How programmers from Russia accelerated the internet and earned $ 670 million of technology

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Most of the sources then worked on the Apache web server, a program written by a group of American students. She had the load distributed on the site so that she could use a large number of visitors at the same time. However, Apache is designed for only a few thousand visitors at a time. Users can perform hundreds of different processes: someone to upload media files, someone to open a site and leave it on a tab, but each of the processes has taken up a large amount of memory on the server. To make connections with other visitors, we had to use extra servers.

Due to the increase in load, the connection became slower and less reliable: with sudden peaks in traffic, the site "fell" and it took hours or even days to recover. Solutions to the problem were very expensive and unreliable, Sysoev recalls.

He decided to create an alternative for them in his spare time on the Rambler. The web server, called Nginx, can also run multiple processes simultaneously, but at the same time redistribute the load so that it can handle up to 10,000 requests at the same time. This result yielded a fixed amount of memory for all web servers, which did not depend on the number of connections.

Code Sysoev posted on your own site. The product was quickly noticed by potential customers – they soon started using popular sources, such as the dating sites Rate.ee and Mamba, as well as the music portal "Zvuki.ru". It became difficult for the creator of the service alone to bear the support of the program, and in 2011 he retired on the Rambler, and together with his former colleague Maxim Konovalov and Comstar-UTS, employee Andrey Alekseev founded the company Nginx.

The network seemed to be waiting for Apache alternatives – the growing popularity of the project was avalanche-like: in 2012, about a quarter of the 200 million most visited sites on Earth switched from Apache to Nginx. Among the users of the program were international companies, for example Netflix and Facebook, and Russian IT giants, for example Yandex and VKontakte.

From the beginning of 2019, Nginx Apache overtook all top segments: according to W3Techs, 59% of the top 1000 most popular sites in the world use software from Russian developers, 67% of the top 10,000 and 50% of a million resources attendants. The share of other web servers is decreasing every year. And while for the entire internet Nginx uses 41% versus 44% working on Apache, the share in favor of the project of the Sysoyev team will change by the end of the year, Runa Capital predicts senior investment manager Konstantin Vinogradov.

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From open source to generating income

"80% of sales, which are in the range of $ 0.5-1 million, are brought to the company by Nginx technical support and the growth opportunities here are probably small. 20% – development of program versions for specific customers , including Netflix, a large telecommunications company and government structure, "said Maxim Konovalov, co-founder and operational director of Nginx, in 2012.

Since then, the company has done a lot for Nginx to develop not only as an open source, but also as a commercial project. For business development, the team first of all decided to build additional functions in the program: Nginx Plus received traffic, implemented security functions and then redirected traffic to application servers. "To enable companies to scale on the internet, we launched the Nginx commercial solution in 2012 and launched it as Nginx Plus at the end of August 2013," says Sysoyev. "This product, made and maintained by a team of engineers led by my partner Maxim Konovalov, still offers more than 90% of our sales."

At the request of Forbes, the founders of Nginx revealed the company's revenue for 2018 – the figure was $ 26 million, 65% more than in 2017. The project therefore earned 25.8 times less than the amount of the F5 transaction last year .

An important criterion for the attractiveness of Nginx as an object for absorption is the relevance of the program in IT ecosystems of large companies. "We now have thousands of customers. More than 150 companies from the Forbes Global 2000 classification (ranking of the largest public companies in the world – ed.) Use the paid version of Nginx Plus to deliver their applications. These incredible numbers were achieved in less than six years, "Sysoev said.

Almost all popular sites that are popular with the mass public, except Microsoft and Google resources, Facebook, Instagram, Netflix, Apple, Yandex, VKontakte and many others work on Nginx, Vinogradov lists from Runa Capital.

At the same time, not all major customers use Nginx Plus, the investor emphasizes: Facebook, for example, works with a free version of the product. "Facebook already has a huge number of developers who have independently modified the Nginx web server. It makes no sense that such an internet company buys paid versions," says Nikita Tsaplin, managing partner and founder of Russian hosting provider RUVDS.

