Comparison of WSO2 vs. top OSS and Open Core companies

This exercise is a high level analysis on key financials and business metrics shared by WSO2 and its comparison with top public Open Source Software (OSS) and open core players in the space.

Objective of this exercise is to understand the financial and business performance of WSO2 and the main publicly listed OSS and open core players.


For the first time, WSO2 Inc., a private company publicly disclosed its forecasted results for the year 2017 and its plans for the year 2018 — in which the company was ranked as the largest integration OSS company and 8th largest OSS company.

WSO2 falls into the OSS space as it generates >50% of its revenues from OSS support subscriptions. The top OSS companies are:

  1. RedHat
  2. Pivotal
  3. Mozilla
  4. Canonical
  5. Hortonworks
  6. Suse
  7. MongoDB
  8. WSO2

Companies which are not included in the list above but used for analysis (publicly listed only) and comparison purposes here are Acquia, MuleSoft, Cloudera, Alfresco, Actian, Sophos, Forgerock, and Datastax — which are open core models and depends upon proprietary licenses.


For financial and business comparison purposes, we will focus only on selected publicly listed OSS and open core companies — i.e. Hortonworks (HDP), Mulesoft (MULE), MongoDB (MDB), Cloudera (CLDR), and RedHat (RHT).

Above mentioned companies generates a significant amount of revenue from support subscriptions — as per most recent financials revenue are as follows:

  • Hortonworks ~75%
  • Mulesoft ~80%
  • MongoDB ~91%
  • Cloudera ~82%
  • RedHat ~88%
Note: Implied ending annual recurring revenue (ARR) for peers calculated by multiplying quarterly (fourth quarter) subscription/support revenue by four.

WSO2’s year on year (YoY) annual recurring revenue (ARR) growth is effectively around the same rate as others, in the range of 50%-65%. However, RedHat had the lowest growth rate.

In terms of dollar value, WSO2 exited the year 2017 with an ARR of ~$25M and a growth of 52% YoY — up from 46% recorded in 2016.

The Net New ARR, calculated using new ARR + expansions -(minus) churn, is one of the key metrics that can predict future growth potential for a company.

Further, this can also give a sense about the amount of renewals being made and also a company’s sales and marketing efficiency in bringing new ARR.

  • Using the implied ARR method, Hortonworks had the highest net new ARR growth in 2017 with 122% while WSO2 had the 2nd highest with 67% of new net ARR growth.
  • While others were significantly below the peer average of 59%. Cloudera had the lowest growth with 33%.
  • As per company forecast for 2018, Cloudera is only forecasted to add ~$82M of subscription revenue for the fourth quarter, negatively contributing to a low net new ARR growth of 33%.

Further, I benchmark the financial health of these companies using a growth vs. financial profitability scatterplot. The chart below plots 2017 ARR growth against free cash flow margin.

Being above the trend line indicates a company is generating higher ARR growth for a given level of cash burn/ generation.

WSO2 is well positioned with positive ARR growth and FCF margin — much more attractive than Hortonwork and Mulesoft, which as negative or breakeven FCF margin.

  • Hortonworks sits right on the top with the highest implied ARR growth but with a negative unadjusted free cash flow. While MuleSoft sits below Hortonworks, at about breakeven unadjusted free cash flow with an attractive ARR growth rate of 57%.

Here we are plotting the Rule of 40, which is a common industry/ funding metric used to identify SaaS companies who are performing at the next level compare to its peers. Derived by adding a company’s growth rate + profit should be greater than or equal to 40%.

The trend is fairly predictable — when companies such as Red Hat matured their growth has slowed and profitability has improved.

As per The Rule of 40, WSO2 can be distinguished as a “best run” OSS company performing at the next level up from rest of the pack.

It appears that best OSS companies that exit via IPO or private placements are more efficient than the peers when they are young and growing fast. However, as they mature they tend to become less efficient overall as increase in profitability rarely makes up for its growth.

financial, corporate strategy @Wso2, formerly strategic consulting @STAXinc | alumni: @KingstonUni, @BrunelUni | twitter: @harsh_perera