 Live from Vancouver, Canada, it's the Cube at OpenStack Summit Vancouver 2015. Brought to you by headline sponsors EMC and jointly by Red Hat and Cisco with additional sponsorship by Brocade and HP. And now your hosts, John Furrier and Stu Miniman. Okay, welcome back everyone. We are live here in Vancouver, British Columbia for OpenStack Summit three days of wall-to-wall cadrera. On the back end of the day three, a lot of action here. This is the Cube, our flagship program. We go out to the events. It's a signal from the noise. I'm John Furrier with Stu Miniman. Next guest is the Money Guy in the community. Ryan Floyd, founder, partner of Storm Ventures. Very active in infrastructure, very active in cloud, very active in OpenStack. Welcome back to the Cube. It's good to be here. We chatted at Reinvent at Amazon. Different entrepreneurial marketplace in OpenStack. A lot more entrepreneurship going on here than in AWS. So I got to ask you, obviously, a lot of innovations happening. How do you look at the landscape? I mean, you look down from the mountain, you're going to go hit the field of venture capital entrepreneurship here in OpenStack. I head first. It's complicated. I mean, it's diverse. Yeah. So how do you attack it? What's your thesis? How do you lay it all out? How do you sort it out as an investor? Well, so in the case of Amazon, it got sorted out for me. It's very hard to invest in the Amazon ecosystem. AWS ecosystem is amazing. Amazon's done an amazing job. Google's doing an amazing job. Microsoft. But as a venture investor, there's nothing for me to do there. So, you know, it's great to go to the show. It's great to meet the entrepreneurs. And for businesses that I think make sense inside of Amazon, that's fantastic, but I can't do a lot. So then I end up saying, okay, what are other enterprises doing? And that's what's led me to OpenStack. That's why I'm here today. I may be the only venture investor still coming, but I'm here. We saw a couple of guys. Menlo Ventures is here. So I'm going to plug in those guys. Sandeep's here. Yeah, he's got a nose for this stuff too. He just bought MetaCloud. So yeah, he needs to fly the flag. He's going to fly the flag. He's pounding the flesh. He's going to pound the pavement. But it's hard. I mean, we just talked to Lutucker. And you know, there is huge industry experience all pointing to successful OpenStack. What are you looking for? I mean, is there certain kinds of company you're looking for besides a great team? Is there certain niches, a certain area that you like more than others? Well, I can tell you, there's a couple of ingredients I think that are really important today. Maybe versus, you know, a couple years ago, like San Diego say, right? So I was down in San Diego, and in San Diego, the big guys hadn't really entered the fray yet. I think it was easier for a startup to sell more of a, you know, kind of core product focus. I think today, you know, with between Red Hat, IBM, EMC, Dell, Cisco, I mean, all these folks in OpenStack and committed. It's not just, you know, it's not just a banner. I mean, they are committed. It's not a marketing program. It's not a marketing thing. I mean, they're not just here to be here. I mean, they are here. They are in it. They've got people here at the show. You got to do something that's different. You got to do something, trying to compete with those folks head-to-head with a distribution, some feature set that it's just going to be tough. So I think you got to find something that you can differentiate around and make it go out. One of the pieces of advice I've been giving a lot of entrepreneurs right now is if they're not clear on what that product is, think about services. It's hard to scale, granted, but I think right now getting inside of customers, focusing on the services, there's a huge need. Every enterprise customer I talk to has a need for service work. So if you can get in there, help that customer be successful, it's ultimately going to lead to a better understanding of how to build your product. This is interesting. First of all, we think highly of you, a great investor, got a great nose and great mindset. But this is a contrarian view, this notion of services. Most VCs, well, I want to see things buttoned up. Go, go, go. Revenue and get some scale. I want to get some liquidity. Here, in emerging markets like this, services, it's okay to have a front-end business model of services while the product market develops. Certainly that's a great approach. Is that what you're referring to? Yes, exactly. Not necessarily V services per se. That's right. Ultimately, you've got to have a product because ultimately a services business isn't going to scale. But I mean I think exhibit A is Mirantis. They've done a phenomenal job of building up a business that initially started as a services business, getting the trust and confidence of a very large customer base. And as a consequence, they are in every single major open-stack RFP and they're taking on, you know, everybody that's out there, Red Hat, IBM, everybody. Yeah, they're winning. And they're winning. Did you invest in them? I did not. I passed not only once, but I passed twice. That shows you how foolish I am. You should have called up