Nginx, the young startup with a dozen employees is on mission to become the next Red Hat. It’s in the midst of creating a robust business model, sales model, value proposition, and pricing strategy. As a young company, Nginx is a good case study for us in the CDN Industry; as we’ll be able to track their progress from startup to maturity, and learn in the process, even more so, for the other open source software companies, that are one day hoping to commercialize their offering.
Nginx is in a category all by itself within the CDN ecosystem. They don’t really have any direct competitors, that are offering open source web server and caching software platforms that have been commercialized. Most of the competition is indirect. As such, Nginx has no benchmarks to use for pricing out its products and services, so it’s going to have to guesstimate what the market will bear.
Nginx is going to have to figure out the right pricing model through trial and error. One thing is certain, whatever pricing is in play today, is bound to change in a year, or maybe sooner, especially after the Nginx sales folks receive customer feedback on lost deals. Losing sales deals provides valuable input, as to what the market will bear in terms of pricing.
The first step in creating a pricing model is to evaluate the competition, and in the case of Nginx, they have four types of indirect competitors:
- Free Open Source Caching: Varnish, Squid, Apache Traffic Server and Lighttpd
- Hardware Acceleration Appliances: Riverbed, Brocade, Red Hat and Radware
- CDN: Akamai, EdgeCast, Limelight, Fastly, Highwinds, Yottaa and MaxCDN
- Streaming Media Server: Wowza Media Server
The next step is to evaluate the demographic make-up of the target audience. For Nginx, the target market is the Internet crowd, who work on front-end Internet technologies, such as LAMP, open source code, ruby on rails, python, RESTful based web services, caching systems, web servers, and so on. Red Hat is not really a product for the Internet crowd, such as CDNs, or other similar companies; it’s more a solution for the folks in the business of private cloud, public cloud, back office, and so on.
CDNs and Internet giants don’t really like to spend money on caching and web server software; they like to start with open source software, then build from there, adding custom features along the way, that fit their particular technology environment. I call them the infrastructure builders; they thrive on challenge, and love to create new bells and whistles. This group doesn’t really use Red Hat as the OS, but instead use Ubuntu and CentOS. Since Red Hat doesn’t really play in the same demographic as Nginx, more thought must be given into the pricing strategy. Does it make sense to use Red Hat pricing for Nginx? To be continued in Post 2