Global by Nature (Part IV): Public Companies to Watch

In the first three parts of this “global by nature” series, we went in-depth into the three forces that will power the technology-driven Globalization 2.0: developers (people), APIs (product), open source (paradigm).

• Part I: Developers
• Part II: APIs
• Part III: Open Source

This developers-APIs-open source lens is what I use to look at investment and emerging opportunities for the next 10 years and beyond. But there are also opportunities we can evaluate today. In the final post of this series, we will look at three public companies -- Agora, JFrog, MongoDB -- that are illustrative (both good and bad) of this lens and worth watching.

NOTE: nothing in this post should be construed as investment advice. Please do your own research when you make investment decisions.

This lens provides only a qualitative framework and is by no means a checklist of criteria. In fact, you will see in this analysis that some of the companies do not exhibit all three elements of this lens nor do they have to. If you would like to combine this qualitative evaluation with more quantitative metrics, I recommend you check out the Clouded Judgment newsletter by Jamin Ball at Redpoint Ventures. He tracks and updates the common industry metrics of a large basket of software companies, e.g. EV/NTM revenue multiples, dollar net retention, gross/operating margin, etc.

Agora ($API)

Founded in 2012, Agora is an API company that enables developers to build real-time video, audio, and messaging products (so much so that its stock ticker is “API”). Its founder, Tony Zhao, is a veteran technologist of the video and audio space. He was on the same Webex team as Eric Yuan, who founded Zoom. He was the CTO of YY.com -- one of the first live streaming platforms to reach scale in China, if not the world. YY is also recently under the scrutiny of the famous short-selling firm, Muddy Waters. (I recommend watching the documentary “People’s Republic of Desire”, if you are curious about YY’s cultural impact.)

Developers: Agora’s developer focus emanates from the top. Zhao left YY to start Agora to build a better network of APIs to enable developers. Instead of building a better Webex -- what Yuan decided to do with Zoom -- Zhao decided to help developers build their own Zoom.

Thus, Agora supports a wide range of platforms (Android, iOS, macOS, Web, Windows, Linux) and frameworks (Electron, Unity, Flutter, React Native, Cocos Creator). This range of support takes a long time to build and a strong commitment to developer empowerment. The range of supported platforms, frameworks, or tools is usually a good signal to see whether a company is truly developer-focused or just paying lip service to a trendy concept.

Agora’s developer experience is quite good; as an amateur developer, I felt this first hand. Earlier this year, when there was a real possibility that WeChat might be banned in the US, I spent half a day spinning up an Agora instance that can be used for video chatting with family in China. While that option did not end up being necessary, the process of learning about Agora’s APIs and reading its documentation to figure out how to use them on a basic level was easy and straightforward.

APIs: Agora is a quintessential API product company, similar to Twilio, though tackling a different communications vertical (Twilio is more text messaging focused). It also exhibits the two hallmarks of a well-designed API: self-service and pay as you use, which we discussed in-depth in Part II.

Agora gives every new account 10,000 free minutes, so a developer can prototype and demo a working concept without worrying about cost. Its pricing is all based on a “per 1,000 minutes” scheme, and the price varies depending on how heavy and complex the workload is on the Agora network, e.g. live video streaming is more expensive than live audio streaming.

Similar to most APIs, being an abstraction layer over common resources, the Agora API has a broad range of use cases. Its three most prominent use cases are online education, telehealth, and social streaming -- all of which have been propelled forward many years by the COVID-19 pandemic. The network that the Agora API sits on spans more than 200 data centers located in all continents, except for the one that has more penguins than people.

Open Source: Agora has not open sourced any of its code base. The only way to learn about its internal implementations is through the technical whitepapers it publishes, which are also used as a lead-generation tool just like most software companies. That being said, the whitepapers are quite technical and not fluffy marketing collaterals.

Agora has started to expand its presence on GitHub with a series of open source SDKs aimed at specific developer sub-communities, e.g. Unreal developers for gaming, web developers, React Native developers, etc. This is a necessary, though early, effort to expand Agora’s global reach. Its education-focused iOS and Android SDKs were just uploaded a few days ago. Evidently, Agora is still a young company -- the youngest of the three I’m discussing in this post -- so many of its processes, executions, strategies, and products still have much room to mature.

JFrog ($FROG)

Founded in 2008, JFrog more or less jumpstarted the DevOps trend before “DevOps” was even a word. The DevOps concept is still ill-defined. The way I understand it is a merging of two traditionally separate responsibilities in software engineering: developers (people who build applications) and operations (people who provision and manage the infrastructure resources to enable building applications), thus DevOps. (How much of a DevOps person’s work is “dev” vs “ops” is a constantly debated topic.)