you. We would have been dating for it. No, we'd like, no, Mirantis was poo-pooed. I mean, people were taking potshots at Mirantis saying, hey, this is just small. It's a one-trick pony. They're using their own expertise. They're leveraging open-stack. But what they did was they delivered a service that was hardened for customers to stand up open-stack quickly for POCs. Yeah. That works. No, they did. They did. I mean, you know, in this company that I was an investor in MetaCloud that we sold to Cisco, I mean, you know, arguably it has a service approach too. The problem that they solved was basically how do you deliver open-stack as a service full-up solution because that's what enterprises want. And so, you know, MetaCloud was a version of that, made it work, and I think that's where they found their success. So, Ryan, where are we with the money in open-stack? You know, last year when we came to the show, I kind of looked at the whole market and said, you know, most companies, if they're interested in making 25 to 50 million, it probably is a good time. But, you know, Red Hat says they've got a couple hundred customers paying for what they're doing with open-stack. I think somebody in the foundation, maybe it was the survey, said, you know, there's about four, five hundred in production for open-stack. So, you know, it's not billions of dollars out there right now. Not yet. You know, how close are we to hitting that inflection point? You know, when, you know, if somebody's putting a billion dollars into this business, you know, are they going to get a return in the next five years? What's your take on the money? Well, I think, so maybe we should separate out startups and the incumbents. So, the incumbents, I don't think, have a choice. Because their fundamental business is under siege. Because, you know, the arc of kind of IT bends towards open source, right, with time. So, they have to be in it, and they have to make a huge investment for the long-term. Startups, I think it's harder right now. I think it's harder for startups to invest hundreds of millions of dollars in the market and expect to get a near-term return. I don't know if that's a great investment strategy, but the incumbents, it's exactly what I would be doing. If I was, you know, Cisco right now, I'd be putting a lot of money behind OpenStack. It's the future of the business. And so, the big companies are also having a proprietary kind of aha moment where it's like, okay, we have to move to a competitive advantage. Big discussion here is, where's the differentiation? Where's the new lock-in spec? And we were saying earlier, speed and agility can create economies of scale. That is barriers to entry-end or some competitive advantage. So, as a VC, you guys always look at this competition, competitive map. What is the differentiation opportunity for a startup? And also, the big companies are also, our buyers are startups. So, like, you're going to see EMC. I'm sure you'll bring the checkbook out. IBM makes acquisitions. So, in that oracle, so there's going to be a lot of interesting potential exit opportunities, certainly, for the M&A side, but maybe some big public offerings. How do you view that competitive differentiation? And what's your observation out there and what people can do to be successful? So, I think for the big guys, actually, the differentiation is very easy. They just have to execute. I mean, I think, you know, that sounds simple, but I think being able to just execute and deliver an open-stack solution to large enterprise customers is not easy to do today for the big incumbents. So, and that's why they're losing a lot of deals to Mirantis. So, I think that's job number one. From a startup standpoint, it's a little harder question to answer. I haven't done a traditional product-focused open-stack company since Swift-stack, which was a number of years ago. Swift-stack differentiates by adding a lot of enterprise functionality on top of Swift, which I still think is a great strategy. I don't know what the equivalent would be in a new project. The most recent investments we made, we made an investment coming called NewBlue, which is a bunch of folks at Mercado Libre down in Latin America, and they're focused on the Latin American market, where we think there's going to be a good opportunity long-term, and they're going to focus on that there. And then, personally, I invested in a company called Selenia that's just focused on services. Again, all around execution. Services as in professional services? Professional services, yeah. So, Ryan, what's your thoughts on business models for monetizing open-source? We had Cosmeticon earlier, taking Kubernetes and trying to take that. We had CoreOS on, who takes a couple of projects, and then they've got Tectonic to make that. We're going to be a DockerCon to Docker Docker. And everything like that. There's one billion-dollar open-source company out there. It's Red Hat. Is there another billion-dollar one? Is Red Hat going to go? Another billion-dollar on some of this product? Where are we monetizing open-source? I'd say it's not exactly right. There's other companies. My sequel was a very successful company. Sun's still got a ton of open-source. Oracle's got a ton of