;
  4. Corporate core competencies tied to an ability to transform data into insights with machine learning,

we are on the precipice of witnessing a new wave of cloud-scale, cloud-native middleware emerging that will be as significant as the C to JavaEE transformation we witnessed in the 90s. Scott’s achievements are personally inspiring and have no small influence on my choice to undertake this mission.

Leading WSO2 through this transformation is an ambitious, challenging, and exciting opportunity that is something worthy and respectful to the ridiculous talent we have already assembled.

I led Toba Capital’s first investment into WSO2 in 2011 and have been on its board since. Through that time, it became apparent that WSO2’s innovation engine was world class and repetitively produced intellectual property that was faster, easier, and safer superior to alternatives. These advancements are a reflection of WSO2’s internal culture of constant improvement combined with its advanced talent development with university rotations where we now have 132 people (27%) that have or are currently pursuing multiple degrees, master’s degrees, or PhDs.

The rate of innovation combined with an open source business model, customer-first experience, and all delivery functions (support, consulting, training) delivered directly by our engineers has let us establish meaningful relationships with 400 world-class enterprises that represent amazing cross-sections of the global economy managing 5 trillion transactions each year with our technology. Impressively, 25% of our customers come from financial services like BNY Mellon, Credit Agricole, HSBC, and BNP Paribas who have stressed our technology stack to meet expectations imposed by a dizzying array of regulations, security, and performance requirements.

In spite of these achievements, we are the lesser known vendor. While we have near zero churn with our customers who shout our praise and have us as their strategic platform, most describe WSO2 as ‘unknown’, which is a polite way to imply ‘misunderstood’. WSO2 has not conformed to mainstream positioning, go to market, and delivery and most regard us different.
This non-conformance creates tremendous advantages WSO2 passes along to our customers, but not fully appreciated by the rest of the market:

  1. Our team-based, non-commission approach to sales ensures that our customers are always first placed ahead of compensation or the company’s bottom line;
  2. Our 100% open source platform ensures broad community participation leading to better performance, stability, and advancement;
  3. Our delivery through our engineers ensures that customers engage with experts that can fix anything instead of working through layers of management and support abstractions delaying resolution and satisfaction;
  4. We have an efficient operating model that does not depend upon cash from investors, debtors, or the public markets giving us freedom to grow in ways beneficial to our customer’s interests;
  5. Our no-politics and open culture have lead to an industry low employee turnover and rich diversity with 33% female employees and 34% of our leadership positions are held by women.

My most recent venture was Codenvy, which we sold to Red Hat in June. The people at Codenvy made it special and transformed us to the #1 vendor in a highly competitive cloud IDE space. The Codenvy journey was one where we rode the container and cloud-native wave, as the marriage between container-services and hosted developer workspaces were a combination that allowed the growth of cloud IDEs to effectively compete with desktop alternatives pushed by JetBrains and Microsoft.

Containers and cloud-native concepts are redefining the consumption models for how developers work with and deploy middleware. These technologies are causing a middleware rethink, especially in a world where orchestrators like Kubernetes and chaos monkeys scale and destroy unpredictably while the system maintains constant resiliency. For many vendors, talking cloud-native is great marketing fodder, but overlook the reality that their platform will require a reset. Our competitors with proprietary licenses and huge cash burn will struggle to demonstrate true innovation in this space.

With WSO2, we’ve been building a new cloud-native technology stack. Our open source projects include Ballerina (a programming language for integration), MSF4J (a low RAM microservice framework), Carbon (an instant boot server framework), and Siddhi (a streaming SQL framework). Collectively, they are compelling building blocks to create cloud-native middleware for integration, API management, analytics, identity and access management, and IoT.

If you are container-first, serverless, microservices, cloud-native, or developer-first … or you are an enemy to mega cloud lock-in and proprietary business models, then we will demonstrate to you middleware services that can run in any cloud, outperform any vendor, provide rock-solid stability, and backed by our customer-first, engineer-delivered business model. Please engage our team and discover why we are a hidden gem in middleware.

With the amazing people at WSO2 as the backbone, we can and will do with WSO2’s transformation that BEA did with Java.
And for those reasons?—?the people, the challenge, the technology, and the fun?—?is why I joined WSO2.