Open Source NoSQL database startups like MongoDB Inc. face “a long, hard slog” to achieving success despite the strong interest in these companies in the financial community, writes Wikibon Big Data Analyst Jeff Kelly. In January, MongoDB announced a successful seventh funding round, raising $80 million, which company CEO Dev Ittycheria said was three times its original target.

The round gives MongoDB a valuation of $1.6 billion. But, writes Kelly, “It is becoming increasingly clear that the company has yet to arrive at a sustainable business model.” While the MongoDB database is popular with developers, the company derives no income from all that use unless the practitioner decides to buy MongoDB’s proprietary software and services. The conversion rate for open source startups in general is about one in 1,000 downloads.

Wikibon estimates that MongoDB’s 2014 revenue was $46 million, meaning that the company is valued at 35 times its lagging 12-month revenue. While the successful funding round gives the company operating money for a while, Ittychria’s main concern is growing that revenue stream as quickly as possible before the venture capital runs out. Complicating that is MongoDB Inc.’s strategy of cutting the price of of its proprietary products aggressively. While this can help improve its conversion rate, it also hurts profitability.

Big vendors like Teradata Corp. and IBM are also entering the space with their own products and services. This is on top of the competition from several other open source NoSQL startups, making the market highly competitive.

NoSQL database vendors are on “the right side of history”, writes Kelly. The Internet of things and the industrial Internet, along with public cloud and mobile services, will drive the market for engines that can handle multiple kinds of data and support real-time analysis. Wikibon believes that NoSQL databases will become the operational engines that make sense for the huge volumes of data flowing from sensors and other sources. Customers that can leverage NoSQL technologies will create huge amounts of value. But, says Kelly, “there’s no guarantee that this value creation will extend to independent, open source NoSQL vendors.” Thus companies like MongoDB have a long struggle ahead to capture a significant share of that value.

Kelly’s full analysis, “The Challenges of Building a Thriving NoSQL Start-up“, is available without charge on the new Wikibon Premium Website.

MongoDB Leaf courtesy MongoB