open-source. They're embedded inside the bigger companies. I think you're right. The pure play, maybe we only look at Red Hat, but I think there's a lot of money that's going to be made there with time. I think it's not going to be around a pure support model. I don't think that stands up. I think it's hard to build a large revenue stream off that. But there's a lot of functionality that the open-source community is not going to necessarily focus on building that enterprise's value. I think the other big misconception is it's not that enterprises want stuff for free. That's not their goal. Their goal is not free. Their goal is a solution that doesn't give them lock-in. That's what they want. In a world of competing against Amazon, you need to bake it into the software to get those marginal economics. Otherwise, it's not going to scale. If you're competing against Amazon, if you're getting too much margin, probably somebody's going to be able to knock you off for something cheaper. That's right. Final question for you. Just your take on venture in general these days. The funds, everyone's got mega funds now. What's your take on the whole angel investing, angel list, micro-angels, whatever they call these days. Superangels, micro-VCs. What's going on in the venture landscape? What's your take on good times right now? It's good times. I started venture investing with Storm. I started Storm in 2000. I'm a dinosaur by most people's measure. We're in the best sustained period that I can remember. We're six years into it. Kind of post-2008. It is just a phenomenal time. I think that's why you're seeing these billion dollar rounds get done. It's why you're seeing these billion dollar funds getting raised. At Storm, we've kept a relatively small fund. We just closed 180 million a month ago. We announced, so we're trying to stay true to what we're doing, but it's a good time. There's a lot of change. The flip side of that is, I think without question, you guys just see what you think. Right now, there's the most change in IT that I have seen in my 15 years as a venture investor. That change is what venture investors and startups really thrive on. That's what drives these companies' growth. I totally agree with that. I think in IT, in the enterprise, I hate to use the consumerization of IT because it's been overused, but there really is massive infrastructure, software change, business models. It's really the most intense and fast. It's accelerated. It's that dynamic movement that gives the opportunity for startups because startups can be agile. They really don't execute. They don't necessarily have better engineers than big companies, but they can be agile. They can move really fast and turn on a dime. That's, I think, why so many are finding success today. The only thing that is constant in the industry is the increasing pace of change and open sources driving a lot of that. I lived in the infrastructure side for most of my career, and standards just took forever. Paul Maritz from Pivotal said, I had no choice but to go to open source because it would take me too long to get there, so that's what they have to do. What's your take on kind of the PAS discussion? We've kind of danced around it a little bit. This week here, we talked to Red Hat about OpenShift, and many people are saying the distinction between infrastructure and platform as a service is passe. What's your take on that piece? I think that to the extent containers continue, generic containers, whether you're using Doc or Alex or whatever, continue to gain momentum, I think it's going to put a lot of pressure on people deploying PAS. That's the simple answer. That's really where containers evolve from. PAS really deserves the credit for innovating around that technology to begin with. Why deploy a prescriptive container methodology if you can deploy containers in general? I think that's going to be the challenge for the PAS guys going forward. We'll see. But I will say this, the technology basis was right. That's direction things are headed. So who knows? What you take on microservices is a buzzword that's been kicked around, microservices. It's become kind of hipster word in the cloud community. What the hell is microservices? I mean, we had the guys from Kubernetes explain to us what it is, but it's a new class of service within the cloud. You've been following that? Of course I've been following. I think it's always a danger in trying to explain hipster words when you're not a hipster. You're a dinosaur. I'm a dinosaur. No, you're not. Look, all these applications have to take advantage of a bunch of other services, and as we think about them from a Linux, from a stack standpoint, and those services, they're micro in the sense that they're being taken advantage of from a container. That's how I think about it. That's really all it is. Alright, Ryan Floyd with Storm Ventures. Founder and partner of Storm Ventures, investing since 2000. Again, great change in the enterprise, and you know that's your focus again. Great opportunity. The cloud is a lever of opportunity for entrepreneurship. Contact Storm Ventures. If you're interested in getting some cash, he's the money. You know if it's that community. We're theCUBE. We'll be right back. Thanks.