Docker's Remarkable Comeback: How Docker's Pricing Pivot Turned the Tide
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Everyone in the developer fraternity would know of Docker! Docker is the most popular container platform. In fact, Docker has become synonymous with “containers.”
Despite being one of the most important companies in modern-day development, the company was written off by many as they were unable to convert the value they were providing into $.
Before Docker was Docker, it was DotCloud. It was
Founded in 2010
Raised seed capital from Trinity; Series A ($12M) from Benchmark Capital
Positioned as a PaaS (Platform as a service) company—basically could run programs in any programming language.
Unfortunately, the market did not develop as anticipated, and the momentum was declining. Solemn, the founder, suggested outsourcing the container technology that they had created for DotCloud.
(Wait...what?)
He believed that the developer community required the container technology developed for DotCloud. However, the board instructed Soloman to search for a merger or acquisition deal to sell the company. After consulting with several individuals, Soloman reaffirmed his intuition and decided to pursue the development of what we now know as Docker.
What does Docker do?
Docker is a tool that makes it easy to create and run small, isolated environments called containers, which can hold individual software applications and their dependencies. Think of it like a virtual box where your application can live and run without interfering with other applications on your computer. Docker provides a version of this tool, called Docker Desktop, for both Mac and Windows users, enabling them to use containers on their personal computers. Additionally, Docker offers a service that acts as a storage hub for these containers, similar to how Google Drive stores files. They also provide a security scanning feature to ensure that the containers are safe from potential security threats.
[Insert picture explaining what they do]
What was Docker’s Monetisation strategy?
Docker become viral among the developer fraternity! As of 2018, they had 37 billion containerized applications downloaded. With this, it should have been quite easy to monetize, right?
Wrong!
They went the Redhat way.
Approach?Top-down sales
Who did they sell to? Operations
Who used their product? Developers
Who did they want to sell to? Enterprises
How did they productize their product? They helped IT manage new container workloads.
Unfortunately, this did not work. It hardly drove any revenue.
Why didn’t their monetization strategy work?
Docker's initial monetization strategy failed primarily due to the misalignment between its target audience and its sales approach. By opting for a top-down sales strategy and targeting operations and enterprises, they overlooked the developers who were their core users and most passionate advocates. This disconnect meant that they struggled to gain traction with their offerings, as the ones using the product were not the decision-makers in the buying process.
Additionally, they were late to the market in monetizing their product, which allowed competitors like Google, Amazon, Microsoft, and IBM to position their Kubernetes-based services as alternatives.
This combination of misaligned audience targeting and strong competition from industry giants resulted in Docker's initial monetization strategy falling short of expectations.
However, were they too late?
The big guns in the technology world began to monetize!
Google open-sourced Kubernetes.
Kubernetes is a tool that helps manage and organize multiple containers, like those created using Docker, across several computers or servers. Imagine it as a conductor in an orchestra, coordinating the performance of various musicians, ensuring they play in harmony. In this analogy, the musicians are the computers or servers, and the music they play represents the applications running inside the containers. Kubernetes makes sure that these containers work together seamlessly, automatically handling tasks like scaling the number of containers up or down based on demand, distributing the workload evenly, and recovering from failures. It ensures that your applications run smoothly and efficiently, even when spread across multiple machines.
The likes of Google Cloud, Amazon, Microsoft, and IBM positioned Kubernetes as a managed service.
Docker was on the brink of failure!
Despite raising over $200M, they didn’t have a substantial ARR
They sold its enterprise and swarm business to Mirantis.
They downsized their team from 420 to 60
Docker wanted to re-focus its efforts and build for developers (something they knew best)!
Have to say, Docker was written off at this point.
But it wasn't the end.
2019—a turning point for Docker
The New Stack from May 2019 cited the following in an article:
"Docker had a bit of a rough patch last year, but it seems that the container darling is getting back on track. The company is starting to make some important changes that could see it become a more viable business. In fact, some experts predict that 2019 could be a turning point for Docker."
Here are some changes they implemented:
raised another $35M in funding
changed their GTM Strategy (since they wanted to build and sell to developers, similar to Github & MongoDB)
made changes to its pricing and included Docker desktop in all its plans. At this juncture, the company had 5 million users in total.
introduced three paid subscription tiers: Personal, Pro, Team, and Business
continued to provide “free plans for personal use” and “non-commercial open source projects," categorizing some users into the “personal” category, and some into the ‘pro’ category
introduced a commercial Docker license for ‘For-profit organizations with more than 250 employees and more than $10 million in annual revenue’
And the need for introducing the new pricing strategy: “reflect our need to scale our business sustainably and enable us to continue shipping new value in all Docker subscriptions”.
You can read the pricing announcement change written by Scott Johnson here.
How did this change affect revenues?
source:https://prismic-io.s3.amazonaws.com/sacra/89a8abd4-5a25-4ac7-90ad-92d6453bb0d6_Docker+rev+growth.jpg
People were willing to pay—Docker has over 1 Million paid subscriptions (7-10% of Docker’s 15M users have upgraded to paid tiers)
Revenues skyrocketed to around $135M (22)
Over 70% of the Fortune 100 companies are its customers
Added 2 Million users in one year (21-22)
Raised $23M at a valuation of $2.1B
Growing at around 170% YoY
Currently, Revenue stands at around $135M
The pricing change worked for Docker because it addressed market needs, increased the value proposition, provided a clear and tiered pricing structure, captured existing demand, retained a free option, focused on sustainable growth, and strengthened Docker's market position.
As Tribe Capital put it, Docker’s story is definitely the Phoenix Saga. Also, the story lays out six things for me:
Importance of knowing when to pivot
Doubling down on gut as opposed to consensus
Building a product loved by the end user
Building a community early on
Having a well-laid-out monetization strategy (and knowing when to monetize). One single pricing change in 2021 - increased Dockers revenue from $54M to $135M in 1 year.
This is the prime example of using pricing as a growth lever, don't you think?