How will Docker Handle Competition?

Docker is the biggest startup in containers that made it to the Billion Dollar Club in 2015. It recently raised another round of funding that valued it at $1.3 billion.

Docker’s Offerings

San Francisco-based Docker was founded in 2010 by YCombinator alumni Solomon Hykes. Docker was initially called dotCloud and offered a software hosting service. By 2013, the company had pivoted to using the technology of containers and becoming an open platform instead. It immediately took off and rebranded itself as Docker.

Its platform is based on the concept of Docker Containers that use resource isolation technologies to isolate the application’s view of the operating system. Available for both Linux and Windows-based apps, containerized software will always run the same, regardless of the environment. The container model accelerates the software development lifecycle and improves infrastructure cost and efficiency.

Over the past five years, Docker has evolved to align with its users and customers’ needs to innovate and build advanced security and networking features and even integrate Google’s container tech Kubernetes. It has also expanded from free community plans to commercial product offerings. Last year, the company rolled out the Modernize Traditional Applications (MTA) program to help enterprises shift to the cloud and modernize their legacy applications.

It offers Docker for Mac/Windows and an enterprise-ready container platform called Docker Enterprise Edition, which has over 450 customers. Docker Enterprise Edition is available directly or from a network of Docker Authorized OEM and reseller partners including HPE, IBM, and Microsoft. Docker has millions of users, 3.5 million Dockerized apps, and 37 billion container downloads. Its customers include ADP, GlaxoSmithKline, VR Group, Cornell University, Expedia, PayPal, Visa, and MetLife.

Docker’s Financials

Docker’s community edition is free while the enterprise editions range from $750 to $3,500 per node per year for software, support and certification.

Docker does not disclose its financials. They have been venture funded so far with $242.8 million in funding from investors including Goldman Sachs, Coatue, Northern Trust, Lightspeed Venture Partners, AME Cloud Ventures, Trinity Ventures, Sequoia Capital, Greylock Partners, Benchmark, Sequoia Capital, Jerry Yang, Insight Venture Partners, and Ignition Partners. In April 2015, it raised $95 million in a round led by Insight Venture Partners that valued them at $1 billion, a jump from its $400 million valuation in September 2014. Its latest round was for $75 million at a valuation of $1.3 billion.

Last year, Docker hired Steve Singh as its Chairman and CEO. Steve had co-founded Concur, which was acquired by SAP for $8 billion in 2014. Steve is focused on increasing the sales force and the revenue. He expects that the business will break even on a free cash flow basis by mid-2019. He wants to go public when it has $500 million in annualized revenue.

On March 28, Docker Founder Solomon Hykes announced in a blog post that he will no longer be involved in the day-to-day operations. He will be a board member and help find a CTO with decades of experience shipping and supporting software for the largest corporations in the world to replace him.

Questions for the Board

Red Hat is emerging as the biggest competitor in the enterprise segment for Docker. Earlier this year, Red Hat announced its plans to acquire CoreOS for $250 million. CoreOS had raised $48 million in venture funding and was among the first few competitors for Docker. It launched a competing container engine called rkt and pioneered a container-optimized Linux OS. With the acquisition, Red Hat plans to boost its kubernetes-based OpenShift container platform, which has now replaced Linux as the cornerstone of its business.

How will Docker counter the increasing competition from Red Hat? Will it be able to sustain its billion dollar valuation?