 Live from Austin, Texas, it's theCUBE. Covering OpenStack Summit 2016, brought to you by the OpenStack Foundation and headline sponsors Red Hat and Cisco. Now here are your hosts, Stu Miniman and Brian Gracely. Welcome back to SiliconANGLE Media's coverage of OpenStack Summit 2016 here in Austin, Texas. I'm Stu Miniman joined by Brian Gracely and we're filling in the shoes for John Furrier who would definitely want to be here in this segment because we're having what we like to call the VCV angle of what's happening on in the community. Joining us is a friend of the program, Ryan Floyd, who is the founder and partner of Storm Ventures. Ryan, welcome to Austin and welcome back to the program. It's great to be here. You need a venture, you got to punch around a little bit. All right, so Ryan, there's been a lot of reflection back. 7,500 people here, a lot of momentum, things are more mature. From your view point, how are things looking in the OpenStack community? Things are definitely more mature. There's certainly a lot of attendance here. Kind of funny anecdote, I don't know if you've noticed, there's more people outside of like you guys and me wearing blazers here and the security guards. So it's maturing I think from that point of view in terms of there's money I think and just the statement Bryce made about the number of OpenStack clusters in production, that's all good. So yeah, I think it's maturing. I think what I find challenging and maybe worth spending a minute talking about is that it's mature to the point where it's not as clear to me as of an investor where the white space is for new startups. And that's obviously where I spend most of my time. Yeah, I think we talked last year, there's not probably a huge market for just being the distribution of OpenStack. It's there's stats and solutions and everything else. Red Hat can be the red hat of OpenStack for part of it, but where is their money? Where isn't their money? What's your view on things from that standpoint? You know, I don't have a great answer to it. I mean, the last, I made two investments in the ecosystem, really I guess three, one personally in coming out Selenia and then Metacloud which was bought by Cisco and SwiftStack and SwiftStack was really started as well as Metacloud at a time when you could own the distribution. I mean, SwiftStack is really behind Swift. I think that's hard to do today. It's hard to be that kind of substantial player in the ecosystem. There's some new innovative ideas, I think like platform nine, I just had a panel with Madhura and I think they're doing something that's pretty interesting in terms of helping customers that have a VMware dependence move into OpenStack gradually and do it in a way that's not disruptive. I think it's a great story. But I think in terms of like point technologies, it's tough and you know, as we all know a lot of the opportunity in dollars today in OpenStack is around services which can be a great business but it's just not a business you want to fund with venture dollars. Right, right. Now, you know, this week has been a lot about here's OpenStack role in the world. Here's where the rest of things kind of shake out. Does that help you at all with kind of trying to find a roadmap, trying to find white space to say, you know, OpenStack's starting to solidify this but other spaces, the Kubernetes community, the Docker community, are those things giving you any other, you know, bright lights in the distance yet? No, if anything they're just blinding me in terms of being able to see where to go. Look, on the one hand, it is the most amazing time in IT infrastructure with all that's happening. I mean, the crush of open source and the pull of the public clouds is just changing so many dynamics that I know there are going to be places to invest but with that rapid change, it can be hard because what you invest against today may not be the case or be relevant two years from now. And so, you know, it's tough. I mean, do you make a bet on Docker? Do you make a bet on Mesosphere? Do you make a bet on CoreOS or Kubernetes? I mean, there's so much going on and just as big companies throw their weight behind it, that changes overnight too. So, it's tough. Yeah, so Ryan, you know, what's your thought about just open source business models in general, you know, used to be, you know, you have great technology, you have a great team, you know, valuations are going through the roof. You know, can I make money being pure open source? Do I have to build platforms, you know? What's your viewpoint on kind of the value generation and business models around open source? So, no, I don't think you can, I think generally speaking, you cannot make money selling open source. There are clearly exceptions like Red Hat, but I think for 99.9% of companies out there, that's a completely flawed strategy. I think you don't, and Hortonworks, maybe is another good example to point out, they're doing okay, but not great. Certainly what is required if you're going to just sell open sources, it's got to be a massive market that you have to own. And