The rise of open source software and the stocks powering the industry - The Average Joe

    The rise of open source software and the stocks powering the industry

    Kevin Roche — Analyst

    September 9, 2021

    open source software

    September 9, 2021

    Investors, get ready for the revolution — and the multi-billion dollar companies it’s creating.  The open source software revolution was once just a dream, but Red Hat blazed the trail for the industry when it was acquired by IBM for $34b in 2019.

    The rise of open source software

    Developers are revolting against large software giants like Microsoft and Oracle, which monopolized source code — the underlying code that runs software.

    Open-source projects started as free tools to make software and code held by large companies available to everyone. Then clever entrepreneurs flipped the business model on its head:

    • Closed source (the old model): Source code is encrypted and users pay large, recurring fees to companies for access.
    • Open source (the new model): The source code is made publicly available and users are free to copy or modify it — with companies charging for additional tools and support services.

    This new model led to billion-dollar businesses as open source companies took market share from the usual software giants — and MongoDB is leading the way.

    MongoDB: Keeping the revolution alive

    MongoDB, the open source database provider valued at just $1.2b when it went public in 2017, is now the largest publicly traded open source company. Its stock is up over 1,400% since going public — shooting up another 25% after its recent earnings report.

    Last year’s 75m downloads were more than the company’s first 11 years combined. In recent years, Mongo’s growth was accelerated by its popular cloud database tool, Atlas, which launched in 2016:

    • Atlas, which maintains databases for developers, is now a widely used tool among companies, including AT&T and Morgan Stanley —– just to name a few of MongoDB’s 29k+ customers.
    • In the recent quarter, sales from Atlas grew 83% —making up more than half of the company’s sales.

    Investors: Keep your head in the clouds

    MongoDB isn’t the only successful open source company since going public:

    • Confluent (NASDAQ:CFLT), an open source data analytics provider spun out of LinkedIn, is up 64% since its June IPO.
    • Elastic (NYSE:ESTC), which commercializes open source software for search and analytics, is up nearly 150% since its 2018 debut.

    The market for open source software is expected to grow 22% annually to $66b by 2026. Open-source software companies went from starting the resistance to becoming a leader in the field —with plenty of room to continue their reign in the highly competitive industry.

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