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Open Source / Software Development

NGINX’s Plan to Create a $1 Billion Business from its Open Source Software

Aug 23rd, 2016 6:00am by
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NGINX Inc. has a set an ambitious goal for itself: To become a $1 billion company within the next eight to 10 years. It will not be an easy task, especially given that its biggest competitor may be its own well-engineered open source software. For NGINX, the key to success will be to successfully get customers from additional markets.

The open source NGINX project, which began in 2002, is a widely-used high-performance web server and reverse proxy. However, the commercial company, NGINX Inc., created to support the open source project, was founded much later, in 2011, with the first commercial product in 2013.

Many early adopters and other users of the open source version of NGINX have the skills and engineering resources to rely solely on the open source version, so commercially, NGINX Inc. is facing an uphill battle in monetizing this user base.

In order to survive over the long term, it’s critical that the company expands beyond its historical user base and into new markets to customers who need additional features along with support and services to implement and maintain the software and customers who will pay for commercial products and services.

NGINX is used by many of the top websites in the world, and its market is continuing to grow. According to Netcraft’s July 2016 report, NGINX is used by almost 28 percent of the top million websites. As of August 11, 2016, W3Tech’s survey put this number at almost 36 percent of the top million websites and almost 53 percent of the top 10,000 websites. Both of these surveys have limitations, but they show a trend of NGINX growing relative to the competition that aligns with what we’ve been seeing in the market.

NGINX LogoWhile NGINX, Inc. has around 1,000 commercial customers, most websites are using the open source version of NGINX.

When you have an open source product as good as NGINX, it can be difficult for any company to provide additional value, a challenge recognized by Gus Robertson, CEO of NGINX, Inc.

“In building a company around an already successful project like NGINX,” Robertson said, “we’ve got to then deliver significant additional value on top of this incredibly great software.” This hinges on enterprises recognizing these new features as valuable. With many of the open source developers on staff at NGINX, Inc., enterprises may “also pay to know that the authors of the software will have their back when they go into production,” said Robertson.

From a feature standpoint, Robertson tells us “anything that extends NGINX into the traditional application delivery platform space, such as load balancing, media streaming, caching, monitoring, application health checks, etc. goes into the commercial product.”

The NGINX Plus Release 10, announced Tuesday, arrives with a new Web Application Firewall along with some other security enhancements, support for IP Transparency and Direct Server Return (DSR) load balancing, and other features. These premium features, along with support and services, are what they need to be able to monetize.

About 90 percent of the company’s revenue comes from their commercial product, NGINX Plus, which is sold as a subscription service with 24×7 support, and the remaining 10 percent of their revenue comes from professional services.

On a positive note, the company is seeing quite a bit of growth in its commercial business. In the past 12 months, NGINX, Inc. doubled their customer base to the current 1,000 commercial customers, and more than half of these customers have over $1 billion per year in revenue. The sales team is focused on enterprise and mid-market companies with websites that are mission critical to their business, which tends to include mature tech companies, online retailers, media, financial services and more. Health care, telecommunications and government are also important markets for NGINX, Inc.

In April, NGINX received an $8 million investment in addition to earlier investments, which it is using to aggressively go after this growing market, rather than focusing on becoming cash flow positive.

When we asked Robertson about his plans for the future, he replied “Number one, we will continue to be open source … We are committed to providing the best open source web server in the world.”

From a commercial point of view, “we’re focused on helping customers transition from expensive hardware appliances to using software for application delivery, and then moving to microservices, which helps them build more scalable applications,” Robertson told us.

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