in the case of Hortonworks, it's one of three distributions. It's got significant market share and its market cap is 400 millioners, whatever it is, 500 million. And I think that's about as much equity as they've raised as well. So, that's been a tough, tough business. I think the open core makes a lot more sense, but I think what even makes more sense is if you can deliver something as a service, something of value. I think the mistake that people make is they think that enterprises don't want to pay. Enterprises are happy to pay for value, but you have to deliver value. If you're just delivering code and saying I'm going to support you, it's hard to get people to pay for that. But if you can deliver something as a service, there's a whole bunch of companies today, for example, that are getting started, take Elasticsearch as maybe an example, right? Search is a service. So you don't have to go out and actually build that tech stack. That's interesting, but if I was just trying to sell you the Elastic stack and say, hey, I'll support it, no one will pay for that. I think that's a good example. So, you and I were both out at the Google Next conference about a month or so ago. Everybody starts to talk about moving up the stack to find value. Google is, they're here from an open stack perspective, but they're also doing some pretty interesting things, machine learning, a lot of that stuff. How do you think about taking off your infrastructure hat, investment hat, and looking at what businesses could build on top of those guys that are building that? Does that become interesting from an investment perspective? Are you starting to, do the lights start to be less bright and shiny in that space? Yeah, I think standing on those giant shoulders is exactly what we're talking about in terms of new areas to look at. I think it's going to be very hard for companies like Google, like Amazon, like Microsoft to climb up the stack. And it's maybe a long conversation we have time for. I think companies will always underestimate how easy it is to build that next layer up. It's called the stack fallacy. And it's always assumed that, hey, Oracle did this for years. We'll just go build the application. We've got the database, that's the hard part. We can just build the application. It's got to be easy. Well, they continue to struggle with that, right? I think the same has been true with, take Google, Google tried to do Google Plus. Turns out it's just not that easy, right? It's a different thing. And so I think for startups that can leverage things like AI, like it's super exciting. Like if you can take advantage of algorithms, whether it's from Google or frankly it's whether it's from IBM Watson, it's super exciting in terms of what you could build. Yeah, yeah. All right, so outside of OpenStack then, what's got you excited? You talked about the AI pieces, what are the things? It's all about bots. All about bots. All right, we're all being replaced. You know, a lot of venture investors try to chase the next shiny penny. I try really hard not to do that because I think it's just, it's easy to invest in things you don't know about that look like they may turn into the next clean tech. But generally it's true when we say pretty true to our roots. Enterprise SaaS, that's all we do. Anything, it's selling into a business SaaS, that's what we'll invest in. So within that category, which I understand is somewhat constrained, things like vertical market SaaS. So how do you basically, if you're, there's a coming I'm on my way to tomorrow that I just invested in called Gather, that does event management SaaS. So to help, because when events are set up today, it's largely back and forth via email, faxes. It's a mess. So all these workflows. Maybe some of your best. We have no idea what you're talking about. Yeah, yeah, no idea. Except for that fax thing. We got rid of that last year. All these workflows are going to move to SaaS. And you call it kind of vertical market SaaS. So I think that's a really interesting area. It's going to touch, you know, really it's going to go touch everything. Security continues to be an interesting area. Investing company called Digital Shadows a year ago that bids a cyber threat intelligence looking outside your network in terms of what's going to be a threat vector that you need to be concerned with. So I think security's big, vertical SaaS is big. IoT is another, you know, good category that's going to develop. So it's those sorts of areas that are targeting the enterprise. Yeah. Talk a little bit about expanding the vertical SaaS piece of it. So some people would say, well that's kind of shadow IT, right? When we talk to customers, when we often do research a lot of times, you know, where do you run a workload, which cloud and so forth. SaaS, when we talk to IT people go, yeah, I know we use it, we don't manage it, we don't run it. Yeah. How is that, who's buying it? How do they manage the budgets? Like what's their world look like in terms of that SaaS vendors customer, their engagement and is it even tied to IT? Is that part