This sounds like stellar news for Heroku employees and investors.
I'm not sure how it's going to be good for Heroku customers (like me) in the long-term. There will be the inevitable brain drain over the course of 1-2years when key staff move away as their contract clauses run out and then we'll be left with Heroku being run by SalesForce :(
I've found deployment to Heroku whilst tinkering with side projects fantastic, whilst Salesforce is the bane of my life in the day job. And whilst they have the in-house infrastructure to actually reduce Heroku prices, the Salesforce focus on the enterprise market hints that they're more likely to raise them.
Congratulations to the Heroku team though. Is it DropBox's turn next?
Jinx us? What could be better? You get to build a product with a clear roadmap, a vast market of disgruntled users of the product that went to shit and basically guaranteed success.
I wonder if I should start building Heroku 2 now...
I actually would be surprised if Dropbox exited via IPO. I think their offering fits in with a lot of large companies profiles. Dropbox could easily fit into a portfolio of Google, Microsoft, even Cisco.
</i> explaining Cisco - Cisco seems to be trying to break into the "Digital Home" market with things like FlipVideo and some other video services. Dropbox would make a great cloud storage play for media services.
They are obviously swinging for the fences, especially with Sequoia involved. It's fair to expect that they would aim for a 9 figure exit. IPO or not.
Interesting case about Cisco. I would've also thrown in Apple because of their huge war chest and select big acquisitions. Dropbox could easily outdo MobileMe. Then again, I'm sure Google wouldn't mind getting a GDrive finally.
But then, there's facebook!(Sure, they got Drop.io, but facebook loves grabbing startups away before Google get to them)
Dropbox uses Amazon S3 for their storage. Google and Microsoft have their own cloud storage backends - if they did acquire Dropbox, they would probably throw away most of the technology, making an acquisition somewhat less likely.
Time to start keeping an eye on other hosting solutions. I'm love Heroku and I host a decent number of paying applications on it, but I'm afraid that when the original people will start leaving we'll be left with just another big corporation.
Partly because of the changing pace of technology. A watch company could be pretty sure 100 years ago that watches would still be around in 20 years, sure the technology might need to be updated but not dramatically. You think anyone will even use Heroku in 5 years? There is a new language and technology every month now that gets hype, it's unlikely something like this will continue to grow for the long term.
I'm sorry but that's a bullshit notion. Why is anyone still using PHP today? or Java? Just cause something new comes out, it doesn't automatically displace the old. I think paperback's are more likely to go away before the last rails app is written.
Agreed. Also, why does a company have to be tied to one bit of technology?
We hear a lot that being a good programmer/designer/etc. isn't language-specific but that it is a skill-set that transcends technical knowledge. Why isn't this the same for companies and products?
I think we all accept that another outcome can happen.
But the likelihood of independent growth for a platform of any type is incredibly low. For each Google how many Herokus and Friendfeeds are there?
The driving force behind very few independent companies is a lack of an IPO market. Without a payoff for VCs you have to grow organically through customer funding or sell to a big acquirer, or in rare cases pay off investors with debt.
Even if they grow, eventually they'll be too big to remain the "friendly cool kid next door."
With 20,000 employees, it's just not the same.
Either way, you can't expect a founder to stick around for 30 years with the same company and product. It takes a Steve Jobs to keep things interesting over decades.
I think you just nailed why so many modern companies suck.
100 years ago you put your name on the company and treated it's performance as your personal reputation (for better or for worse). Today the most common "strategy" is to build something just good enough that you can attract enough customers to generate a revenue stream that is interesting to someone else, and then wash your hands of it.
This punishes everyone who was willing to suffer with you while you worked out the kinks.
I'm sorry but the whole thing just seems too "deadbeat dad" to me.
I think you've got the date range wrong there. For many recent startups, it's too soon to tell if they'll avoid death and acquisition and survive as independent companies. You need to look at the companies that have been around long enough to hit it big on their own (most of the current giants) or stay small and friendly but in a sustainable way (harder to find, but by no means unheard of).
I'm actually really excited about it as a customer. Heroku's solution is outstanding, but it was clear that they were having trouble scaling up customer support; this acquisition makes it more likely that they'll have the support staff needed to serve their customer base.
From what I understand SalesForce totally shafted Sitemasher's customers by shutting the service down a month of so after the acquisition. At least with Heroku you can move to another hosting provider. Sitemasher was a closed-system "build a web application without programming!" type of service. So I'd actually start worrying about the short-term right now.
This is great news for Heroku and YC (congratulations folks!). That said, does anyone have any insights on why exactly SalesForce would buy Heroku? What is the business rationale?
"This is Salesforce’s fifth acquisition this year. Earlier purchases include Activa Live, Sitemasher and Jigsaw. Salesforce.com also spent $170 million to fully acquire its Japanese subsidiary, Salesforce Japan."
Anyone see a pattern? I don't, but then I am not that business savvy.
(in short, Salesforce is looking to make a credible entry into the "public IT cloud provider" sector - much like they signalled with database.com yesterday)
I thought it was interesting that Heroku was specifically mentioned in the Database.com announcement yesterday. Made me think there was some sort of deeper integration. I meant to go to Heroku yesterday and see if there was a database.com plugin. When I saw the announcement today it all made sense.
RoR for dynamic HTML apps used to be the coolest thing but now the really new/cool stuff is written as a JSON server talking to AJAX and mobile clients. In this world node.js, clojure and erlang (maybe) are cooler than RoR.
I think Heroku is not so much about Rails than about Ruby. You can use any rack-based app here, as well as host long-running job workers.
In the non-startup enterprises (I work with those), the work is usually to glue things together. Call a legacy web-service here, run a worker there, put things back into a legacy CRM etc. Ruby is perfect for that.
JRuby is even better, actually, and I wouldn't be surprised to see Heroku support it later on.
One can make a pretty good case that Heroku and the like is where all web development is headed pretty soon.
One thing that can be gleaned from the history of languages and computing platforms is that once computing performance started skyrocketing, it has been the easiest languages and platforms that have been winning. And RoR is very easy and Heroku is a very easy way to deploy and host RoR.
If Heroku becomes the place to be for commercial web apps, if it becomes the visual studio for web apps, those 200 mill will look like a steal.
The Heroku model is not ideal for commercial apps, it's good for very small apps, but if you scale up it's not cost effective at all. Things that would take a half-hour to setup with puppet on amazon become add-ons that you have to pay large ongoing fees for. Instead of investing in building out infrastructure optimized for your application where you have options on how to grow, you're shoe-horned into a one-size fits all model, that starts out cheap, but has a built-in premium which becomes more and more painful the larger you grow. We host our app on Engine Yard AppCloud which is considerably more open in that they give you access to the cloud "metal" but even there the clock is ticking to where it just makes more sense to hire a full-time systems engineer and build it out ourselves.
Don't get me wrong, I understand the value proposition of a highly tuned blackbox Rails stack, and there is certainly no faster way to get up and running. So it may become the place to be for early stage startups and prototypes. But the particular model that Heroku has is sort of like the Drupal of infrastructure: it's an amazing platform that has everything you need out of the box, but which also comes with a lot of baggage that can easily become an albatross when you are really trying to dial in a growing app.
Whilst Amazon cloud, Heroku etc may be hot for startups who don't really mind about throwing money away, I don't think that will last. Both are significantly, prohibitively expensive for companies interested in turning a profit or having a business model.
It's more like "VC funded companies throw money at hosting at the moment".
The trade-off isn't worth it. There's 2 of us full-time and we'd much rather pay the EngineYard and EC2 premiums if that means not having to spend any time dealing with hardware or even sys-admin activities. The extra time lets us focus on the business and have more stress-free lives.
Fair enough. It definitely depends on your websites profile etc.
I worked out a while back what it'd cost to run Mibbit on EC2 (Let alone any intermediary), and it was crazy money. But we use a fair bit of bandwidth and not too much CPU so it all depends.
Activia Live and Jigsaw relate to Salesforce's core CRM business, Sitemasher and Heroku are both cloud hosting platforms.
Salesforce has been pushing heavily into the cloud to compete with AWS and Azure (see their recent Database.com announcement), these acquisitions give them a strong position in the market.
Heroku in the past has said they plan to offer multiple cloud backends, so it wouldn't surprise me if that's how they got talking to Salesforce.
"Salesforce has been pushing heavily into the cloud to compete with AWS and Azure"
Just five years too late. They should have built AWS way before anybody else (esp Amazon) did. They were sitting on the opportunity for so long, had a customer base that was already sold on the cloud.
They are now playing catch-up, with acquisitions and the release of Database.com etc.
Huge opportunity missed, the company could have been 4-5x the size it is today.
Or more likely distraction from their core CRM business would have made it difficult to compete, Siebel and SAP would have taken their high-end customers and Zoho their low end customers. Stuck between a pincer market move they would have been forced to sell to Oracle for a few hundred million dollars.
Salesforce five years wasn't anywhere near enough in the position that they could afford to throw tens of millions of dollars into a non-core product (which Amazon could easily do).
It easy to point out opportunities missed without looking at the cost of those opportunities.
They started promoting PaaS (term they coined) ~4 years ago and the marketing dropped CRM to focus on Salesforce being a 'cloud expert' (or leader). All of what Benioff has been saying around that time and up to today was Salesforce moving beyond CRM and into being 'cloud' and 'platform'.
I remember him having a slide in one presentation where it showed "CRM ==> Platform ==> PaaS", or something similar, showing Salesforce development and roadmap.
Problem was, for them it meant providing more apps and the app platform and building it themselves, rather than providing the tools to allow developers to build out their platform for them. A bit like Microsoft not having Visual Studio and MSDN.
I thought Salesforce's strategy was more to use force.com developers to build apps that add value back to the core Salesforce product. Trying to compete with AWS as a cloud for the masses is kinda pointless in terms of making any profit for your company, isn't it?
That was the second phase of their strategy, and then they went out into the platform-as-a-service. There is a lot to be made in selling the picks and shovels to developers, and for Salesforce this would have been easy since developers already had faith in them, and hosting with Salesforce would put your app closer/in the same environment as the platform you are building on.
Salesforce take a small cut of app sales, they could have made a lot more hosting all of these apps and providing the remainder of the dev toolchain/platform.
It also meant that they could have captured part of the market for intranet apps. The app might not be related to salesforce at all, other than using it for auth, but salesforce could have hosted the app and charged crazy enterprise rates (ie. not cents per hour like EC2, more database.com type rates).
On a semi-related note, I think Facebook will eventually get into this. Bret Taylor who is the CTO now was on the AppEngine team. I wouldn't be surprised if Facebook do PHP and Python app hosting soon.
About a year ago, some of my friends wanted to use one of SalesForce's extensions to start taking payments for their telephony business. I suggested they use Heroku's pricing page as a template for how to design excellent service pricing.
I think it has something to do with the fact that Microsoft had just invested close to $10M in Heroku in the weeks prior to the acquisition (making Microsoft the biggest investee in Heroku). Right now, Salesforce is positioning themselves against the Microsofts and the Oracles (versus the smaller CRMs like ZoHo, Sugar, etc.); the Heroku purchase was probably more strategic than anything else.
I think this is one of the reasons why Salesforce has agreed to let Heroku "run themselves" instead of taking over and ruining the party. It's also a good sign for Heroku customers since it's unlikely that Salesforce will make a ton of changes to Heroku's service until they can figure out how best to integrate the two services.
I'm happy for Heroku that they got such a great deal, but I have to say I'm disappointed by this. Heroku seemed like they were in a great position to do amazing things. I thought they had a solid revenue model. I had hoped Heroku would be the one doing the acquiring.
I can see EngineYard opening a bottle to celebrate as well, $212M in 'mostly stock' would be landing a big one, to be landing it in cash is very good indeed.
Congratulations to everybody, especially to the people that brokered the deal on Herokus side, very impressive.
In other news, registrars the world over report a large uptick in domain registrations around the twin themes of rails hosting and sushi...
I'm guessing dawson meant that now that Heroku has been acquired by Big Company it will start to suck and so people will be looking for new hosting options.
Not saying that's what I think, but that's my interpretation of the comment.
The funny (as in strange, not haha) thing is when I read that 200ish number, the first thing that popped into my head was "that seems cheap." I've either been completely miscalibrated by the supposed GroupOn valuation, or I really liked Heroku.
I interviewed with Salesforce and I have to tell you that I found their culture a bit ....weird. It's something I couldn't put my finger on but I just had the feeling that they were all in some sort of cult or something.
We got the same impression when evaluating them for our enterprise. 98% of their sales pitch made them sound very sharp, and their technology is impressive.
But that last 2% made us scratch our heads and say, "Really?"
Stuff like telling us that they cannot possibly break our apps when they push new code to the underlying platforms, that we have no need for backups because version control will suffice, etc.
These things are probably true for operational needs, but they seemed to not think deeply about DR or edge cases.
as part of engineering at sfdc, I promise you we think very deeply about backups, DR and edge cases, as well as backwards compatibility, and not breaking your code/apis.
I'd like to think we have a good track record. not perfect, of course, but don't believe everything the sales dudes say. ;o)
Have to second Peter here (hi Peter:). I used to work there, and the only weird thing for me was that they were slow to get the social web for a bunch really smart technologists. It's the enterprise DNA I suppose, but that was the only thing that didn't sit well with me. Otherwise, solid company, great people.
Ah, yes, the sales guys -- the guy who visited us seemed very sharp, and we did get a good impression, overall. But he was dismissive of our DR/business continuity questions, and it raised a number of eyebrows, hence leaving us with the impression above...
I have no trouble believing that this is more of a perception issue than a technical issue.
It is a bit , umm, different - I always describe my Salesforce Sales Engineer friend as "having drunk the Salesforce kool-aid". To me it seems like he's bought into "the company vision" in much the same way I see in many Apple employees (and customers).
He's a smart guy though, and he's been there a while now, and he's still fully convinced they're "going to change the world".
Maybe they will - I can think of _worse_ companies "winning"...
Even so, giving up percentage is like giving blood. I don't know of any founder who would ever willingly part with 60% of the company - particularly if it's doing well! The only people who give up 60% of a company are the poor guys on dragon's den...
This, and also competent VC's (and Heroku's VCs are top-notch) don't want much more than a third of the company in a single round, as it makes it far too difficult for the company to raise capital that it may need in later rounds.
Your math is just backwards. You have left them with what's taken away, rather than what they keep. A 1M on 2M pre deal would leave the founders with 66%, not 33%.
No, the premoney in each stage is too low to be credible.
Generally a venture round will be for between 33% and 20% of the company, trending lower as the company gets further along. 25% is a pretty typical number.
If you assume each of Heroku's two rounds were for 25% of the company, then 94% -> 70.5% after the A -> 52.9% after the B. (It seems counterintuitive to sell 25% of the company twice but end up with more than 50% of it, but this is because the Series B dilutes the Series A as well as the common.) The premoney valuations implied for the A & the B would be $9MM and $30MM respectively.
The reality would be lower, because this doesn't take into consideration things like option plans. If we assume they created a 10% option pool before the A and then used it all, the dilution looks more like this:
94% -> 84.6% (options) -> 63.4% (A) -> 47.5% (B)
Of course these things can still vary pretty widely. But no one's doing $10MM on $5MM premoney unless something has gone pretty wrong. In that case I'd expect the management team to get topped up with additional options to keep them motivated.
As an aside, the calculation of who made what also assumes that the investors have no pro-rata rights, which is wrong. When a company raises $10MM in a Series B, not all $10MM comes from the Series B investor.
That is a problem with the YC model in that they can't (or don't) fill follow-on rounds and are thus diluted.
Most VCs that invest in an A will set aside 3-4x that to invest in later rounds (Fred Wilson wrote a post about this recently)
(ps. your pre values are way too low (the 3 at A was probably on 10) but the point of dilution still applies. They also would have sliced out a 20-30% option pool at A)
Yes, you are right. If we assume an increase of the value of $3M between 2008-2010, then a pre-money of $8M in Series B, then the Heroku share would be 20.9% and pg's 1.3%. pg's multiple is 162x.
Ignition, the lead in the final round, has stated that they made over $50m on the deal, so probably triple that valuation - $10M was on a $25-40m range.
A 33% per-round dilution would be much more sensible (and more common). In the right fundraising environment this might even be 20% or 25%, but 33% is the right default assumption if you have no information.
Another hidden variable is the presence of liquidation preferences for VCs. Some funding agreements allow VC's to "double-dip", ie take their liquidation preference and then also take their full percentage of the leftover amount. However, with YC advising them and with the Heroku founders having a reputation inside YC as being good fundraisers, I think there's no way Heroku's VC's got this.
If you assume no double-dipping, a 33% dilution per round, a YC-average 6% stake in Heroku, and an average amount per YC startup of $20K, YC's share of Heroku is enough to pay for their investment in every YC company ever up until this point, and also all the companies in the next two batches assuming they are the same size as the most recent (and largest ever) batch. Anything they eventually get from Dropbox, AirBnB, etc would be pure profit.
I really hate it when people to give arbitrary numbers to things like 'Cloud 2'.
It's still just cloud computing. 'Cloud 2' doesn't actually -mean- anything. It's not a standard. It's not like you can say something is or isn't Cloud 2 by any objective means.
It's marketing speak, and who exactly is he marketing it to? All developers see right through it and know it doesn't mean anything. All clients only care that their products work. What tech they're built on doesn't mean a thing.
Let's get this straight, Marc Benioff doesn't give a damn about startups. His clients are the Fortune 500. When he thinks about the current clients of Heroku, he gags (and sees how much money can be made by selling to CTO and CIOs at companies like Boeing, Dell, Starbucks, etc.).
They give you free-ness up to a rather large number of pageviews/users/whatever, right? Could the process be smoothed to make the workflow as smooth as Heroku makes it, or do the differences in Google's infrastructure make that too much of a pain to automate?
Nag, its not that easy to move from normal django to gae. A better way to do heroku-for-django would be do do heroku for django, instead of a complicated gae translation. Using gae you are limited and reliant on Google
Pretend Heroku let you use any Rails app with a simple "git push origin master", as long as your app didn't use ActiveRecord. That proviso breaks every Rails book and tutorial, most gems/plugins, and many developers. (Heroku does have a bit of a learning curve: I had to hack the internals of four gems to get a client project working right. Still, easier than mixing AR.)
GAE looks like this at first glance. But it turns out to be focused 90% on scalability, and 10% on easy deployment. The main issue for Django developers is that on GAE, you're using a nonrelational database. Assumptions about the RDBMS run deep in Django and in most Django apps, and great effort (see django-nonrel) is required to present even the thinnest veneer of compatibility.
In my experience (>2 years of GAE consulting for paying clients) I think using GAE is probably the wrong choice for most new projects. If you're new, you need to be able to iterate ideas quickly and you will value tools that (1) give you flexibility, (2) offer a lot of useful reusable libraries, and (3) have a large and stable culture (good docs, stable APIs, people you can hire). And if you have a scalability challenge somewhere down the road, it would make perfect sense to rewrite most of your app on a platform like GAE -- after all, by that point you'll have the basics of design quite solid, so you don't need as much flexibility, and every other part of the effort gets easier when you have money to throw at it.
It is a common misconception, though, that AppEngine serves the same needs as Heroku, or is a Heroku equivalent for Django. I think that's the main reason we didn't see more Herokus-for-Django* earlier.
Then they better get some hardcore Django people onboard. The reason (well, one of the reasons) that Heroku was so successful was that the top people were Ruby hackers themselves.
Unlikely. Development speed is an inverse function of company size after a certain point. Startups will eat Salesforce's lunch at developing something new.
I've honestly never understood why startups want to be acquired (besides the monetary gain for individual employees). Doesn't acquisition often destroy or dilute the very successes they've worked so hard to build? (I worked for an acquisitive company that worsened nearly every product/company it acquired.) Why not just focus on making your business better?
Heroku will now be subject to all kinds of pressures and asinine ideas that may not relate to their core offering. As a Heroku user I am concerned and saddened.
Can anyone offer any perspective? I'm puzzled by the acquisition mindset.
Despite what gets repeated in the echo chamber that surrounds hackernews that money isn't the main motivator for entrepreneurs and hackers, it is in fact all about the money.
Of course, day-to-day it has to be about much more than money otherwise it would be impossible to stay motivated. But the end goal is almost always about making a boatload of cash.
- Freedom to move on to the next project. I bet most entrepreneurs are more interested in creating than maintaining.
- Money/security. The trend toward payouts when raising major rounds is helping with this issue, but still the resources available change significantly with a big payout, plus you can diversify your income stream to hedge against contingencies.
I currently design new products for an established company. When I finish a product, there's a trained staff of production, sales and support people that make the product successful. (Just speculating but) it's quite possible that the Heroku folks think they can't grow as fast without some additional business infrastructure. If this accelerates their trajectory, then they'll quickly get some distance between themselves and the zoo of other (not as slick) app hosting platforms. Just having someone else to take care of the legal side of HR so that you can go back to product development, while at the same time putting enough in the bank to live on the beach forever, may have looked attractive. Lots of possibilities, but a billion dollar cash-out is not the only way to make yourself happy in life.
Why would you want to work on the same thing forever? Sure if you found a Google or a Facebook then you may have an ample playground, but most small companies do not have opportunities that interesting. You can try to force a round peg into a square hole or just take your cash and start something new.
Playing or winning the lottery involves nothing but money. An acquisition involves major changes to an organization's structure, its products or services, and the lives of all its employees.
I second that. Some people I know at companies really consider Ruby to be a toy. Having the SalesForces name behind it somehow will really be a change here in my case.
The same reasons mentioned above. I've worked with a lot of very fussy clients and have a big name like Salesforce to through out there when discussing options really helps perceived credibility.
Since people seem to dislike my comment, I will explain my point. "A home run" means "ultimate success", you can not expect to do any better than that. Since pg has openly stated that he is looking for the next Google/Facebook type company, 212 million is not "a home run". Its still pretty good!
My back of the envelope calculation over all YC acquisitions so far has them at ~$12million returned. (Over half of that is from Heroku.) That could arguably be anywhere from $5-$20million based on your dilution assumptions, though.
And direct investment costs for 208 startups is <$500k. Even if you add in all the other costs of running the program, YC is pretty f-ing successful.
Then you start thinking about the other startups yet to exit (ie, Loopt, Dropbox) and you see the YC team is truly kicking ass.
Damn, I'm an idiot. Make that direct investment costs of 208 startups is <$5million. (Order of magnitude error; shouldn't have been multitasking when I wrote the comment!)
Still, YC has still returned (and potentially as much as quadrupled) direct costs already, without a number of companies still to exit.
Very very good news for Heroku employees and investors. I also hope that Amazon will start bidding war.
However, knowing Salesforce (and fact that they have many very very big enemies in this business) I'm concern about future of Heroku offering in the current form. As far as I know, Salesforce is not a hacker company - they remind me a little of Yahoo! (product managers are running the show). And, don't get me wrong, in this case, not being a "hacker company" is a good thing. But, I assume that Heroku will be transformed to be much profitable and target bigger margin businesses.
It comes out to about $2000 per ap hosted on Heroku. Pretty good considering most of those aps are probably free. Of course they are hoping for growth, and Heroku has been adding almost a hundred apps per day.
If my "app" on Heroku is counted in that hosted app number, then people must assign a lot of value to a one page web app that simply states "welcomes to rails." I suspect there are other apps on the service that compete direectly with mine.
I have my account filled with tiny apps that barely do anything from when I was making apps to learn rails. There should be a ton of people like this too.
Your app probably isn't running, so it's not included in their 106,000 number. They spin down apps every 24 hours, and only start them up when they get a hit.
I'm not entirely surprised. Heroku's manual-scale model has shown a strong focus to sell to the enterprises. The App Engine's auto-scale model (no expenses if no traffic, but always ready to face peaks) is largely friendlier to individuals on a budget.
I hope these news will help boost projects like appengine-jruby.
I hope this will have them a kick to spread into Europe.
For now, as they use only US EC2 regions, it's only possible for many EU-located users to have a prototype or a toy project on Heroku. Believe me, those few routers more and pings > 100ms do make a difference.
Not that there is any correlation (Heroku's awesome and those guys are simply great talent) but, RoR start-ups seem to be doing amazing nowadays with Hulu in high eval, Groupon rumored to reject a $5B deal, Twitter with its momentum, and now Heroku.
Also, don't forget about potential future value re: their upcoming node.js support. I suspect that'll be even more popular than their rails service at some point in the not-to-distant future.
It would be intelligent if YC take a non-diluted portion. That is if the startup raise VC money, the YC % don't get diluted and the founders % get diluted a little more.
Everyone is happy for Heroku (I'm pretty sure this beats Mint for the canonical "ideal exit" case), and everyone is scared as a customer (I have no idea where I would build and alternatively easy-to-use Rails app that was as cheap).
I had envisioned Heroku to be a standalone player. It's Paas model was looking like it would be a game-changer. I didn't think they would sell - at least, not this soon. I understand cash is king, but this was a company I had hoped would stand its ground to be something great.
I'm also surprised they sold. $212M is nothing to sneeze at, but maybe Heroku was looking 5 years down the road and not seeing the growth or revenue they had expected?
It's also certainly possible the investors pressured the sale to get their money back out of the deal.
I'm glad that the Heroku team will continue running the company with some degree of independence. They've done great things for the community, and have amazing vision for the product's trajectory. Congrats, guys!
will this affect the pricing model for small ruby builds (Free)? I hope not. As a designer/developer this service has been beneficial to sell Ruby to my more technical clientele.
This sounds like stellar news for Heroku employees and investors.
I'm not sure how it's going to be good for Heroku customers (like me) in the long-term. There will be the inevitable brain drain over the course of 1-2years when key staff move away as their contract clauses run out and then we'll be left with Heroku being run by SalesForce :(
Gotta agree with this assessment.
I've found deployment to Heroku whilst tinkering with side projects fantastic, whilst Salesforce is the bane of my life in the day job. And whilst they have the in-house infrastructure to actually reduce Heroku prices, the Salesforce focus on the enterprise market hints that they're more likely to raise them.
Congratulations to the Heroku team though. Is it DropBox's turn next?
>Congratulations to the Heroku team though. Is it DropBox's turn next?
Shut up before you jinx us all.
Jinx us? What could be better? You get to build a product with a clear roadmap, a vast market of disgruntled users of the product that went to shit and basically guaranteed success.
I wonder if I should start building Heroku 2 now...
>I wonder if I should start building Heroku 2 now...
Yes, but make it good
Yeah, I wouldn't be surprised if Dropbox became the first YC company to hit IPO.
I actually would be surprised if Dropbox exited via IPO. I think their offering fits in with a lot of large companies profiles. Dropbox could easily fit into a portfolio of Google, Microsoft, even Cisco.
</i> explaining Cisco - Cisco seems to be trying to break into the "Digital Home" market with things like FlipVideo and some other video services. Dropbox would make a great cloud storage play for media services.
They are obviously swinging for the fences, especially with Sequoia involved. It's fair to expect that they would aim for a 9 figure exit. IPO or not.
Interesting case about Cisco. I would've also thrown in Apple because of their huge war chest and select big acquisitions. Dropbox could easily outdo MobileMe. Then again, I'm sure Google wouldn't mind getting a GDrive finally.
But then, there's facebook!(Sure, they got Drop.io, but facebook loves grabbing startups away before Google get to them)
Dropbox uses Amazon S3 for their storage. Google and Microsoft have their own cloud storage backends - if they did acquire Dropbox, they would probably throw away most of the technology, making an acquisition somewhat less likely.
Time to start keeping an eye on other hosting solutions. I'm love Heroku and I host a decent number of paying applications on it, but I'm afraid that when the original people will start leaving we'll be left with just another big corporation.
if you're a fan of python, keep your eye on djangy. those guys are sharp.
Are these guys on HN, and if so, who are they?
endlessvoid94
Another Heroku-like service for Python is DjangoZoom. Sign up for the beta at http://www.djangozoom.com
Disclaimer: I'm a co-founder of DjangoZoom.
Nothing last forever.
Eventually all the "startups that you love" will either close their door or be acquired and I think people should expect that since day 1.
Why are these the only 2 outcomes? Why not grow a business?
I guess it depends what kind of investors they've taken on, and how eager they are for a big money exit.
Partly because of the changing pace of technology. A watch company could be pretty sure 100 years ago that watches would still be around in 20 years, sure the technology might need to be updated but not dramatically. You think anyone will even use Heroku in 5 years? There is a new language and technology every month now that gets hype, it's unlikely something like this will continue to grow for the long term.
I'm sorry but that's a bullshit notion. Why is anyone still using PHP today? or Java? Just cause something new comes out, it doesn't automatically displace the old. I think paperback's are more likely to go away before the last rails app is written.
Agreed. Also, why does a company have to be tied to one bit of technology?
We hear a lot that being a good programmer/designer/etc. isn't language-specific but that it is a skill-set that transcends technical knowledge. Why isn't this the same for companies and products?
They offer founders too much money to pass up.
I think we all accept that another outcome can happen.
But the likelihood of independent growth for a platform of any type is incredibly low. For each Google how many Herokus and Friendfeeds are there?
The driving force behind very few independent companies is a lack of an IPO market. Without a payoff for VCs you have to grow organically through customer funding or sell to a big acquirer, or in rare cases pay off investors with debt.
Even if they grow, eventually they'll be too big to remain the "friendly cool kid next door."
With 20,000 employees, it's just not the same.
Either way, you can't expect a founder to stick around for 30 years with the same company and product. It takes a Steve Jobs to keep things interesting over decades.
I think you just nailed why so many modern companies suck.
100 years ago you put your name on the company and treated it's performance as your personal reputation (for better or for worse). Today the most common "strategy" is to build something just good enough that you can attract enough customers to generate a revenue stream that is interesting to someone else, and then wash your hands of it.
This punishes everyone who was willing to suffer with you while you worked out the kinks.
I'm sorry but the whole thing just seems too "deadbeat dad" to me.
Google? I do not recall them being "acquired".
Google is 1 in a [insert the number of startups from 1998 to 2010]
1:xyz
I think you've got the date range wrong there. For many recent startups, it's too soon to tell if they'll avoid death and acquisition and survive as independent companies. You need to look at the companies that have been around long enough to hit it big on their own (most of the current giants) or stay small and friendly but in a sustainable way (harder to find, but by no means unheard of).
Bullshit.
Salesforce.com (you know? That company that just bought Heroku?) was founded in 1999, went public in 2004 and is currently worth ~$20B.
VMWare were founded in 1998, and is worth ~$37B now.
http://www.renaissancecapital.com/IPOHome/Press/IPOIndustry.... shows there have been 37 tech IPOs in 2010, worth ~$5B
http://www.renaissancecapital.com/IPOHome/Press/IPOPricings.... shows IPOs/year. Obviously not all are tech, but a large number are.
Additionally, we all know that there are many companies which are very successful but are deliberately not going public.
Cool stats bro. Chill out, here's a glass of wine.
I'm actually really excited about it as a customer. Heroku's solution is outstanding, but it was clear that they were having trouble scaling up customer support; this acquisition makes it more likely that they'll have the support staff needed to serve their customer base.
Big congrats to them!
The support staff of a big company? Not really looking forward to that.
From what I understand SalesForce totally shafted Sitemasher's customers by shutting the service down a month of so after the acquisition. At least with Heroku you can move to another hosting provider. Sitemasher was a closed-system "build a web application without programming!" type of service. So I'd actually start worrying about the short-term right now.
This is great news for Heroku and YC (congratulations folks!). That said, does anyone have any insights on why exactly SalesForce would buy Heroku? What is the business rationale?
"This is Salesforce’s fifth acquisition this year. Earlier purchases include Activa Live, Sitemasher and Jigsaw. Salesforce.com also spent $170 million to fully acquire its Japanese subsidiary, Salesforce Japan."
Anyone see a pattern? I don't, but then I am not that business savvy.
My guess as to why is here:
http://swombat.com/2010/12/8/salesforce-buys-heroku
(in short, Salesforce is looking to make a credible entry into the "public IT cloud provider" sector - much like they signalled with database.com yesterday)
I thought it was interesting that Heroku was specifically mentioned in the Database.com announcement yesterday. Made me think there was some sort of deeper integration. I meant to go to Heroku yesterday and see if there was a database.com plugin. When I saw the announcement today it all made sense.
As I recall, VMWare's new IaaS will give you the option to run in Salesforce's cloud.
I wonder how much its just Mark poking Larry with a stick.
"So you bought Java, eh? Who cares? I don't need to rely on Java, I've got all the cool kids and their RoR apps!"
(212M is an expensive stick though...)
RoR for dynamic HTML apps used to be the coolest thing but now the really new/cool stuff is written as a JSON server talking to AJAX and mobile clients. In this world node.js, clojure and erlang (maybe) are cooler than RoR.
I think Heroku is not so much about Rails than about Ruby. You can use any rack-based app here, as well as host long-running job workers.
In the non-startup enterprises (I work with those), the work is usually to glue things together. Call a legacy web-service here, run a worker there, put things back into a legacy CRM etc. Ruby is perfect for that.
JRuby is even better, actually, and I wouldn't be surprised to see Heroku support it later on.
Heroku is also planning on rolling out node.js support which will help round them out even further.
It's funny but just as backend platforms really started to get good all the action shifted back to the client.
Entertaining, as a lot of Heroku's infrastructure is built on Erlang.
One can make a pretty good case that Heroku and the like is where all web development is headed pretty soon.
One thing that can be gleaned from the history of languages and computing platforms is that once computing performance started skyrocketing, it has been the easiest languages and platforms that have been winning. And RoR is very easy and Heroku is a very easy way to deploy and host RoR.
If Heroku becomes the place to be for commercial web apps, if it becomes the visual studio for web apps, those 200 mill will look like a steal.
The Heroku model is not ideal for commercial apps, it's good for very small apps, but if you scale up it's not cost effective at all. Things that would take a half-hour to setup with puppet on amazon become add-ons that you have to pay large ongoing fees for. Instead of investing in building out infrastructure optimized for your application where you have options on how to grow, you're shoe-horned into a one-size fits all model, that starts out cheap, but has a built-in premium which becomes more and more painful the larger you grow. We host our app on Engine Yard AppCloud which is considerably more open in that they give you access to the cloud "metal" but even there the clock is ticking to where it just makes more sense to hire a full-time systems engineer and build it out ourselves.
Don't get me wrong, I understand the value proposition of a highly tuned blackbox Rails stack, and there is certainly no faster way to get up and running. So it may become the place to be for early stage startups and prototypes. But the particular model that Heroku has is sort of like the Drupal of infrastructure: it's an amazing platform that has everything you need out of the box, but which also comes with a lot of baggage that can easily become an albatross when you are really trying to dial in a growing app.
Whilst Amazon cloud, Heroku etc may be hot for startups who don't really mind about throwing money away, I don't think that will last. Both are significantly, prohibitively expensive for companies interested in turning a profit or having a business model.
It's more like "VC funded companies throw money at hosting at the moment".
We use Amazon EC2 via EngineYard and we're a profitable bootstrapped company that's been around for 5 years.
Image how much more profitable you could be if you got a dedicated server or 10.
The trade-off isn't worth it. There's 2 of us full-time and we'd much rather pay the EngineYard and EC2 premiums if that means not having to spend any time dealing with hardware or even sys-admin activities. The extra time lets us focus on the business and have more stress-free lives.
Fair enough. It definitely depends on your websites profile etc.
I worked out a while back what it'd cost to run Mibbit on EC2 (Let alone any intermediary), and it was crazy money. But we use a fair bit of bandwidth and not too much CPU so it all depends.
The developer-friendly workflow of Heroku meshes very nicely with Salesforce's platform building strategy.
Activia Live and Jigsaw relate to Salesforce's core CRM business, Sitemasher and Heroku are both cloud hosting platforms.
Salesforce has been pushing heavily into the cloud to compete with AWS and Azure (see their recent Database.com announcement), these acquisitions give them a strong position in the market.
Heroku in the past has said they plan to offer multiple cloud backends, so it wouldn't surprise me if that's how they got talking to Salesforce.
"Salesforce has been pushing heavily into the cloud to compete with AWS and Azure"
Just five years too late. They should have built AWS way before anybody else (esp Amazon) did. They were sitting on the opportunity for so long, had a customer base that was already sold on the cloud.
They are now playing catch-up, with acquisitions and the release of Database.com etc.
Huge opportunity missed, the company could have been 4-5x the size it is today.
Or more likely distraction from their core CRM business would have made it difficult to compete, Siebel and SAP would have taken their high-end customers and Zoho their low end customers. Stuck between a pincer market move they would have been forced to sell to Oracle for a few hundred million dollars.
Salesforce five years wasn't anywhere near enough in the position that they could afford to throw tens of millions of dollars into a non-core product (which Amazon could easily do).
It easy to point out opportunities missed without looking at the cost of those opportunities.
"core CRM business"
They started promoting PaaS (term they coined) ~4 years ago and the marketing dropped CRM to focus on Salesforce being a 'cloud expert' (or leader). All of what Benioff has been saying around that time and up to today was Salesforce moving beyond CRM and into being 'cloud' and 'platform'.
I remember him having a slide in one presentation where it showed "CRM ==> Platform ==> PaaS", or something similar, showing Salesforce development and roadmap.
Problem was, for them it meant providing more apps and the app platform and building it themselves, rather than providing the tools to allow developers to build out their platform for them. A bit like Microsoft not having Visual Studio and MSDN.
I thought Salesforce's strategy was more to use force.com developers to build apps that add value back to the core Salesforce product. Trying to compete with AWS as a cloud for the masses is kinda pointless in terms of making any profit for your company, isn't it?
That was the second phase of their strategy, and then they went out into the platform-as-a-service. There is a lot to be made in selling the picks and shovels to developers, and for Salesforce this would have been easy since developers already had faith in them, and hosting with Salesforce would put your app closer/in the same environment as the platform you are building on.
Salesforce take a small cut of app sales, they could have made a lot more hosting all of these apps and providing the remainder of the dev toolchain/platform.
It also meant that they could have captured part of the market for intranet apps. The app might not be related to salesforce at all, other than using it for auth, but salesforce could have hosted the app and charged crazy enterprise rates (ie. not cents per hour like EC2, more database.com type rates).
On a semi-related note, I think Facebook will eventually get into this. Bret Taylor who is the CTO now was on the AppEngine team. I wouldn't be surprised if Facebook do PHP and Python app hosting soon.
About a year ago, some of my friends wanted to use one of SalesForce's extensions to start taking payments for their telephony business. I suggested they use Heroku's pricing page as a template for how to design excellent service pricing.
Salesforce want to position themselves as a platform-as-a-service provider. They provide the infrastructure for your apps.
I think it has something to do with the fact that Microsoft had just invested close to $10M in Heroku in the weeks prior to the acquisition (making Microsoft the biggest investee in Heroku). Right now, Salesforce is positioning themselves against the Microsofts and the Oracles (versus the smaller CRMs like ZoHo, Sugar, etc.); the Heroku purchase was probably more strategic than anything else.
I think this is one of the reasons why Salesforce has agreed to let Heroku "run themselves" instead of taking over and ruining the party. It's also a good sign for Heroku customers since it's unlikely that Salesforce will make a ton of changes to Heroku's service until they can figure out how best to integrate the two services.
I'm happy for Heroku that they got such a great deal, but I have to say I'm disappointed by this. Heroku seemed like they were in a great position to do amazing things. I thought they had a solid revenue model. I had hoped Heroku would be the one doing the acquiring.
Say "solid revenue model" to yourself whilst someone is waving $200M in our face.
I can see EngineYard opening a bottle to celebrate as well, $212M in 'mostly stock' would be landing a big one, to be landing it in cash is very good indeed.
Congratulations to everybody, especially to the people that brokered the deal on Herokus side, very impressive.
In other news, registrars the world over report a large uptick in domain registrations around the twin themes of rails hosting and sushi...
You're saying this establishes the high value of EngineYard, since it is similar to Heroku?
Similarity should establish the P/E ratio.
Not necessarily. The businesses have been on very different trajectories.
I can see Linode opening a bottle to celebrate too :)
Are they related or linked to this deal?
I'm guessing dawson meant that now that Heroku has been acquired by Big Company it will start to suck and so people will be looking for new hosting options.
Not saying that's what I think, but that's my interpretation of the comment.
Biggest YC exit so far?
By an order of magnitude I think because 280 North was the last biggest one for $20M.
Wow- congrats. Great bunch of founders who totally deserve this. I think this is the biggest YC exit, no?
Yes, based on the spreadsheet I keep:
https://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l...
The funny (as in strange, not haha) thing is when I read that 200ish number, the first thing that popped into my head was "that seems cheap." I've either been completely miscalibrated by the supposed GroupOn valuation, or I really liked Heroku.
Probably both.
I thought "wow, 200M!!". That's a huge value per customer! (Considering how small most of them are).
And yes, the GroupOn valuation is bubble.
Wow, awesome list, good work sir.
I interviewed with Salesforce and I have to tell you that I found their culture a bit ....weird. It's something I couldn't put my finger on but I just had the feeling that they were all in some sort of cult or something.
I didn't get the job. Probably a good thing.
The cult of enterprise solutions.
It wasn't that.
The office in the area I was looking at was SMALL. That wasn't so much an issue but the vibe of the place was almost like a library.
I actually might enjoy that. I don't particularly dig companies who try to force everything to be "social" inside the office.
There is a time for that, sure, but getting peace and quiet to get in the hacking mindset is more important to me.
I dunno. I enjoy a collaborative work environment.
I was sufficiently spooked by their environment that I choked on a little practical exam they had set up as part of the interview process.
Anyhow...I didn't get THAT job, but I did get a BETTER one. More money, more autonomy, more interesting work.
:)
Yeah, I think it tends to be a difference between introverted / extroverted personalities.
I also have somewhat severe ADD; open office layouts are fairly negatively impacting to my productivity.
We got the same impression when evaluating them for our enterprise. 98% of their sales pitch made them sound very sharp, and their technology is impressive.
But that last 2% made us scratch our heads and say, "Really?"
Stuff like telling us that they cannot possibly break our apps when they push new code to the underlying platforms, that we have no need for backups because version control will suffice, etc.
These things are probably true for operational needs, but they seemed to not think deeply about DR or edge cases.
as part of engineering at sfdc, I promise you we think very deeply about backups, DR and edge cases, as well as backwards compatibility, and not breaking your code/apis.
I'd like to think we have a good track record. not perfect, of course, but don't believe everything the sales dudes say. ;o)
Have to second Peter here (hi Peter:). I used to work there, and the only weird thing for me was that they were slow to get the social web for a bunch really smart technologists. It's the enterprise DNA I suppose, but that was the only thing that didn't sit well with me. Otherwise, solid company, great people.
Ah, yes, the sales guys -- the guy who visited us seemed very sharp, and we did get a good impression, overall. But he was dismissive of our DR/business continuity questions, and it raised a number of eyebrows, hence leaving us with the impression above...
I have no trouble believing that this is more of a perception issue than a technical issue.
Could you explain what you mean a bit? I find the salesforce culture to be pretty cool.
Disclosure: I am an engineer at salesforce.com. That said, I'm thrilled about Heroku. It has been my favorite startup since I heard about it.
It is a bit , umm, different - I always describe my Salesforce Sales Engineer friend as "having drunk the Salesforce kool-aid". To me it seems like he's bought into "the company vision" in much the same way I see in many Apple employees (and customers).
He's a smart guy though, and he's been there a while now, and he's still fully convinced they're "going to change the world".
Maybe they will - I can think of _worse_ companies "winning"...
heroku 94%
pg 6% (early 2008)
---
$3M Series A (mid 2008) Assuming a $2M pre-money:
heroku 37.6%
pg 2.4%
series A 60%
---
$10M Series B (2010) Assuming a $5M pre-money:
heroku 12.5%
pg 0.8%
series A 20%
series B 66.6%
---
$212M Exit:
heroku $26.5M
pg $1.7M
series A $42.4
series B $141.3
---
result:
series A $3M -> $42.4M // 14X in 2.5 years
series B $10M -> $141M // 14X in 1 year
pg $17K -> $1.7M // 100X in 3 years
All the pre-money valuations are guesstimates/fiction.
60% dilution at Series A? I don't think so. Typical is 20-30%, afaik.
its a guess. they received Series A in a very early stage, just out of the oven of YC's (may '08)
Even so, giving up percentage is like giving blood. I don't know of any founder who would ever willingly part with 60% of the company - particularly if it's doing well! The only people who give up 60% of a company are the poor guys on dragon's den...
This, and also competent VC's (and Heroku's VCs are top-notch) don't want much more than a third of the company in a single round, as it makes it far too difficult for the company to raise capital that it may need in later rounds.
Your math is just backwards. You have left them with what's taken away, rather than what they keep. A 1M on 2M pre deal would leave the founders with 66%, not 33%.
Is that really how much VC dilutes you?
From 94 > 37% series A is incredible, and ending up with 12.5%.
I wouldn't exactly be crying into my beer today if I was them, but I have to wonder if VC was worth it vs building organically for a few more years.
Especially when they are all Amazon based etc. Where did the money go?
No, the premoney in each stage is too low to be credible.
Generally a venture round will be for between 33% and 20% of the company, trending lower as the company gets further along. 25% is a pretty typical number.
If you assume each of Heroku's two rounds were for 25% of the company, then 94% -> 70.5% after the A -> 52.9% after the B. (It seems counterintuitive to sell 25% of the company twice but end up with more than 50% of it, but this is because the Series B dilutes the Series A as well as the common.) The premoney valuations implied for the A & the B would be $9MM and $30MM respectively.
The reality would be lower, because this doesn't take into consideration things like option plans. If we assume they created a 10% option pool before the A and then used it all, the dilution looks more like this:
94% -> 84.6% (options) -> 63.4% (A) -> 47.5% (B)
Of course these things can still vary pretty widely. But no one's doing $10MM on $5MM premoney unless something has gone pretty wrong. In that case I'd expect the management team to get topped up with additional options to keep them motivated.
As an aside, the calculation of who made what also assumes that the investors have no pro-rata rights, which is wrong. When a company raises $10MM in a Series B, not all $10MM comes from the Series B investor.
That is a problem with the YC model in that they can't (or don't) fill follow-on rounds and are thus diluted.
Most VCs that invest in an A will set aside 3-4x that to invest in later rounds (Fred Wilson wrote a post about this recently)
(ps. your pre values are way too low (the 3 at A was probably on 10) but the point of dilution still applies. They also would have sliced out a 20-30% option pool at A)
s/pg/yc/g
Thanks for the clarification. I was wondering whether PG invests outside of YC if he likes a team more than his cofounders do.
> $3M Series A (mid 2008) Assuming a $2M pre-money
> $10M Series B (2010) Assuming a $5M pre-money
I know this was just a thought exercise, but shouldn't their valuation have increased between 2008 and 2010?
Yes, you are right. If we assume an increase of the value of $3M between 2008-2010, then a pre-money of $8M in Series B, then the Heroku share would be 20.9% and pg's 1.3%. pg's multiple is 162x.
Ignition, the lead in the final round, has stated that they made over $50m on the deal, so probably triple that valuation - $10M was on a $25-40m range.
http://www.techflash.com/seattle/2010/12/ignition-backed-her...
A 33% per-round dilution would be much more sensible (and more common). In the right fundraising environment this might even be 20% or 25%, but 33% is the right default assumption if you have no information.
Another hidden variable is the presence of liquidation preferences for VCs. Some funding agreements allow VC's to "double-dip", ie take their liquidation preference and then also take their full percentage of the leftover amount. However, with YC advising them and with the Heroku founders having a reputation inside YC as being good fundraisers, I think there's no way Heroku's VC's got this.
If you assume no double-dipping, a 33% dilution per round, a YC-average 6% stake in Heroku, and an average amount per YC startup of $20K, YC's share of Heroku is enough to pay for their investment in every YC company ever up until this point, and also all the companies in the next two batches assuming they are the same size as the most recent (and largest ever) batch. Anything they eventually get from Dropbox, AirBnB, etc would be pure profit.
How did they come up with 212 million valuation? Genuinely interested to know.
You and lots of other people.
I doubt it was based on Heroku profits so there must be some other major factor, especially given that this is a cash deal.
It will be very interesting to see how they are going to make all that money back, it's not exactly pocket change.
Goodwill and growth potential.
Partially the time, resources, and cash that Salesforce would need to spend to create a similar product.
Also: revenue, future growth, and intangibles (brand, goodwill, etc.)
It was the point that Heroku agreed to sell at
I really hate it when people to give arbitrary numbers to things like 'Cloud 2'.
It's still just cloud computing. 'Cloud 2' doesn't actually -mean- anything. It's not a standard. It's not like you can say something is or isn't Cloud 2 by any objective means.
It's marketing speak, and who exactly is he marketing it to? All developers see right through it and know it doesn't mean anything. All clients only care that their products work. What tech they're built on doesn't mean a thing.
I bet the Heroku guys now know what NASA scientists must feel like; Cloud 2 is their Dasani.
http://www.theonion.com/articles/cokesponsored-rover-finds-e...
The quote came from a press release. He's not talking to developers, he's talking to journalists and shareholders.
What would you call it?
whois cloud2.com -> DNS01.SALESFORCE.COM :)
"Cloud" itself is often misused to the point where it simply means "the Internet".
Anyone know what this means for Heroku? I love their service and I'd really hate to see it depart from what it is.
I'm really happy for the Heroku guys, but I'm also kind of nervous because I can think of so many ways Salesforce can screw this up.
“The next era of cloud computing is social, mobile and real-time. I call it Cloud 2,” said Marc Benioff, chairman and CEO, salesforce.com
I don't think we have anything to worry about...
I do think we have something to worry about when management type milks terms like "web 2.0" and now "Cloud 2.0" and "social".
I was being sarcastic :)
Of course not. He knows almost all the buzz words. Although, he could have added something about game mechanics and location awareness.
Let's get this straight, Marc Benioff doesn't give a damn about startups. His clients are the Fortune 500. When he thinks about the current clients of Heroku, he gags (and sees how much money can be made by selling to CTO and CIOs at companies like Boeing, Dell, Starbucks, etc.).
This should put a hop in the step of all those Heroku-for-Django startups.
I thought that was Google App Engine?
http://djangy.com is one
Google App Engine is similar, but not identical to normal Django.
They give you free-ness up to a rather large number of pageviews/users/whatever, right? Could the process be smoothed to make the workflow as smooth as Heroku makes it, or do the differences in Google's infrastructure make that too much of a pain to automate?
Nag, its not that easy to move from normal django to gae. A better way to do heroku-for-django would be do do heroku for django, instead of a complicated gae translation. Using gae you are limited and reliant on Google
Pretend Heroku let you use any Rails app with a simple "git push origin master", as long as your app didn't use ActiveRecord. That proviso breaks every Rails book and tutorial, most gems/plugins, and many developers. (Heroku does have a bit of a learning curve: I had to hack the internals of four gems to get a client project working right. Still, easier than mixing AR.)
GAE looks like this at first glance. But it turns out to be focused 90% on scalability, and 10% on easy deployment. The main issue for Django developers is that on GAE, you're using a nonrelational database. Assumptions about the RDBMS run deep in Django and in most Django apps, and great effort (see django-nonrel) is required to present even the thinnest veneer of compatibility.
In my experience (>2 years of GAE consulting for paying clients) I think using GAE is probably the wrong choice for most new projects. If you're new, you need to be able to iterate ideas quickly and you will value tools that (1) give you flexibility, (2) offer a lot of useful reusable libraries, and (3) have a large and stable culture (good docs, stable APIs, people you can hire). And if you have a scalability challenge somewhere down the road, it would make perfect sense to rewrite most of your app on a platform like GAE -- after all, by that point you'll have the basics of design quite solid, so you don't need as much flexibility, and every other part of the effort gets easier when you have money to throw at it.
It is a common misconception, though, that AppEngine serves the same needs as Heroku, or is a Heroku equivalent for Django. I think that's the main reason we didn't see more Herokus-for-Django* earlier.
*Disclaimer: I am a founder of http://djangozoom.com/ .
Except that Heroku for Django in the long term is likely to be Heroku (given they've said in the past they plan to expand to other languages).
Then they better get some hardcore Django people onboard. The reason (well, one of the reasons) that Heroku was so successful was that the top people were Ruby hackers themselves.
Unlikely. Development speed is an inverse function of company size after a certain point. Startups will eat Salesforce's lunch at developing something new.
Then Salesforce can just buy them.
Sign up to try it out... http://djangozoom.com :)
Djangy has 600+ registered beta users, and we're inviting more all the time. Check us out!
http://www.djangy.com
I've honestly never understood why startups want to be acquired (besides the monetary gain for individual employees). Doesn't acquisition often destroy or dilute the very successes they've worked so hard to build? (I worked for an acquisitive company that worsened nearly every product/company it acquired.) Why not just focus on making your business better?
Heroku will now be subject to all kinds of pressures and asinine ideas that may not relate to their core offering. As a Heroku user I am concerned and saddened.
Can anyone offer any perspective? I'm puzzled by the acquisition mindset.
Money.
Despite what gets repeated in the echo chamber that surrounds hackernews that money isn't the main motivator for entrepreneurs and hackers, it is in fact all about the money.
Of course, day-to-day it has to be about much more than money otherwise it would be impossible to stay motivated. But the end goal is almost always about making a boatload of cash.
I see two main reasons:
- Freedom to move on to the next project. I bet most entrepreneurs are more interested in creating than maintaining.
- Money/security. The trend toward payouts when raising major rounds is helping with this issue, but still the resources available change significantly with a big payout, plus you can diversify your income stream to hedge against contingencies.
