How to Make Money with OpenStack

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SAN DIEGO. The open source OpenStack cloud effort isn’t just about technology, it’s also about money – lots and lots of money.

Speaking at the OpenStack Summit, venture capitalist Ryan Floyd of Storm Ventures detailed to the capacity crowd why he’s putting money into funding OpenStack start-ups.

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Floyd noted that his firm was founded in 2000 as an early stage IT venture group. He also candidly admitted that he is very bullish on OpenStack.

Storm Ventures has been investing in OpenStack for the last 18 months. The firm currently has invested in OpenStack startups, Metacloud as well as Swiftstack.

“I believe that OpenStack will fundamentally change enterprise IT,” Floyd said. “From an investor perspective, it’s the sort of disruption that gives entrepreneurs and start-ups the chance to compete with incumbents.”

OpenStack isn’t the only open source cloud effort, though. There is also the Cloudstack effort as well as Eucalyptus. Floyd emphatically noted that he’s betting on OpenStack, though he believes that overall the only way to do cloud infrastructure is in open source.

“You have to enable the users to be able to access, extend and modify the code,” Floyd said. “It doesn’t have anything to do with cost.”

Open Source is not an altruistic undertaking for Floyd. He commented that OpenStack has grown tremendously since being created two years ago.

“All the companies here at the OpenStack Summit are not all here for altruistic reasons,” Floyd commented. “They are here because they know billions of dollars are at stake.”

So what is the opportunity for start-ups?

In Floyd’s view, while OpenStack is powerful and robust, it is also complex.

“Enterprises want solutions, they don’t just want technology,” Floyd said. “They have a problem to solve and tech is an enabler of that.”

While Open Source technology is free in terms of code and freedom, it is not free in terms of cost.

“Open source and OpenStack can be expensive when you want to implement it inside an enterprise,” Floyd said. “Don’t think of it as free software, think of it in terms of the value being provided.”

In Floyd’s view, today it is far easier to make money in open source then it has been in the past. The reason for that is because of the complexity. Floyd commented that IT organizations have been gutted in recent years and most don’t have the time or resources to deal with complexity. That’s where the start-up open source opportunity can be found.

“Your lock-in is the value that you provide to customers,” Floyd said.

In terms of advice on what start-ups should focus on, Floyd commented that it’s important to scope out the solution properly. He suggests that start-ups focus on on completeness for the required problem. He also advises start-ups to work with partners that are bigger than they are in order to help scale and meet customer needs.

Floyd sees opportunities now in solving particular problems that haven’t yet been addressed by existing OpenStack vendors. One of the them is providing a cloud security model for OpenStack.

“We’re part of a moment in time that is unprecedented as an investor,” Floyd said. “We’re on the cusp of something remarkable happening, as the IT industry transforms.”