of IT anymore? Yeah, no, it's a good question. So I think one of the beautiful things about SaaS is it allows the business buyer to make a decision. It's no longer the CIO as it used to be the CIO on a golf course, shaking hands and having a steak dinner and buying whatever Oracle has to sell. That just doesn't happen anymore. Well, maybe it happens with a few CIOs, but most CIOs know that's not the way because they see all these SaaS applications getting acquired by other parts of their organizations. And what's beautiful about that is it just rolls up naturally then into the P&L and the expense item, right? So I think it's a massive trend. It's going to continue and applications unless they add core value internally to your organization are going to ultimately move to SaaS. There's a lot of things that organizations had to build once upon a time because there's no one else that could provide it. But with time, with the lowering costs because of the public cloud and more developers, SaaS is going to just become pervasive. I'll give you a good example. So Tesla had to build their own ERP, right? To be able to do what they did, they could not buy that as you can imagine off the shelf from SAP. So what it is, they built their own. So we're helping the CIO that did that, try to go out and repeat that and deliver that to other car manufacturers, right? So it's those kinds of opportunities that are just incredibly exciting for us. Yeah, and does that cut out the middleman at that point? I mean, is it SaaS direct to the buyer? Is there still a place for SIs to have some customization there or how much of that supply chain sort of gets cut out in SaaS? There's definitely opportunities for SIs to do implementation, to do configuration, to do work. But I think the days of Accenture doing millions and millions of dollars of custom app work around some SAP implementation, those days are numbered, right? But every workday implementation that gets done has a substantial amount of services attached to it. So it hasn't left completely, but I think it's gotten dramatically simplified. And one of the other reasons it's gotten simplified is just APIs, right? You think about the growth in APIs and what that's enabled from a SaaS standpoint. It's just magical because now I can connect my Marketo application to my Salesforce application, right? To my sales law, whatever other sales tools I'm using and they can all exchange data. It's pretty amazing. Yeah, so I know you said that the services piece isn't that attractive to invest from a VC standpoint, but what's your thoughts about the companies that are making services opportunities in the open stack community or AWS? We saw a big move at re-invent last year with Accenture, training lots of people to do that. How much opportunity is there? I think in many ways an open stack right now in terms of dollars spent, I don't know the numbers, my guess would be it's the vast majority of dollars are in services. So if I was starting a company around open stack today, that's what I would do. Because that's where people have that and that's where the pain is, that's what they need. The reason from a venture standpoint, maybe to state the obvious, it's not as interesting as, it's very hard to scale that business without hiring people. So my dollars don't really help people grow faster and if I can't help someone grow faster then I'm probably not the best way to finance a business. No, I think it's huge and I think in the AWS ecosystem, it makes a lot of sense too, because there's a lot of customers that just want more hand-holding, they don't have necessarily the developers or the dev ops people to help make that shift. So it's a good place to spend time. Yeah, you mentioned Selenia, I'm still always surprised they're still out there on their own, they haven't gotten acquired by somebody and then I wonder, does a Selenia get replaced by like you said a platform nine and they say look instead of me providing services to get it running, just call up Rackspace's private cloud, platform nine, Bluebox and just go, just give me the service and run, becomes a SaaS, becomes open SaaS, is a SaaS. Yeah, I mean my view on that is, it's different flavors for different people, right? Different people want different things and the scale of customers that Selenia is servicing are not likely going to be interested in what a platform nine has to sell. I remember it vividly from MetaCloud days, the bigger the customer, the more resistance you ran into around that kind of service offering. You're impacting their job. Yeah, you're impacting their job. That's right, they likely have a large group of DevOps people internally who want to make sure that they have a job going forward and think maybe rightly so they can do it better if they own it and control it and so it's a tough sell. Ryan, really appreciate you coming on again, always good to catch up, get your angles on what's happening in this environment and beyond. We'll be right back with lots more coverage here from OpenStack 2016 in Austin. You're watching theCUBE. It's always fun.