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I've posted a good bit about Acquia lately, because we had a lot of exciting things happening, and because I'm proud of the body of work that the Acquia team is producing, often in close cooperation with the Drupal community.
Still, a lot of people ask me how Acquia is doing and whether the support business model is working. In this post, and in an accompanying press release, I want to provide some additional insight in the state of Acquia's support business model.
As you might remember, Acquia opened for business in October 2008, less than one year ago. In less than one year, Acquia now supports over 250 enterprise customers across a wide variety of markets. In the last six months, we've quadrupled our customer base and now help support open-source solutions in places where proprietary software once predominated. Places like The Economist, Intuit, WEEI, Sony Music, Adobe and more.
The reality is that with less than one year into the Drupal support business, it is too early for us to tell if the support business model will be viable for Drupal. We need many more customers before we've built a scalable business; however, the early signs are good and beat our expectations.
Acquia has grown substantially from its beginnings less than two years ago, and since opening its doors for business less than one year ago. The road to making Acquia a successful company is still long but I'm very excited about what we have accomplished to date, and where Acquia is heading with its new products and services.
I'm very pleased to announce that Acquia has raised an additional 8 million USD in a Series B round of funding. As explained in our press release, the investment was led by our existing investors, North Bridge Venture Partners and Sigma Partners. Combined with our Series A funding, this brings our total funding to 15 million USD.
The Securities and Exchange Commission (SEC) published our filing faster than expected and as a result, some of you may have already heard this news. That will teach us to coordinate things better -- not a big deal, but another lesson learned. Interestingly, there is nothing like a scoop to generate coverage and the funding news was picked up by TechCrunch, Washington Post, The Boston Globe, Mass High Tech, Venture Beat, CMS Wire, Xconomy and many others.
Raising this additional money is no small thing, especially in the current global economy. It is a testament to the hard work and dedication of all the Acquians and the momentum we have achieved.
Pitching our investors over Skype. Tom was attending the meeting in person but I couldn't travel because my wife was about to give birth to our son, Stan. Taken with my iPhone.
But how will the money of our series B funding be used, you ask?
First, this new funding lets us accelerate our existing support business. Our support business is performing better than we expected but, of course, there is still a lot of work to do. We'll use the money to grow our support business and to expand the market for Drupal in the enterprise world.
Second, the new funding allows us to complete the strategy that we laid out early in 2009, directly leading to new products like Acquia Hosting, Acquia Gardens and Acquia Training. We'll also be looking to add some new products and services to the Acquia Network as part of our subscription offerings.
My vision for Acquia has always been to offer a unique combination of products, services, and technical leadership that complement and help fuel the Drupal project, and that help Drupal reach its full potential. It is why I started Acquia to begin with, and our Series B investment doesn't change that vision. Expect us to continue to give back to the Drupal community through code, by organizing sprints, through attending and sponsoring events, and more.
Last, the new funding means that I can continue to follow my heart, directing my time, resources and passion toward Drupal and the many people it touches. I have found a joy in participating in Open Source and doing start-ups that I have not found in academia, and that I likely wouldn't have found as a programmer at a local bank. ;)
I'm writing this blog post in San Jose where I'm attending the annual OSCON conference to meet and work with people in the Drupal community, and to educate people about Drupal. It is on days like today that I am reminded of how lucky I am, and of what both Drupal and Acquia enable me to do.
Drupal.org recently featured a detailed use case about InterMedia Outdoors switching to Drupal. InterMedia Outdoors boasts a network of 16 websites, a portfolio of 15 magazines, 25 market-leading television productions, 2 syndicated radio shows, and more.
What the use case didn't mention is that they are migrating off of FatWire, a proprietary web content management system (WCMS) that is Forrester's current poster child in the Q2 2009 Forrester Wave for "Web Content Management For External Sites". To me, that is the most interesting part because it means that Drupal is starting to disrupt traditional web content management systems, including the leading ones.
In other words: CIOs are starting to take notice of Drupal.
Many of the proprietary content management systems are difficult to customize, expensive, hard to set up, and slow to adopt new trends. Contrast that to an Open Source solution like Drupal and you get the exact opposite: all the code is made available, anyone can change it, it is very extensible, well documented, and massively adopted. Developers are plentiful, it is bleeding edge, and best of all, there is no license fee -- which matters a great deal in today's economy.
Furthermore, on the business side, Open Source companies get a ton of sales and marketing for free while proprietary vendors presumably have to put more resources into sales and marketing. In other words, Open Source companies should be able to win on all fronts: technology, sales, and marketing. And we do -- I see it in the Drupal community every day.
But no matter how many times we've whacked proprietary vendors over the head with a foam clue bat, some still think that open source is a fad. That is why it is good to see organizations move from proprietary systems to Open Source solutions.
