Why Did File Sharing Startup OwnCloud Shut Down?

June 3, 2016, 8:24 PM UTC
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OwnCloud Inc., is (or was) a Boston-area company that sold software for sharing files to business users. Products like ownCloud, along with rival services from Box and Dropbox Business, let people store and share their documents and synchronize changes so they’re all working off the most recent version.

But as of Thursday, the five-year-old company ceased to exist. Its German cousin, ownCloud GMBH, soldiers on but will compete with a brand new company, Nextcloud, that ownCloud Inc. co-founder Frank Karlitschek unveiled on Thursday. (To alleviate confusion, I’ll refer to ownCloud Inc. as the now-defunct company, and ownCloud as the technology.)

Unlike its many rivals, ownCloud Inc., based its business on open-source software that anyone can download for free. If you used the free version but decided to make it your company standard and needed more robust business-focused features, you paid ownCloud Inc., for them.

ownCloud Inc., based in Lexington, Mass. had $10 million in funding, including a $6.3 million round two years ago, and claimed customers including CERN, the European lab for nuclear research; Meritus Health, and the Albert Einstein School of Medicine.

While it wasn’t exactly a household name, ownCloud Inc. seemed to be doing fine and claimed more than 1,000 active developers in its community.

So … what happened? There aren’t a ton of details but from public and a few not-so-public sources, it sounds like a soap opera.

On April 27, Karlitschek announced that he was leaving ownCloud (Inc.) immediately. But, as he noted in a blog post: “the journey of ownCloud and Frank is not over!” He cited unspecified “experiences” as the reason for his move and proudly pointed out that more-than-1,000 developers benchmark.

Fast forward to this Tuesday when ownCloud Inc. announced the formation of not-for-profit foundation, chartered with “stewarding the ownCloud ecosystem, and guaranteeing the viability and availability of free ownCloud now and in the future.”

In English, the idea is to make sure that the open-source software is not under the sway of one company or any particular person. It is supposed to guarantee that the software itself remains the property of the developers who work on it, regardless of their corporate affiliation. It’s sort of like software democracy in action.

Then, on Thursday, Karlitschek said he was starting his own company, along with several “core” ownCloud Inc. technical people who left to join him. And that company, Nextcloud, would be based on a “fork” of the ownCloud technology.

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In the world of open-source software, a fork is not taken lightly. It means that different groups work on the code independently without funneling changes and back and forth. That, in turn, means different versions of the software will arise over time that will fail to work with each other. And given that one of the key advantages of the open-source model is that there will be several sources of compatible software, that’s an existential problem.

According to Karlitschek’s post:

We will release a drop in replacement for ownCloud in a few weeks so that users and customers can easily upgrade to Nextcloud to benefit from the new bugfix and security improvements and features. Nextcloud GmbH will provide free support for all current ownCloud customers to simplify a transition.

This sounded like trouble for ownCloud Inc.

And it was.

A few hours later, the company posted a notification on its own site that it was out of business after being cut off by creditors. Eight employees were let go. All of that pertinent info came in the last paragraph of a post that also said that ownCloud software would continue to be supported and enhanced, presumably by the German business unit.

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OwnCloud Inc., chief executive Markus Rex declined to comment beyond the original post. Karlitschek could not be reached for comment. But other sources said that the surprise closing was a consequence of behind-the-scenes battles between the co-founders. A source close to the company said all of this happened as ownCloud Inc. was about to close a major strategic investment that would have provided cash and resources needed to grow the business. Karlitschek’s defection apparently scuttled that deal.

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To be sure, ownCloud was in a tough market. There are many competitors in the cloud file sharing space including those mentioned above, but also Egnyte, Google (GOOG) Drive and Microsoft (MSFT) OneDrive.

But there were also company-specific problems not the least of which were bickering co-founders who couldn’t get agree on control or strategy, according to sources close to ownCloud Inc.

Perhaps the larger picture is that aside from Red Hat (RHT), which is built around the open-source Linux operating system and has hit $2 billion in annual revenue, it’s proven difficult for a company based on open-source software code to find a viable business model. It’s very hard to make money on “free” software after all.