Developer-Focused Businesses Are Where It’s At

December 2012
Related Companies: Crowdflower, SendGrid, Shopify , Twilio, Inc. and Zapier
Related Strategies: Cloud Computing

 

We all remember the clichéd view of developers barricaded in their childhood bedrooms well into the wee hours of the night fueled by pizza and energy drinks. And while many still believe that the influence of the developer rank ends when the sun rises, the reality today is much different: developers are courted by enterprises inside and outside of Silicon Valley, and once on board, they increasingly enjoy not only a seat at the table and a voice in decision-making, but power of the purse, signing off on large corporate expenditures. Internal development is no longer viewed as a corporate cost center but rather a creator of value and an area for investment. Big companies like Facebook, Google, Yelp, and Yahoo are run by developers, and start-ups keep their founding developers in c-level roles much longer than they used to - often as CEO. It’s not a coincidence that selling to developers is fast becoming good business, too.
 
It hasn’t always been this way. A decade ago, after joining Dow Jones, I remember meeting the “IT group.” They were isolated in a large corporate labyrinth 40 miles away from our Manhattan HQ. No one from the group was ever consulted on major projects, and when we went to launch new ventures like FiLife and Fins, they were always the last to know about it.  (Should we have been surprised that none of these projects were ever successful?) 
 
So what changed? 
 
  • Technology dominates. Tech is transforming every industry (television, music, retail, recruiting, local business) and infiltrating the most mundane experiences of the day.  Today’s world is programmable.
  • Customers expect the convenience of a hyper-connected world in every transaction.
  • Cloud computing makes it easier than ever to build and launch software driven start-ups quickly while keeping costs low.  (More on that later.) Costs don’t add up until you know whether or not you can afford them.
  • Amazon’s cloud. It’s training developers that you can trust that which you cannot touch.
  • We’re getting used to “as a service” offerings across every category of software. If my marketing team is allocating budget and measuring results using software as a service, shouldn’t developers be doing the same?
  • Good product trumps all. Business models that are sales or relationship driven aren’t as sustainable given the fragmentation and unbundling of software to the cloud. The Microsoft approach of locking users into a specific paradigm no longer works when you can access any software program you want by clicking a few buttons.
  • Becoming a developer is cool now. Case in point: Hollywood celebrities want to be your friend.
 
The opportunity to build big businesses aimed at developers  became obvious to us in 2009 when  BVP invested in Twilio’s seed round - where the results have surpassed our greatest expectations. With Twilio, Sendgrid, Zapier, Crowdflower and others, we’ve witnessed the power of a business model that benefits from the rise of developer influence along with the equally transformative trend towards mainstream adoption of cloud computing. In fact, these patterns lead to a perfect storm: developers with large budgets, influence over their companies’ priorities, and sophisticated platform-like needs make fantastic customers for this new type of business. Add to the mix the fact that there isn’t much competition because selling to developers was anathema before cloud computing and you get a sense for our excitement. What could be a better market for entrepreneurs to address?!
 
These market trends are accelerating. And as a result, even more exciting entrepreneurial opportunities for businesses targeting developers are going to emerge — and spread fast. Developers are connected, vocal and unvarnished in sharing their feedback on solutions via Twitter, GitHub, StackOverflow and other social channels.  Some businesses might be intimidated by this constant feedback loop, but it’s actually a huge opportunity. Harnessed correctly, it allows developer products to spread like consumer ones — virally — resulting in drastically cheaper sales and marketing expenses than traditional B2B (but still high enterprise-grade pricing). Twilio recognized this phenomenon early on and uses developer evangelists for all customer interaction, allowing them to grow the company efficiently – initially selling to enterprises without a sales force, traditional marketing department, or support function. These interactions are so important to their business, in fact, that they start each board meeting by reading through examples of their users solving problems on Twitter.
 
The move to cloud computing is speeding things up too. Almost all new products begin with the cloud. It’s far easier to fire up an EC2 instance and test things there than to build any other way. And so it’s only natural that developers looking for connective services like communication tools, email, SMS, payments, code repositories, and the like save time by using “off the shelf” cloud-based services and components that can easily plug in to their projects.  In other words, cloud begets cloud.
 
Furthermore, the path to market for most startups is driven by the lean startup mentality. Companies are tasked with building a product quickly, releasing it to see how the market responds, and then iterating on it.  Does it work?  Does it solve a big enough problem in the real world? Can one make money solving it? This necessarily requires skipping some steps in the initial development process. What better way to get going quickly than by tapping someone else’s cutting-edge architecture by calling an API with a few lines of code? Solve only the problems where innovation is needed. Let someone else take care of the rest.
 
Perhaps most importantly, the business model is very seductive. At small scale, the cost to operate a service (on someone else’s cloud) is minimal, so services can be priced low and without upfront fixed costs. This means that businesses can build a customer base through free or very low cost trial, and only charge real money when a customer’s usage stats suggest that there is a real demand for their applications.  In this way, only serious customers pay serious costs, after their businesses have taken off — so they’ll happily pony up!
 
Clearly, we think great businesses can be built selling to developers.  But we encourage those eager to jump in to treat developers like the sophisticated consumers they are.  The best products give developers a user experience so elegant and simple that Apple designers blush. Twilio is so easy that even I can use it!
 
 
This post is the first in a series in which Ethan Kurzweil and Sunil Nagaraj discuss opportunities around the developer ecosystem.  We’d love to know what you think. Do you agree/disagree with our views? And what would you like to see covered? Follow me @ethankurz to continue the discussion. We’ll dive into many of the key drivers of the developer platform market in the weeks ahead, including:
 
  • Developer marketing and sales 101 – old models need not apply
  • Local services in the cloud – developers using hosted services for coding, testing, deployment and version control rather than local equivalents
  • Big data for the developer – what does big data science make possible?
  • Centralization of risk – if developers outsource core services, what new risks does this create for their businesses?