To Be Continuous Podcast: Category Creation featuring Martin Casado

In this episode of “To Be Continuous,” Paul and Edith are joined by Martin Casado, General Partner at Andreessen Horowitz. He previously was co-founder and chief technology officer at Nicira, which was acquired by VMware in 2012. While at VMware, Martin served as senior vice president and general manager of the Networking and Security Business Unit.

The group discusses the deeply complicated and difficult process of category creation, with a special focus on technology infrastructure products.

This podcast is brought to you by Heavybit, a program that helps developer-focused companies take their product to market.

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Edith Harbaugh: What do you like about continuous delivery?

Martin Casado: I think that there’s a broader movement around continuous delivery that is really interesting, which is, traditionally, infrastructure and operations came from an independent group. My first job out of undergraduate was working on simulations code in a national lab.

I couldn’t control anything about infrastructure. I really didn’t have budget to buy a pencil. You get infrastructure, and you’d have some application to code, and you’d work on that application. We’d fiddle around with our MIG files or whatever, and that was pretty much it.

The cool thing about the broad movement now, and I think CI/CD (continuous improvement/continuous delivery) is just part of this, is more and more applications, application developers, are actually getting responsibility for operations.

This is provisioning, this is delivery, this is deployment. That’s a big huge change in not only what technologies get created but who’s consuming it and why they’re consuming it. I think it’s actually one of the more interesting trends right now.

Edith: This would be a great time for you to introduce yourself.

Martin: My name is Martin Casado, and I’m a general partner at Andreessen Horowitz.

Edith: But you did stuff before you were at Andreessen.

Martin: That’s right. The quick arc, as I mentioned, I used to be a research scientist at Lawrence Livermore National Labs. I spun out of that, did my PhD at Stanford. My research was in networking, so I was part of the team that started software-defined networking.

I was there for four years, spun out of that, started a company called Nicira where we did software-defined networking. I did that for five years. That was acquired by VMware. I ran the networking security business unit at VMware for almost four years, and four months ago I decided to change and become a VC.

Edith: So you basically created a category. What drove you to do that? What made you decide to start something knowing that it was so hard?

Paul Biggar: You’re talking about software-defined networking? For the viewers at home, Martin roughly invented software-defined networking.

Martin: There’s a whole bunch of people contributing, but I think a lot of the original momentum came from my thesis. You know, I’m going to be totally honest. If I had any idea how hard it was, I never would’ve done it.

Edith: Really?

Martin: I think so.

Edith: I think you would’ve.

Martin: Well, maybe. But it would’ve been a lot more daunting. I came out of Stanford pretty darn naive, like, “This is going to be easy!” Now, nine years and tons of gray hair later, I just realized that, man, it was a battle. I don’t think I had one-quarter that was easy. Everything was a battle.

This is the way that I think about it. If you’re an entrepreneur, and you’re going to do category creation, you basically just have two jobs, in addition to product development. And job No. 1 is, there’s going to be some constituency out there you’re selling to, and that constituency, they wake up every morning and they think about all sorts of stuff, but they’re not thinking about your thing, because it hasn’t been created yet.

That object in the mind space, that object doesn’t even exist in their brains yet. The first thing you have to do is create that object. It’s like Leonardo DiCaprio at “Inception.” You go in, you’re planting an idea in somebody’s head. It has to become a thing, something people think about, something people know and integrate.

This is from nothing, and that’s hard. For us, it took five-plus years, and it touches every aspect of thought leadership such as analyst relations and technical conferences and broad marketing.

Paul: So the activities that you’re doing in that category creation are largely marketing and getting people to hear about the activity and learn about it?

Martin: I think so. I think maybe technologists will view marketing as this pretty shallow thing, but I think you’re exactly right. It’s marketing. But it is often very technical marketing, for example, in the guise of open source.

In releasing open-source projects, you’re getting people to use it, you’re going to standards bodies, you’re going to conferences. It’s an incredibly technical thing, but in the end, it’s marketing in the sense that you’re actually creating awareness and a market.

The first thing that you’ve got to do as an entrepreneur is, if you’re doing category creation, nobody’s thinking about your thing. You’ve got to get them to think about your thing, which is a lot of work. In my experience, five to seven years.

Then the second thing that you have to do, which is just as much work, is then you have to attach a value to that thing. And I think we as technologists, there’s this kind of fallacy that we have where, “I’m going to create this new widget.” Let’s say I create the iPhone.

Paul: Everyone will know how amazing it’s going to be.

Martin: Exactly.

Paul: Just build it and they will come.

Martin: Yeah, there’s intrinsic value in my widgets. I take my widget, I put it on a sidewalk and someone picks it up. They’re like, “This is amazing. It’s worth millions of dollars!” And that’s totally not the reality.

The reality is people only see value if they exchange money and they’ve used it.

And if you’re doing category creation, how do people know what that value is? It’s a very difficult thing.

Paul: And when you say attaching value, do you mean monetizing? Or is there more to it than that?

Martin: I meant more the idea. Ultimately, this materializes monetization. Let’s say that you’re my constituency, and I’ve created this new widget. First I need to get you to think that this is actually a real thing. I’m going to call it a new phone. So, you need this new phone. First I need to convince you that you need the new phone.

Then the second thing I need to convince you is it’s worth tens of thousands of dollars to you because you need to mentally actually attach that value to it. And it turns out introducing new concepts don’t necessarily have value if they’re new concepts.

Normally, the value comes from, for example, an actual transaction. There’s a psychology around this. Or at least some experience with it, knowing that it’s going to, I don’t think you can just sit back to a couch experiment and be like, “Oh, I think this is going to save me money, therefore it’s worth something.” It really requires a lot of effort to make value.

Paul: So the category that I see being created, or the one that’s closest to me at least, is this idea of containers and Docker, and more specifically Kubernetes, the idea that there’s this cloud infrastructure over there. The way that I became aware of it is exactly the way you’re talking about it. There’s open source coming out there that you can use and you can hack on yourself. There’s talks up there where people blow your mind.

Martin: I think that actually this point, and certainly for all the listeners, I think this is one of the most salient points of this decade, actually, which is going to be a weird thing to say. At least an infrastructure’s the following.

In the past, how did we create mindshare and customer bases? Well, there’s this whole pmm function and this whole sales function. And if you look at the big enterprise companies, if you look at Cisco and IBM and Oracle, really their power is this function. They own the sales channel.

They have great relationships with the analysts, they’ve got great relationships with the customers, they’ve got certifications and the classes. So anytime they have a new concept, they take that concept and they cram it down the machine.

As a startup, it doesn’t matter how cool your technology is, the hardest thing is to actually penetrate that channel.

But when it comes to this new era of open source, now you actually have this hack that’s never existed before, where the buyer is shifting from an operator to a developer. Developers like open source, and you can actually create these concepts by getting open source out there and getting them to use it.

Paul: We’ve been talking about this sort of thing, just the idea that it’s bottom-up now versus top-down.

Martin: Not only that, it’s a totally different buyer that’s a totally different aesthetic. I don’t think developers care as much about analysts. I don’t think developers care as much about the 42-long sales dude with white teeth and the boat. I don’t think developers care as much.

Paul: They won’t even answer his call.

Martin: Exactly. About the channel, I think they don’t care about complex procurement processes.

Edith: Having sold software for a little bit myself, if you get into a bigger corporation, you still don’t start to run into that.

Paul: You get there, because the developers were first asking for it to exist.

Edith: The longest part of our sale cycle is you get bounced to procurement and legal.

Martin: Absolutely. I think this is the most important nuance of this argument, is exactly what you said. I’ve always maintained that open source and the developer is replacing marketing and pre-sales, not sales.

You get credibility to the account, you can get things to technical close and technical validation, you can get account pull. So it’s almost like filling the pipeline, getting the transaction done, I still believe. For a long time, you need to have a professional, direct sales force that will be in there pushing things for procurement.

Edith: It’s just a lot of work, because you pass the technical evaluation. They’re like, “Okay, go talk to procurement.” And to procurement, you’re a widget.

Martin: Right, but the good news is, now it’s possible. Where in the past, to get that much legitimacy, to get things to technical close, was very difficult. You didn’t have the certification, you didn’t have access to the buyer, you didn’t have the account rep to make the introduction. You didn’t have any of that.

Edith: That’s true.

Martin: And now you do, and now it’s just about actually going through the logistics. And you’re absolutely right, it’s hard, it’s baroque. I’ve called it tribal bloodletting. It’s all of that, but you can do it as a startup.

Paul: The thing that I think is really interesting is the converse of that. It’s that people who work in open source now are becoming actually incredible marketers. They don’t refer to themselves as such, but they have amazing social media presence.They build up tons of channels, whether it’s mailing lists or just Twitter followers.

Edith: It’s like everybody recreates marketing. Everybody’s like, “Oh, we don’t need marketing.” Then you’re like, “Well, what is this thing over here where you have an email list?” Oh, that’s not marketing.

Paul: It’s not marketing because I’m a developer.