Excited about this event, I reached out to Howard Stevens, the CIO of InterMedia Outdoors. In an e-mail conversation, he asserted the following:
"The primary reason that we selected Drupal is the extensive flexibility that it provides us to enhance our sites over time. While we are very excited about the launch of In-Fisherman, we also recognize that it is a work in progress--the digital media landscape is evolving so quickly it was important for us to implement a content management system that enables us to continually improve our sites without the constraint of vendor roadmaps and proprietary code. The transparency of Drupal’s source code and engaged developer community ensures that any deficiencies in the code are quickly discovered and remedied, new features can be developed as necessary, and we will always retain the flexibility to keep our sites on the cutting-edge."
While use cases like InterMedia Outdoors are really helpful in convincing CIOs, we need to think about more and different ways to encourage CIOs to abandon their proprietary web content management systems. A common misconception among CIOs is that Open Source solutions require a lot more customization and development than proprietary CMS solutions. Howard Stevens wrote:
"One of the hurdles that dissuaded us from implementing Drupal originally was our very small in-house development team. The promise of an out-of-the-box proprietary solution was appealing as it seemingly mitigated the majority of the development risk and complexity. In reality, Drupal was much more effective at helping us manage those risks ..."
The reality is that with 4000+ contributed modules, Drupal has access to a lot more pre-built functionality than any proprietary CMS. Additionally, the number of developers who actively develop in Drupal combined with the number of developers who possess the prerequisite skills (and the plethora of published materials on developing in Drupal) greatly outnumbers the skilled resources with knowledge of nearly every proprietary CMS.
The point here, is that CIOs often look at Drupal differently than developers do. It is less about the technology, and more about finding ways to save time and money and to mitigate risks. Personally, I think the combination of commercial-grade support, Drupal distributions, electronic services and a healthy ecosystem of expert Drupal shops are key in removing barriers for CIOs. Other barriers to overcome include lack of a roadmap (I don't want to fix that), licensing issues (increasingly better understood), training and certification, and of course, functional gaps.
Personally, I'm most interested in identifying the functional gaps because closing those is what the Drupal community excels at. Whatever the functionality gaps, I'm confident we'll close them over time. If you're a proprietary vendor, you can't say we didn't gave you an advance warning. ;-)
I've met several Drupal companies lately and am finding it hard to believe that so many companies don't contribute back. When asked, most of them express how much they'd like to contribute back to the community, but simply don't know how to make it work financially. They feel that they don't yet have the time or resources. In other words, while they have an objective, they've consistently failed to translate it into an executable strategy. An objective without strategy, or a strategy without execution remains a dream.
At the end of the day, using cost as a reason to not to engage in community activities isn't sufficient justification, because there are also costs in not engaging in the community. Think about all the things you could do for the community: contribute to module development, improve documentation, help organize a local meet-up, or take part in a code sprint. Then, think about all the things the community can do for you: provide feedback (i.e. your employees get free training), confer visibility and credibility (i.e. your company gets extra sales), impart a sense of "something larger" (i.e. your business is informed by a strategic vision). It's fun and rewarding to work closely with the smartest people in the Drupal community (i.e. it helps employee retention). Simply put, the more you give back, the more you get back.
For many of these companies, Open Source and online communities are still new -- perhaps that's why some of them are still stuck in the "standard mode of operation". It may only take a little creative thinking to begin giving back to the Drupal project in a cost-effective way.
One strategy that I've seen some companies use, is to offer all your customers the option to pay an extra 15% that is then invested back into the Drupal community. Make it a line item on your invoice, and use your customer proposal to explain (i) the value your customers receive from other contributors, and (ii) the positive impact community investment has on reducing risk, increasing maintainability, and providing long term support. In other words, make the business case for the community ROI.
That's just one example, but I'm sure there are many more. Do you have your own example? Please share it in the comments.
I've recently been thinking a lot about the freemium business model. For those unfamiliar with the freemium business model, it was first articulated by venture capitalist Fred Wilson in 2006:
"Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base."
I've been thinking about the freemium business model because, inspired by Drupal and Open Source, both my companies, Acquia and Mollom, use a freemium business model. (Technically, Acquia uses an Open Source business model which is different from the freemium business model, but there is plenty of overlap and similarities -- pointing out the differences could be a blog post and discussion on its own.)
At Acquia, we currently provide community subscriptions for free -- people that want help with Drupal installation and configuration can get free support from Acquia's Drupal experts. While our free support is limited to certain channels (i.e., forum only), certain support questions (i.e., no module development help and no security best practices) and comes without response time guarantees, we have people on staff whose full-time job is to help you (example customer story). Further, we invest heavily in Drupal and give those contributions away for free.
