Friday, December 17, 2010's $212 Million Acquisition of Heorku - A Sparkling Gem In Radiant Future Of Cloud And PaaS

I met James Lindenbaum, a founder of Heroku, in early 2009, at the Under The Radar conference in Mountain View. We had a long conversation on cloud as a great platform for Ruby, why Ruby on Rails is a better framework than PHP, and viability of PaaS as a business model. He also explained to me why he chose to work on Heroku at Y Combinator. I was sold on their future, on that day, and kept in touch with them since then. The last week, acquired Heroku for $212 million. That's one successful exit, which is good news in many different dimensions.

PaaS is a viable business model

PaaS is not easy. It takes time, laser sharp focus, and hard work to build something that the developers would use and pay for. A few companies have tried and many have failed. But, it is refreshing to see the platform and the ecosystem that Heroku has built since its inception. Heroku did not raise a lot of money, kept the cost low, and attracted customers early on. I was told (by Byron, I think) that an average cost for Heroku to run a free Ruby app for a month was $1. They considered it as marketing cost to get new customers and convert the free customers to paying ones, as they outgrew their needs. I cannot overpraise this brilliant execution model. I hope to see more and more entrepreneurs being inspired from - simplicity, elegance, and execution of Heroku's model - to help the developers deploy, run, and scale their applications on the cloud. In the last few years, we have seen a great deal of innovation in dynamic programming languages, access algorithms, and NoSQL persistence stores. They all require a PaaS that the developers can rely on - without worrying about the underlying nuts and bolts - and focus on what they are good at - building great applications. If anyone had the slightest doubt on viability of PaaS as a business model, this acquisition is a proof point that PaaS is indeed the future. Heroku is just the beginning and I am hoping for more and more horizontal as well as vertical PaaS that the entrepreneurs will aspire to build.

Superangels and incubators do work

There have been many debates on viability of the investing approach of the superangels and the incubators, where people are questioning, whether the approach of thin slicing the investment, by investing into tens and hundreds of companies, would yield similar returns, as compared to return on traditional venture capital investment. I also blogged about the imminent change in the VC climate, and decided to watch their returns. The numbers are in with Heroku. It's a first proof point that a superangel or an incubator approach, structurally, does not limit the return on the investment. I believe in investors investing in right people solving the right problems. If you ever meet James and hear him passionately talk about Ruby, the Heroku platform, and the developer community, you will quickly find out why they were successful. Hats off to YC on finding this "jewel". No such thing as too little investment, or too many companies.

Ruby goes enterprise

I know many large ISVs that have been experimenting with Ruby for a while, but typically these efforts are confined to a few small projects. It's good to see that Ruby, now, has a shot of getting much broader adoption. This would mean more developers learning Ruby, cranking out great enterprise gems, embracing Git, and hopefully open source some of their work. I have had many religious discussions, with a few cloud thought leaders and bloggers in the past few months, regarding the boundaries of PaaS. The boundaries have always been blurry - somewhere between SaaS and IaaS - but, I don't care. My heart is at delivering the applications off the cloud that scales, delivers compelling experiences, and leverages economies of scale and network effects. To me, PaaS is means to an end and not the end. I am hoping that an acquisition of a PaaS vendor by a successful SaaS vendor will make Ruby more attractive to enterprise ISVs and non-Ruby developers.

I have no specific insights into what will do with Heroku, but I hope, they make a good home for Heroku, where they flourish and continue to do great work on Ruby and PaaS. This is what a cloud and Ruby enthusiast would wish for.

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