This merging of responsibilities is motivated by the need to build, deploy, and maintain software more quickly than ever before. With more of everything getting “technologized”, a big theme we discussed in Part I, speed and security of building software is key. That’s the business JFrog is in, hence its catchy vision of a “liquid software” future.

Developers: Artifactory, the open source project that underpinnings JFrog’s commercial products, is a package manager, which is a foundational element of a DevOps’s workflow. In plain language, what it does is it manages and secures the binaries (literally 1’s and 0’s) that are running on computers, which are often also called “artifacts.” Thus, this project is a factory for managing artifacts, hence “Artifactory.”

There are many package types in the software ecosystem, and JFrog’s Artifactory supports pretty much all of them -- from the ubiquitous npm, to the obscure Bower.

This breath of support makes JFrog a classic developer-focused company. Supporting the obscure options also has some added benefits of smoothening enterprise adoption that are not well understood. A large, old enterprise tends to have aging technologies in various corners of its IT operation, which it prefers to be supported even when adopting new technologies. By supporting all package types, regardless of their current popularity, JFrog gives potential enterprise customers one more reason to say “yes” to its offerings versus other vendors that support less options, like GitHub. One less hurdle can make a world of difference in enterprise sales.

JFrog is meeting the developers where they are. That’s why the size of its developer community is in the millions.

APIs: JFrog is not an API company. Given the specific needs and challenges of DevOps, an API abstraction layer may or may not even make sense.

Its commercial product is a suite of tools around Artifactory that helps with security, continuous integration/continuous delivery (or CI/CD), distributing releases, and other parts of the software delivery workflow. It charges customers either an annual licensing fee (the traditional way) or a monthly cloud-based subscription fee (the SaaS way), which is pay as you use, priced on a combination of storage size, network transfer bandwidth, and CI/CD minutes usage per month (e.g. 10,000 minutes / month).

This duo license-plus-SaaS pricing method is common in software companies, though usually as a transition phase to lessen licensing revenue and increase SaaS revenue. As the world moves to the cloud, the way software products are consumed is increasingly via subscription services that are constantly updated and maintained, not once or twice a year based on a licensing agreement. (Also investors give SaaS revenue a much higher valuation multiple due to its recurring nature and predictability.) Similar to Agora’s 10,000 free minutes and other companies’ free tier options, JFrog recently introduced a free cloud tier, to grow and strengthen its developer community.

Open Source: JFrog is a great example of a successful company built on open source. Artifactory, in this case, is already widely used among the DevOps teams inside tech companies, and will likely be one of the first options to consider for non-tech companies trying to hire DevOps to digitally transform themselves.

The “global by nature” open source paradigm is so powerful in JFrog’s case that the company grew from nothing to IPO without any outbound sales effort. All of its customers come from inbound requests, meaning they are already using open source Artifactory for free and want to buy more features and products from JFrog to continue using it better. The open source global reach has also pushed JFrog to expand its presence to 10 countries and counting.

Only during JFrog’s first earnings call as a public company did we learn that the company is building a “strategic team” inside its sales structure to pro-actively expand business with its top 100 enterprise customers. Even so, the effort looks to be an extension of its inbound sales motion. With an open source-powered developer flywheel turning, outbound sales, which are more expensive and less efficient, may simply be unnecessary for JFrog.

MongoDB ($MDB)

Founded in 2007, MongoDB (formerly known as 10gen) is one of the most popular NoSQL, document-based databases in the industry. The company is built on an open source version of MongoDB, similar to JFrog’s relationship with Artifactory.

Developers: MongoDB has built one of the largest developer communities in the software industry. Its Mongo World 2019 conference had more than 2,000 in-person attendees -- impressive for a single product conference.

Being an easy-to-use, scalable database designed for building web applications, Mongo’s developer mindshare grew in part by popularizing the MEAN (MongoDB, Express, Angular, Node) stack pattern and its close cousin MERN (Mongo, Express, React, Node). The MEAN acronym was first coined in 2013, not so coincidentally by a MongoDB kernel engineer in a blog post.

