Machine learning startup H2O lays off 10% of employees

H2O.ai, a startup that offers commercial support for open-source machine learning software, last week laid off 10 percent of its employees, mainly in sales, VentureBeat has learned.

Cofounder and chief executive Sri Ambati confirmed the move — which affects nine people, including contractors, out of a total of roughly 90 — in an interview with VentureBeat. Ambati put the layoffs in the context of broad strategic changes at H20. The startup has stopped trying to generate revenue from lots of users of its free open-source software and is instead seeking to work very closely with a few major customers. Then, next year, Ambati said, H20 can introduce new cloud services that can be promoted through more conventional sales and marketing tactics.

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“I think it is possible to build a profitable open-source business. It is hard, and that’s why I think we’re iterating,” Ambati said.

Generally speaking, open-source machine learning software is not exactly the easiest thing to build a big business around. Turi, which has promoted open-source GraphLab, was recently acquired by Apple. PredictionIO was acquired by Salesforce. In 2015, Microsoft acquired Revolution Analytics.

Then again, premium general-purpose machine learning software is not always a sure way to make money, either. SAP recently acquired Hadoop-as-a-service startup Altiscale. Earlier this year, Skytree replaced its chief executive officer — cofounder Alexander Gray took on the position — and also made its software available for free.

Ambati declined to talk about revenues for specific time periods. A source familiar with the matter told VentureBeat that in the first quarter of 2016 — a few months after H2O announced a $20 million funding round — the company posted just $800,000 in revenue, after promising investors millions per quarter. But Ambati said the company’s revenue was actually considerably more than that.

“When you’re going after larger deals, you’re looking at a different cadence, when you collect the dollars,” he said. “We have one of the largest quarters on record that we’re heading into.”

The release of H2O’s Steam data science software, which the startup started talking about last year, was delayed by a quarter, but it’s now available for download, Ambati said. He added that the startup will open-source the software later on.

Formerly known as 0xdata, H2O started in 2011 and is based in Mountain View, Calif. To date, the startup has raised at least $34 million, including the $8.9 million round announced in 2014. Investors include Paxion Capital Partners, Nexus Venture Partners, Transamerica Ventures, and Capital One Growth Ventures. Customers include Cisco, Neustar-owned MarketShare, and PayPal, according to H2O’s website.

On Friday, H2O posted on its blog the email that Ambati sent H2O employees last week to announce the changes.

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