More companies today are certainly going the open-source route, especially since the technology has officially won over closed-source, proprietary, off-the-shelf software.

Fifteen years ago, when a company would purchase a proprietary software license from a vendor like Oracle, it had one “throat to choke” when something went wrong, which would offset the risk and accountability to a vendor. While this hasn’t changed today, the challenge is determining who is accountable when no one owns the open-source technology.

This is actually where the open-source business model thrives. You start out first with providing support for the open-source technology — “You call us when it breaks, and we’ll fix it” — but remember, support is a commodifiable business, and eventually, it’s a race to zero among competitors. Therefore, it’s non-defensible.

So, those who choose the open-source business model need to make a clear commercial commitment to provide proprietary extensions on or around the technology, and we see success with this approach at Cloudera, MongoDB, GitHub, Docker, RedHat and NodeSource.

For instance, Cloudera has built proprietary, closed-source extensions around Hadoop (a revolutionary tool for analytics, data and machine learning), giving the company leverage and, subsequently, higher margins because the software is doing the work as opposed to support engineers, who are lower margin.

Cloudera’s pioneering hybrid open-source software (HOSS) model takes the best of open source and pairs it with proprietary software to create an enterprise-grade platform with no cloud lock-in. Cloudera’s process to IPO is a long one, but ultimately, it’s based on bookings and consistent revenue growth. The metric being used today for market cap/valuation is 10x trailing revenues. Per its recent 10-Q filing, Cloudera booked roughly $235 million in its last year, so 10x is close to the company’s post-IPO market cap.

Other factors play into this, of course, like market size, number of customers, growth areas and competition, but annually recurring revenue north of $100 million is the minimum requirement for any open-source enterprise software company to have a shot at going public.

The open-source model is radically disruptive to traditional, closed-source software vendors (SAP, Oracle, IBM) and largely beneficial to a number of private companies providing support and products for companies using and adopting open-source technologies. Wall Street needs to either find ways of engaging with private companies in open source sooner (whether it is on the investment banking side or even in private investments like Goldman Sachs growth team), work with PE firms that specialize in tech rollups, or, conversely, closely monitor incumbents and the impact of open-source on closed-source business models.