Editor’s note: Ethan Kurzweil is a partner at Bessemer Venture Partners whose investments have included Twitch, Twilio, SendGrid, PagerDuty, Intercom, Simply Measured, Crowdflower, Hightower, Skybox Imaging, adap.tv, Zoosk, and Playdom.
Danny Crichton recently asked TechCrunch readers if developer-focused startups will ever find investors. It’s a debate that surfaces frequently in technology circles, with camps emerging on each side. On one hand, we find the “middleware analogists” — those who equate “selling to developers” to “peddling middleware,” which is code for “uninteresting.”
On the other side are those who value the transformative power and increasingly ubiquitous role of software. In that world, developers hold the power. I’m firmly in that second camp. In fact, I have no doubt that one day we will recognize the beginning of this decade as an inflection point: the time when selling to developers became a winning go-to-market strategy.
Individual developers within an organization have more power than ever before; they are the drivers of technology adoption.
At BVP, we’ve been investing actively in developer platforms since 2009, avidly following the sector and leading early investments in many of the category leaders. I’ve written about the enablers of these businesses in the past, and don’t believe Crichton’s assertion that “the market [for developer-focused startups] isn’t very large, preventing huge scale” is the right way to look at these companies.
Companies today realize that proprietary software is a competitive advantage. So, whether it’s Google or GE, individual developers within an organization have more power than ever before; they are the drivers of technology adoption. The cloud makes the process even easier, allowing them to test new technologies at small scale cheaply by calling an API. And in order to move quickly, companies have reduced IT bottlenecks, empowering developers to make technology and purchasing decisions with minimal — if any — oversight.
In fact, developers have become such an appealing audience that even consumer application companies as diverse as Facebook, Twitch, Uber and Dropbox run big platform efforts, knowing that the path to ubiquitous adoption accelerates greatly when other companies embed some aspect of their product or service (via APIs, SDKs, etc.) into another offering.
But the other point of confusion here is a seemingly small nuance critical to advancing the debate. Crichton alternately refers to this new type of developer-oriented company as selling developer tools and building developer platforms, but the two aren’t really so interchangeable. It’s true that developer tools — single-purpose pieces of technology that help a developer build something once — can be hard to build a substantial business around.
The middleware moniker, and all the connotations that come with it, does apply here, and I suspect these startups will indeed have difficulty finding investors. But the most exciting startups in the developer arena offer much more than one-time solutions. They’re building products that allow their customers to embed functionality into their applications and become an integral part of their customers’ products, too.
For example, when you add your credit card to Uber by taking a picture of it, you’re actually using a cool piece of technology developed by card.io (now part of PayPal) to OCR the credit card number and expiration date and then after every ride, Uber makes an API call to Braintree Payments to process your transaction.
This is the software company of the future; I call them “developer platforms.” In his article, Crichton calls out Xamarin as part of this trend, and it’s a great example; companies of all sizes use Xamarin’s service to build and maintain their mobile applications with the most up-to-date functionality available. And so whether it’s Twilio enabling technology for communications, Xamarin for mobile app development, Auth0 for identity, SendGrid for email, or Stripe for payments, the addressable market for each of these platforms is a lot bigger than meets the eye.
The fundamental enabler of this paradigm shift isn’t openness. It’s the rise of the developer’s prominence in the enterprise and the increasing expectations of a programmable world.
Each of these companies taps into a category of spending that is already huge. Dismissing them as “developer companies” and implying a small market size misses the point entirely: Developers are the users, not the market, for this new type of platform company. With $1.6 trillion (yes, with a “t”!) spent on communications apps annually, there’s certainly plenty of opportunity for Twilio. Anyone who dismisses them as a developer company with a small market simply doesn’t understand how to evaluate the addressable market size. And you can give a similar rebuttal for every other type of developer platform addressing a large category like this.
Crichton also points to the openness of the developer ecosystem as a key enabler of this shift and calls out the mobile app development world as an example.
There’s no doubt that the move toward more openness and interoperability — and specifically the increasing adoption of open source frameworks in the enterprise (e.g. Hadoop, Drupal, Mongo, etc.) — has been helpful in expanding the breadth of services that can be offered “as-a-service.” But I’d argue that the fundamental enabler of this paradigm shift isn’t openness. It’s the rise of the developer’s prominence in the enterprise and the increasing expectations of a programmable world.
After all, as Crichton points out, Apple has one of the most closed ecosystems on the planet (inexplicably so, in my view, but that’s a subject for another post), and that has done nothing to hold back the tide of companies offering mobile app platforms like Xamarin.
At BVP, our mantra around developer investing is pretty simple: Does it solve a real problem? Is the underlying technology addressing a big market like communications, payments or data? And does the product solve the problem in an elegant way, such that developer adoption is seamless? If yes, come talk to me, as I agree wholeheartedly with Crichton’s last point: There is a world of opportunity ahead, and it’s still early days.