This week, hot cloud company Docker landed a massive $95 million funding round led by the investment firm Insight Venture Partners that, according to a source, values the business at nearly $1 billion. Nevermind that Docker has yet to come up with a sustainable way to make money as its core product is open source — meaning no one has to pay to use it.
So what is it about Docker that has investors keen on breaking out their wallets?
“Momentum,” said Jeff Horing, managing director of Insight Venture Partners. “For a business-use case, it looks like it has a consumer-like adoption rate.”
Translation: Although focused on corporate customers, the business is quickly adding users like buzzy startups Snapchat, Uber and Pinterest.
Docker specializes in what’s known as “containers,” a suddenly trendy tech niche that promises to make it easier for businesses to develop software and operate data centers. The company is such a Silicon Valley celebrity now that legacy technology companies like Red Hat (RHT), Microsoft (MSFT), and cloud computing providers like Amazon (AMZN) Web Services have partnered with it.
Developers can go to Docker’s website and download software to help them create sophisticated programs that require multiple databases and multiple servers. According to Docker, users have downloaded its service 300 million times.
Eventually, the company has to figure out a way to make money. Horing seems confident that it can, pointing to the growing number of coders who use its services across the globe. He acknowledged that the open source nature of its product complicates matters. But Horing said Docker’s early efforts at creating a paid service version of its product is a step in the right direction
“Definitely it has got a bit more risk on the business model,” Horing said about the challenge the company faces.
Right now, Horing agrees with Docker CEO Ben Golub, who told Fortune this week that the company wants to make sure it spreads the word and attracts more users rather than focus on steady revenue.
It’s a “if you build it, they will come” approach that sort of parallels one of Insight Venture Partners’s previously funded startups: Twitter (TWTR). When Insight Venture Partners led a $100 million investment in Twitter roughly two years ago that valued the business at $1 billion, the tech community was a bit aghast because the company didn’t make much money at all.
When asked whether Docker can be compared to an enterprise-version of Twitter in terms of fast growth with little revenue, Horing agreed that there’s a “little bit of an analogy” between the two. Both companies created products that people are clearly using.
But Horing said Docker, based in San Francisco, has a clear business model based on developing products that lure more companies to consider purchasing paid accounts, like security features that are part of its paid services.
Investing in companies whose core technology is open-source is definitely more risky than plowing money into a business with proprietary technology. But it’s also a sign of the times.
Companies like MongoDB and Couchbase continue to gain steam by selling commercialized versions of the open-source database technology known as NoSQL. Some view these businesses as alternatives to the kinds of legacy database technologies from members of the old guard like Oracle.
And speaking of the old guard, what about VMware (VMW), whose technology Docker is increasingly challenging, at least according to some analysts.
Horing acknowledged that Docker can be seen as a competitor, but he said that both Docker and VMware “each will have their own purpose.” He compared the two companies to MongoDB and Oracle. While MongoDB is “probably taking away some growth that might have went to Oracle,” he said, it’s probably too little for Oracle to be “losing a ton of sleep.”
Essentially, there’s enough of the enterprise pie to go around for both a Docker and a VMware to coexist.
It’s just that pesky revenue issue that separates the two companies, at least for now.
For a look at Microsoft’s push into the cloud, watch this Fortune video: