In 2012, the investment Manager of the venture Fund Runa Capital Sergei Belousov in an interview with Forbes suggested that ten years is small at the moment, Nginx company will be able to reach the turnover of $1 billion Forecast has not come true, but Nginx is the world market leader in web servers — on the way to the big goal: the service was used by corporate giants scale Netflix, Airbnb and Instagram, and in the totality of its technology incorporated in the logic of the 60% of the 100,000 most visited sites on the planet. 11 March 2019, the project founded by Russian programmers, for $670 million acquired the American company F5 Networks. Forbes along with the founders and investors Nginx and experts remembered the way the company from community development to big business and find out what technology is under the wing of new owner.
From hobby to global hegemony
The idea of Nginx Igor Sysoev came up with in their spare time. Programmer in “the Rambler”, the code for the web server it came from in the early 2000’s. the Internet came to life after the explosion “a bubble dotkomov” and “grew very quickly, however, the sites was intermittent,” says Sysoev in an interview with Forbes.
Most of the resources at the time worked for the Apache web server program, written by a group of American students. It is possible to distribute the load on the site so that they could simultaneously use a large number of visitors. However, the Apache was designed for only a couple of thousand visitors at a time. Users can run hundreds of different processes: someone to upload media files, someone — open the site and leave the tab, but each process took a large amount of memory on the server. To give a connection with other visitors, had to use additional servers.
Due to the growth of the load, the connection became slower and less reliable: if there is sudden surge of traffic the website would crash, and to restore the required hours or even days. Solutions to the problem were very expensive and unreliable, says Sysoev.
The alternative they decided to create their free in “the Rambler”. Web server, called Nginx, was also able to run several processes in parallel, but to redistribute the load to serve up to 10,000 requests at a time. This result provided a fixed amount of memory on all web servers, which does not depend on the number of connections.
Code Sysoev put on your own website. The product is quickly noticed by potential customers — soon they began to use popular resources such as Dating sites Rate.her and Mamba, as well as music portal “Sounds.ru”. The founder of the service has become difficult to cope with the support of the program, and in 2011 he retired from the “Rambler” and, together with former colleague Maxim Konovalov officer of “Comstar-UTS” Andrei Alexeyev founded the company with Nginx.
Network as if waiting for alternatives to Apache — the growing popularity of the project has been snowballing: in 2012, about a quarter of the 200 million most-visited websites in the world passed from Apache to Nginx. Among users of the software have appeared and international corporations, such as Netflix and Facebook, and the Russian it giants, such as “Yandex” and “Vkontakte”.
At the beginning of 2019 Nginx overtook Apache in the top of all the segments: according to the W3Techs, software from Russian developers use 59% of the top 1000 most popular websites in the world, 67% of top 10000 and 50% of the million of resources-leaders in attendance. The share of other web servers is reduced from year to year. And while all over the Internet use Nginx 41% against 44%, who work on Apache, by the end of the year, the proportion will change in favor of the project from the team Sysoeva, predicts senior investment Manager at Runa Capital Konstantin Vinogradov.
How the programmer managed to make a million dollars on a hobby
From open source to monetize
“80% of the turnover, which is in the range of $0.5–1 mln, the company brings technical support to Nginx, and growth opportunities here are likely small. 20% — development versions of the program for specific customers, including Netflix, a large telecommunications company and the government,” said Forbes, co-founder and COO Nginx Maxim Konovalov in 2012.
Since then, the company has done much to ensure that Nginx has evolved not only as open source, but as a commercial project. For business development team primarily decided to embed the program’s additional Nginx Plus accept traffic, implemented remedies, and then forwards the traffic to the application servers. “To provide businesses with the ability to scale on the Internet, in 2012 we started to work on a commercial decision Nginx and at the end of August 2013 launched it as Nginx Plus, says Sysoev. — This product is created and supported by a team of engineers headed by my partner Maxim Konovalov, still provides more than 90% of our income.”
At the request of Forbes Nginx founders opened the company’s revenue for the year 2018, the figure was $26 million, 65% more than in 2017. Thus, the project earned last year at 25.8% less than the amount of the transaction with the F5.
A key criterion for the attractiveness of Nginx as the object to absorb the relevance of the program in the it ecosystem of large companies. “We now have thousands of customers. More than 150 companies from the Forbes Global 2000 (a ranking of the largest public companies in the world — approx. ed) use the paid version of Nginx Plus to deliver their applications. These incredible numbers were reached in less than six years,” boasts Sysoev.
On Nginx work almost all the usual mass audience of the popular sites, in addition to the resources Microsoft and Google, — Facebook, Instagram, Netflix, Apple, “Yandex”, “Vkontakte” and many others, lists Vinogradov from Runa Capital.
However, not all large customers use Nginx Plus, highlights investor: for example, Facebook works with the free version of the product. “Facebook is so huge and its developers, who alone have customized the web server Nginx. Thus Internet corporations makes no sense to purchase a paid version,” says managing partner and founder of the Russian hosting provider RUVDS Nikita Tsaplin.
Among the well-known paid customers Nginx — photo service Photoshop Adobe, BuzzFeed, groupon Groupon, the content management system WordPress and the Dutch financial conglomerate ING Group, adds Vinogradov. Nginx Plus cost ranges from $2,500 to $5,000. In fact the subscription is more expensive, because the amounts the customers pay the “copy” — a copy of the software running on the same physical or virtual server. Most clients require two or more subscriptions to ensure uninterrupted operation of the websites with high load. Details of agreements with partners the company does not disclose.
From $3 million to $670 million
In eight years of existence Nginx as a business the company has raised over $100 million investment. The first and most important for the development of the project investor was from Serguei Beloussov Runa Capital. He is not just invested in the company funds, but also convinced the founders in the prospects for their own product. Under the influence of Belousov Sysoev, Konovalov, and their team have left previous jobs. Manager of Runa led the company former Vice-President of the American Red Hat Gus Robertson — until the deal with the F5 held in the Nginx CEO.
In the first round of investment in 2011, along with Runa also participated funds e.ventures and MSD. Collectively, they invested $3 million and received a little more than 35% share Nginx. Another 15-20% then left on stock options to employees, the rest accounted for the proportion of founders.
Later, the main investment partner, Nginx became an American venture capital Fund NEA. In 2013, 2014 and 2017 years, the Foundation has invested in the company $10 million, $20 million and $14 million respectively. In 2016, another $14 million Nginx drew from Telstra and Blue Cloud. The last round was held in 2018: the venture capital division of Goldman Sachs and NEA have invested in the company $43 million
These resources allowed Nginx to grow the company ten programmers huddling in the Moscow office, into a global player with offices in Singapore, USA and Ireland. 250 project staff now do not only Scripture code, but also sales, marketing, support and product management.
F5 is a company with annual revenue of $2.2 billion — went on the Nginx end of 2018, “to discuss a possible partnership,” says Konovalov. “Nginx was a lot of complementary functions, to transform it [the partnership] into something more,” he adds.
As a result, for several months, the parties have agreed on the parameters of the deal. For $670 million F5 bought back all the shares of Nginx, including those that belonged to Runa Capital. How successful for the Fund turned the output of the project, representatives from the Runa are not disclosed. The founders Nginx also not comment on the details of the transaction.
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From independence to synergy
F5 Networks is the market leader in solutions balancing loads of sites and accelerate the application of its technology for tasks close to the product Nginx Plus. “It is too early to discuss specific plans for future joint products” — said Maxim Konovalov. According to him, the transaction can zoom F5 “to solving the problem faced by many customers with Nginx”. “Most companies have incompatible services and applications from different vendors. Insecure: can be hard to manage, which leads to an unstable environment. All applications should be protected from such risks and be driven to scale in large and complex environments,” explains co-founder of Nginx.
And Nginx, and F5 will be helpful to each other — the companies are completely new to the other parties to the transaction area of expertise, he said: “Nginx is the market leader in web servers and content caching, as well as an innovator in the field of APIs and Kubernetes, in which F5 has historically had no competence. F5 will bring its expertise in security applications protection from bots and DDoS attacks”.
Under the terms of the agreement, F5 will not close the source code of Nginx will continue to support the team and will retain a license to use paid-for products and brand with Nginx. “In the long term, we expect to increase investment in the development of open source and expand the community of programmers who will Supplement and develop”, — says Igor Sysoev.
When corporations are buying high-end projects in the industry, close code is not a prerequisite for the implementation of the strategy, says investment Director of international venture Fund Maxfield Capital Alexey Toknow. “The interest, of course, not only direct financial, but also synergistic, including in the paid expansion of functionality due to the product of corporations,” explains the expert. Examples where open source projects have found effective monetization model, not so rare, he notes: one of the most famous cases — the Mozilla Foundation (developer of Firefox), the organization monetized search through contracts with Google and Yahoo valued at several hundred million dollars a year. Another example is the open-source operating system Red Hat, which IBM bought for $34 billion
However, to repeat the unique success story of Nginx under force far not to each project, says Konstantin Vinogradov of Runa Capital. “Many companies want to develop on a similar trajectory, but few people get. First, the team had a phenomenal technical competencies, due to which Igor [Sysoev] and its partners have built an outstanding product. Secondly, the founders had a truly global ambitions,” concludes the investor.
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