Martin: I really think that those that know how to do this are some of the most valuable people in the entire industry because this is the new entree for products into customer bases. I mean, there’s another kind of potential pitfall here, which is, let’s say you’re using open source for marketing.

Now, there’s probably $7 billion have been invested in open-source companies and only about a $1 billion worth of returns. I’m not sure if those numbers are true, but I hear them quoted all of the time. But the reality is, a lot of money’s gone into it and not a lot of money has come back.

The reason is because now, if you’re using open source to do marketing, you’re almost cannibalizing your sales motion. And so for a long time, the only open-source model we knew how to work was the Red Hat model, which is a services company. Only Red Hat’s ever pulled it off. It’s been very difficult.

But another shift has happened in the last few years is people have figured out that actually you can use open source for marketing, but you don’t have to confuse that with your actual product offering.

And with the rise of services, you can actually use open source for customer traction. You can monetize the service, and when it comes to services, no discussion of open source or closed source. So I think that we’re actually starting to unlock viable business models where you use open source for marketing.

Edith: Who do you think does a good job of that?

Martin: I think GitHub is a great example, right? Git isn’t even built by GitHub. It’s the standard in Linux. But if you look at GitHub, it’s a very fast-growing company that’s based on open source, and so everybody knows about it because of Git. So Git is doing the marketing. And this is just one example, I think there are many.

Paul: It’s funny that you cite that as based in open source, because almost none of their stack is actually open source.

Martin: Exactly, it’s a service offering. That’s what I’m saying.

Paul: When you say service, you’re referring to software as a service, not service as in consulting?

Martin: Absolutely. I should’ve been more clear. The long-standing question for us, certainly since 1995, is how do you build an open-source company that has the margins of a closed-source software company? Because you’re open source, basically you become a service and support company.

What has happened in the last decade is exactly what you’re saying: people will realize that you can get account credibility and account traction, account knowledge, through open source.But then you can offer a back-end service offering as a service offering, and monetize that, and it’s often a closed-source stack on the back end of what you’re doing.

But you don’t talk about open source/closed source as much with service offerings. It’s normally if you’re consuming something on-prem that you think about those things.

Paul: How do you feel about this? People who are building, let’s say CircleCI as a good model, but there’s a ton of them. Building something that’s a SaaS product, a hosted SaaS product, but that then sells to people who use it in their own VPC and pseudo on-prem sort of thing.

Edith: Oh gosh.

Martin: I come from this somewhat traditional world of selling enterprise software. In there, there’s this whole discussion, and I was part of this discussion, of is it on-prem or is it off-prem in general? And I think that you framed this question perfectly. I’ve realized that that’s a false dichotomy. It’s actually not the right question to ask. I think as a service, is it actually an operational model and a delivery model? It doesn’t really matter if it’s on-prem or if it’s off-prem.

I think that the days of selling closed-source software to companies is done.

But you can sell them services and you actually can sell them appliances. But if you look at appliances, appliances almost look like services. They’re boxes that have services, and often the upgrade is happening remotely, management is happening remotely.

I do think that the right model for these companies, I think CircleCI’s a great example of this, you have open source that customers use, you have a SaaS offering, but you also have an on-prem delivery offering as long as you don’t change the operating model, as long as it still looks like a SaaS model somehow, whether it’s a managed service or something like that.

I think as soon as it becomes shippable software, where you have to manage a heterogeneous set of environments, you have to manage all the day-two ops. It becomes unwieldy.

Edith: I had a really interesting discussion the other day with the VP of Sales from CircleCI and somebody from Microsoft. CircleCI was basically like, “We love that it’s selling on-prem. It’s helping you.” Microsoft is like, “We’re trying to get off-prem desperately.” So it was not the argument you thought was going to happen.

Paul: I think it’s probably because of how sensitive the IP is. If you’re talking about something like, well, documents are pretty sensitive, but the source code is very sensitive. And so people are not as happy to ship that off-prem as we once thought was going to be the case.

Edith: Microsoft’s reasoning was, and this might be the way Microsoft had done it, is they have 10-year maintenance agreements.

Martin: We have, “If you have a problem, upgrade to the latest version and then we’ll deal with you.” I think that’s kind of what everyone has. There used to be this idea that you’d create a fork and then you’d backport things to that fork or the old version, or something like that.

I don’t know anyone who’s doing this sort of services, the SaaS with a managed to on-prem version that does anything but “the latest version is the version.”

This podcast is brought to you by Heavybit, a program that helps developer-focused companies take their product to market. Throughout the program, founders work on developer traction, product market fit and customer development. If you like what you hear, be sure to subscribe to Heavybit’s Podcast Network on iTunes.

— Malia Powers