I currently design new products for an established company. When I finish a product, there's a trained staff of production, sales and support people that make the product successful. (Just speculating but) it's quite possible that the Heroku folks think they can't grow as fast without some additional business infrastructure. If this accelerates their trajectory, then they'll quickly get some distance between themselves and the zoo of other (not as slick) app hosting platforms. Just having someone else to take care of the legal side of HR so that you can go back to product development, while at the same time putting enough in the bank to live on the beach forever, may have looked attractive. Lots of possibilities, but a billion dollar cash-out is not the only way to make yourself happy in life.
Why would you want to work on the same thing forever? Sure if you found a Google or a Facebook then you may have an ample playground, but most small companies do not have opportunities that interesting. You can try to force a round peg into a square hole or just take your cash and start something new.
I've honestly never understood why startups want to be acquired (besides the monetary gain for individual employees).
That's like saying one doesn't understand why people play the lottery (besides the monetary gain from winning).
No, it's not like saying that at all.
Playing or winning the lottery involves nothing but money. An acquisition involves major changes to an organization's structure, its products or services, and the lives of all its employees.
EDIT: Removed snarkiness.
I'm glad the Heroku guys got a well deserved exit like this. It also makes me more confident to develop on the platform.
Can you explain why, it makes you more confident? (genuinely interested)
I know for my clients they would just like the name recognition that it brings. Selling someone on something they are familiar with is a lot easier.
I second that. Some people I know at companies really consider Ruby to be a toy. Having the SalesForces name behind it somehow will really be a change here in my case.
The same reasons mentioned above. I've worked with a lot of very fussy clients and have a big name like Salesforce to through out there when discussing options really helps perceived credibility.
pg hit the home run on this one
I don't think pg will consider an exit a home run until it exceeds 1B.
Since people seem to dislike my comment, I will explain my point. "A home run" means "ultimate success", you can not expect to do any better than that. Since pg has openly stated that he is looking for the next Google/Facebook type company, 212 million is not "a home run". Its still pretty good!
I think the phrase you are looking for is "grand slam."
That wouldn't be the first time I mix up my metaphors, thanks for the correction!
A walk-off grand slam even.
My back of the envelope calculation over all YC acquisitions so far has them at ~$12million returned. (Over half of that is from Heroku.) That could arguably be anywhere from $5-$20million based on your dilution assumptions, though.
And direct investment costs for 208 startups is <$500k. Even if you add in all the other costs of running the program, YC is pretty f-ing successful.
Then you start thinking about the other startups yet to exit (ie, Loopt, Dropbox) and you see the YC team is truly kicking ass.
Damn, I'm an idiot. Make that direct investment costs of 208 startups is <$5million. (Order of magnitude error; shouldn't have been multitasking when I wrote the comment!)
Still, YC has still returned (and potentially as much as quadrupled) direct costs already, without a number of companies still to exit.
Very very good news for Heroku employees and investors. I also hope that Amazon will start bidding war.
However, knowing Salesforce (and fact that they have many very very big enemies in this business) I'm concern about future of Heroku offering in the current form. As far as I know, Salesforce is not a hacker company - they remind me a little of Yahoo! (product managers are running the show). And, don't get me wrong, in this case, not being a "hacker company" is a good thing. But, I assume that Heroku will be transformed to be much profitable and target bigger margin businesses.
It comes out to about $2000 per ap hosted on Heroku. Pretty good considering most of those aps are probably free. Of course they are hoping for growth, and Heroku has been adding almost a hundred apps per day.
If my "app" on Heroku is counted in that hosted app number, then people must assign a lot of value to a one page web app that simply states "welcomes to rails." I suspect there are other apps on the service that compete direectly with mine.
I have my account filled with tiny apps that barely do anything from when I was making apps to learn rails. There should be a ton of people like this too.
Your app probably isn't running, so it's not included in their 106,000 number. They spin down apps every 24 hours, and only start them up when they get a hit.
Wow, I did not see that coming from Heroku. Congratulations all around!
If every Heroku employee would get an equal share from the restricted stock, that means ~ $1M in Salesforce shares per employee. Congrats!
Doesn't Heroku use EC2? Would that change?
Man, the death of the IPO market and the increasing oligopoly in the tech marketplace is so depressing.
The scary thing is that oracle, ms, apple, ibm, or google could still by a compelling level of salesforce shares on yearly revenue alone.
Now database.com makes more sense.
I'm not entirely surprised. Heroku's manual-scale model has shown a strong focus to sell to the enterprises. The App Engine's auto-scale model (no expenses if no traffic, but always ready to face peaks) is largely friendlier to individuals on a budget.
I hope these news will help boost projects like appengine-jruby.
Please let the Heroku folks create an interface for Salesforce that doesn't feel like enterprise Java.
I hope this will have them a kick to spread into Europe.
For now, as they use only US EC2 regions, it's only possible for many EU-located users to have a prototype or a toy project on Heroku. Believe me, those few routers more and pings > 100ms do make a difference.
Not that there is any correlation (Heroku's awesome and those guys are simply great talent) but, RoR start-ups seem to be doing amazing nowadays with Hulu in high eval, Groupon rumored to reject a $5B deal, Twitter with its momentum, and now Heroku.
Also, don't forget about potential future value re: their upcoming node.js support. I suspect that'll be even more popular than their rails service at some point in the not-to-distant future.
I just hope some business guy doesn't go in there and "rethink" heroku
Congrats. This is huge.
I hope Heroku's Node.JS beta does not suffer from this.
Wow. What does it mean for Engine Yard & its investors...
It's surprising that it comes out of the blue like this. Had there been any rumor of a coming acquisition in the past few weeks?
AFAIK Ycombinator invests about 15K for 6%. That 6% would now be 12 million. That's a 800x ROI. Nice :)
I imagine YC's share will have been diluted quite a bit, but no doubt it's a great ROI.
It would be intelligent if YC take a non-diluted portion. That is if the startup raise VC money, the YC % don't get diluted and the founders % get diluted a little more.
I doubt that would fit very well with PG's pro-founder ethos.
this would cripple companies in the long run.
Everyone is happy for Heroku (I'm pretty sure this beats Mint for the canonical "ideal exit" case), and everyone is scared as a customer (I have no idea where I would build and alternatively easy-to-use Rails app that was as cheap).
ffffuuuuuuuu
At least you can take heart in Rails being pretty easy to deploy these days.
Granted, getting Heroku level reliability, ease of scaling, etc, but since you said 'cheap,' I'll assume you weren't using much of that anyway. ;)
Wow. Didn't expect that. Didn't they just do some more capital raising themselves?
I had envisioned Heroku to be a standalone player. It's Paas model was looking like it would be a game-changer. I didn't think they would sell - at least, not this soon. I understand cash is king, but this was a company I had hoped would stand its ground to be something great.
I'm also surprised they sold. $212M is nothing to sneeze at, but maybe Heroku was looking 5 years down the road and not seeing the growth or revenue they had expected?
It's also certainly possible the investors pressured the sale to get their money back out of the deal.
I'm glad that the Heroku team will continue running the company with some degree of independence. They've done great things for the community, and have amazing vision for the product's trajectory. Congrats, guys!
will this affect the pricing model for small ruby builds (Free)? I hope not. As a designer/developer this service has been beneficial to sell Ruby to my more technical clientele.
Lots of wellwishers in the Heroku IRC channel this morning...
This is great news for everyone in the general cloud infrastructure space too -- expanding the number of viable potential acquirers for startups.
Congrats, guys! We'll see what comes from this.
What is the significance of this acquisition? Which companies/competitors (Google, Amazon etc) does it affect?
Just a question: how much money YC will earn from that?
Congrats to the Heroku guys!
P.S: Now what happens to the free app quota?
Given AWS just announced a free-tier, I imagine Salesforce will want to keep the free app quota to remain competitive.
Good work, Heroku!
27M USD, 30 employees, this is sweet.
wow. this is surprising. they are RoR honchos.
fuck yeah!
So each Heroku app is valued at about $2000?
i always thought heroku was the best-designed site i've ever seen
Sometimes when I'm feeling down I visit https://api.heroku.com/login and enjoy the sunset :~)