These acronyms may feel gimmicky, but can be a powerful tool to increase developer awareness, education, and productivity -- a trusted stack or pattern can be very useful. The OG of successful stack acronyms is the LAMP stack (Linux, Apache HTTP server, MySQL, PHP), which was what Facebook (among many, many other companies) used to get started. Facebook is still a heavy user of MySQL today. I personally learned web development on the MEAN stack, thus MongoDB was the first database I used, just like many other new developers.

Being able to coin a catchy acronym isn’t enough. MongoDB has one of the most meticulous and sophisticated developer marketing and relations operations to push MEAN, MERN, and other ways to get developers to build applications on MongoDB. Developer community building takes dedicated resources and organization, and requires years of patient effort. I learned this the hard way. When I was the GM at PingCAP, I also coined a stack acronym, KOST (Kubernetes, Operator, Spark, TiDB), as an open source, cloud-native hybrid database pattern. The use case certainly existed (and still does), but the acronym never took off.

MongoDB also officially supports a wide range of developer tools in the form of drivers (common for databases), though it’s not as wide as I’d expected. Fairly popular languages, like Erlang and Lua, are missing. Given MongoDB’s new direction to become the go-to database for mobile development, to replicate its success in web application development, its attention is likely focused on Java (for Android) and Swift (for iOS). It relies on its large developer community to support other drivers.

APIs: The MongoDB API is powerful. I personally underestimated its power, because of the many alternative NoSQL, document-based databases in the market -- some from the cloud giants themselves, others from startups. As we discussed in Part II on APIs, one way to spot a winner in the “API economy” is to look at where the trend of standardization is happening toward or the “compatibility targets”.

MongoDB is definitely a compatibility target. Its two largest competing products in the cloud -- AWS’s DynamoDB and Azure’s CosmosDB -- both have MongoDB compatibility. In October 2019, Alibaba Cloud formed an official partnership to offer MongoDB as part of its AsparaDB database product line. GCP simply decided to make MongoDB a first-class product to directly distribute, support, and sell, instead of building a competing product to be compatible with MongoDB. This is part of GCP’s broader strategy to co-exist harmoniously with open source based commercial vendors, rather than competing with them head on, like AWS.

Open Source: Depending on who you ask, it’s debatable whether MongoDB should still be considered open source anymore, after its licensing change in 2018. In a nutshell, the new license, Server Side Public License (SSPL), restricts other companies from providing MongoDB as a cloud service. It stirred up a lot of industry-wide controversy, and MongoDB eventually withdrew its request for the license to be approved by the Open Source Institute (OSI). The OSI is the organization that has the power to approve whether a license is considered “open source” or not. Again, depending on who you ask, it’s debatable whether OSI should have that power or not.

We won’t focus on the “open source” merit of the SSPL, but it is important to mention it, because it’s a tangible manifestation of the tradeoffs associated with the “open source paradigm.” MongoDB clearly benefited from the paradigm to drive its software’s adoption and developer community growth. The same openness also allowed cloud companies to commercialize MongoDB, the open source software, without paying MongoDB, the company, a dime. The SSPL was designed as a response to this market behavior, not just to AWS, but also to many companies in Asia, who were doing the same. As MongoDB CEO Dev Ittycheria revealed in the partnership announcement with Alibaba Cloud, China has been the biggest source of downloads for MongoDB in the last four years. It’s most likely that only a small fraction of the revenue generated from those downloads went to MongoDB, the company.

MongoDB’s experience with the open source paradigm illustrates that openness can be a double-edged sword. How to navigate the pros and cons of openness effectively will determine who the winners will be in Globalization 2.0 -- a world driven by the open source paradigm.

Many Other Opportunities

Full disclosure: I own shares in all three companies discussed. Some of you may view this as a conflict of interest, which I fully understand and appreciate, but I also believe strongly in having “skin in the game.” If I think a public company is worth watching and I’m writing about it, I should invest my own money in them and be transparent to my readers. Otherwise, I’m being hypocritical -- principal-agent problems abound. (As the saying goes: no conflict, no interest.)

There are quite a few other public companies that can be analyzed in the “global by nature” lens, like: Twilio (I own shares), Cloudflare (I own shares), Fastly, Elastic, PagerDuty, Unity, and Datadog. Stripe and GitLab would also be great companies to consider, when they go public. If readers are interested, I will write more analysis on these other companies in the future.

There is also a huge crop of promising startups -- too many to name -- where applying the developers-APIs-open source lens may be useful. Who among these younger companies will emerge as winners in the next 10 years will be the most intellectually challenging and potentially profitable question to think about.

ICYMI: please give the other three parts of the "Global by Nature" series a read: developers, APIs, open source.

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