Similarly, at Mollom, our basic spam filtering service is available for free to sites with limited post volumes. Our free website protection service provides all the features of our commercial Mollom Plus product, but is limited in the number of posts it will protect each day and in its access to our high-availability back-end infrastructure. The great majority of our Mollom clients are using our free filtering service with great success.
There are a number of things that attract me to the freemium business model. The first, and certainly foremost, is the opportunity to do “good” and “well” at the same time. It’s a great thing to help people build quality websites with Drupal, and it’s a great thing to provide Mollom to help deal with spam. Second, I believe a company is better off with a large install base than a small install base, even if the majority of clients ride free. A large install base translates to direct and indirect network effects, including efficient marketing, greater brand awareness, the collective intelligence of your users, and faster product adoption. And, last, I strongly believe that a successful company built on the freemium business model is simply a stronger and more defensible business in the long run.
The freemium business model is relatively new because it didn't become a serious option until the internet gave us a low-cost distribution channel. Ultimately, I can't help but think the freemium business model is the business model of the future for the sole reason that it puts the customer first. With the freemium business model customers only have to pay when they get significant value from the software (i.e. they have reached the limits of the free version). Compare this to the current model where people have to pay to get access to the bits, or where people have to pay before they got enough value from the software (e.g. most shareware software).
That all sounds great but you have to make the freemium business model work first. Getting free users to convert to paying customers is hard. Conversion rates of less than 1% are not uncommon. Free is often “good enough” and only a few people choose to pay for additional features and services. You have to put enough value in the free version to drive adoption (so that you get the scale and the network effects that derive from it), while providing enough incentive for people to pay for premium features or services. The marketing and sales funnel is really wide at the top, and very narrow at the bottom. Plus, you have to make sure that the paying users subsidize all the free users.
Achieving the right balance between free and paid customers is difficult and requires close attention to a number of variables. As a result, I've been trying to answer questions like: how much should we invest to acquire additional free users? How do you estimate the value of a free user? What is the cost of a free user? How long does it take for a free user to convert to a paying customer, and how many will do so? What are the triggers that convince free users to convert?
For example, in Mollom's case, one could argue that we get thousands of dollars worth of value from free users already. We currently have more than 3,000 active users that use Mollom for free. Say each user spends on average 15 minutes a week moderating his site's content and reporting classification errors to Mollom. Mollom learns from this feedback and automatically adjusts its spam filters so that all other Mollom users benefit from it. At a rate of $10 USD/hour, we get $390,000 USD worth of value from free users a year -- 3,000 users x 15 minutes/week x 52 weeks/year x 10 USD/hour = $390,000 USD/year. If these numbers hold up, the value of a free Mollom user could be estimated at $130 USD/year. And that doesn't include the marketing value they add. That said, the value of a free user probably declines as you get more of them and the business becomes stronger.
Both Acquia and Mollom have just opened for business so we have a ton to learn. It will be interesting to look at the different variables and questions a year from now, and to see what we have learned. I hope we can make it work so we can do good and well at the same time ...
After several months of private beta testing, Benjamin Schrauwen and I are happy to unveil Mollom, your partner in automated content monitoring. Mollom's purpose is to dramatically reduce the effort of keeping your websites clean and the quality of their user-generated content high. Currently, Mollom is a spam-killing, one-two punch combination of a state-of-the-art spam filter and CAPTCHA server. We are experimenting with automated content quality assessments, but these are still in an early testing phase.
We currently provide modules for Drupal 5 and Drupal 6. For all you developers out there who'd like to build Mollom plug-ins, we will be releasing full API documentation very soon. We would be thrilled to put your home-brew plug-in for your favorite platform on our download page.
Mollom vs Akismet vs Defensio?
Mollom does offer some of the same features as Akismet or Defensio, but our goal goes further than spam-blocking alone. We want to increase the overall quality of your site's content. For example, Mollom's CAPTCHA service already helps block fake user accounts, and we are experimenting with various automated content-quality assessments, including blocking obscene, violent and profane content.
We have some great new features in the pipeline, so please check back with us regularly for more news or subscribe to Mollom's RSS feed.
Mollom and Acquia?
Mollom is a self-funded, garage-style project. I do take it very seriously, but it is nowhere near the size or scope of Acquia, which obviously remains my full-time commitment.
Mollom is a separate effort for three reasons: (i) I started it a while ago, (ii) I'm working on it with a friend who is not involved with Drupal or Acquia and (iii) unlike Acquia, Mollom is reaching out to as many content management systems and web applications as we can engage (and not just Drupal).
While Mollom is not associated corporately with Acquia, Acquia does intend to offer Mollom services as part of its subscription offerings. See Acquia's Caliper project.
Thank you to our testers
We would like to thank all of our private beta testers for their help and suggestions over the past months -- you've gotten us to this important milestone, guys. Thank you!