Among well-known paid clients of Nginx are Photoshop Adobe & # 39; s photo service, BuzzFeed edition, Groupon discount service, WordPress content management system and ING Group, a Dutch financial conglomerate, adds Vinogradov. The costs of Nginx Plus range from $ 2500 to $ 5000. A subscription is even more expensive because customers pay the indicated amounts for a "copy" – a copy of the software that runs on the same physical or virtual server. Most customers need two or more subscriptions to ensure the smooth operation of high-traffic sites. The company does not disclose details of agreements with partners.

From $ 3 million to $ 670 million

In the eight years that Nginx has been active, the company has invested more than $ 100 million. The first and most important investor for the development of the project was Sergey Belousov from Runa Capital. He not only invested in the company, but also convinced the founders of the prospects for their own product. It was under the influence of Belousov Sysoev, Konovalov and their team that left earlier jobs. Runa & # 39; s manager also brought former US Red Hat Gus Robertson vice president to the company – until the deal with F5 he held the position of CEO in Nginx.

E.ventures and MSD also participated with Runa in the first investment round in 2011. Together they invested $ 3 million and received just over 35% from Nginx. A further 15-20% remained for personnel options, the rest were the shares of the founders.

The American NEA corporate fund later became Nginx's most important investment partner. In 2013, 2014 and 2017, the fund invested $ 10 million, $ 20 million and $ 14 million in the company respectively. In 2016, another $ 14 million brought in Nginx from Telstra and Blue Cloud. The final round was held in 2018: the venture division of Goldman Sachs and NEA invested $ 43 million in the company.

Thanks to these resources, Nginx was able to grow from a company of ten programmers who joined a global player with offices in Singapore, the US and Ireland at an office in Moscow. 250 project employees are now not only busy with code writing, but also with sales, marketing, technical support and product management.

F5 – a company with an annual turnover of $ 2.2 billion – joined Nginx at the end of 2018 to "discuss a possible collaboration," Konovalov recalls. "Nginx had many free features to change it [партнерство] in something more, "he adds.

As a result, the parties reached the parameters of the transaction for several months. For $ 670 million, F5 has repurchased all Nginx shares, including those from Runa Capital. Runa representatives have not disclosed how successful the fund has proved. Nginx founders also do not comment on the details of the deal.

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From independence to synergy

F5 Networks is the market leader in load balancing and application acceleration solutions, the technology is at the same level as the Nginx Plus product. "It is too early to discuss specific plans for future joint products," notes Maxim Konovalov. According to him, the F5 deal "can help solve the problem that many Nginx customers face." "Most companies have incompatible services and applications from different vendors. This is not safe: they are difficult to manage, leading to an unstable environment. All applications must be protected against this risk and at the same time remain manageable for scaling up in large and complex environments "explains the co-founder of Nginx.

Both Nginx and F5 will be useful to each other – companies have completely new areas of expertise for the other side of the transaction, he said: "Nginx is the market leader in web servers and content caching, as well as an innovator in the API and Kubernetes interfaces, which Historically, F5 had no authority. F5 will provide its expertise in application security, collision protection and DDoS attacks. "

Under the terms of the contract, F5 will not close Nginx's source code, continue to support the development team and retain the license to use paid products and the Nginx brand. "In the long term, we expect an increase in investment in the development of open source code and the expansion of the community of programmers who will complement and develop it," says Igor Sysoev.

When companies buy industry-leading projects, closing the code is not a prerequisite for implementing the strategy, says Alexey Tuknov, investment director at international venture capital fund Maxfield Capital. "The interest is of course not only directly financial, but also synergistic, including the paid expansion of functionality through business products," the expert explains. Examples, when open source projects have found an effective model for generating revenue, are not so rare, he notes: one of the best known cases is the Mozilla Foundation (developer of the Firefox browser), the organization benefited from the built-in Google and Yahoo contract search estimated at several hundred million dollars a year. Another example is the open operating system Red Hat, which IBM bought for $ 34 billion.

However, not every project can repeat the unique success story of Nginx, says Runa Capital's Konstantin Vinogradov. "Many companies want to develop along a similar path, but few succeed. Firstly, the founding team had phenomenal technical competences, which [Сысоев] and his partners built an excellent product. Secondly, the founders really had global ambitions, "the investor concludes.