An unused executive dinner speech

An empty table, set for fun.

I hosted an executive dinner a few weeks ago. I’d put together this opening talk, introducing the customer who was kind enough to come go through their story. I didn’t really get a chance to give it, which was probably for the best. Maybe next time

Thanks for coming – we’re glad y’all took the time. I know it’s hard.

My favorite thing about Pivotal is that I get to meet new people, computer people. My wife is always befuddled that I’m a wallflower in most company, but then, turn into an extrovert around computer people. So, it’s nice to meet more people like myself.

I’ve been at Pivotal almost five years and I’ve seen people like yourselves go through all sorts of transformations. They’re getting better at doing software. That’s setting them up to change how they run their business, to change what their business is, even. You can call it innovation, or whatever. Anyhow, I collect these stories – especially the parts where things go wrong – and in the Pivotal spirit of being kind and doing the right thing, try to help people who’re getting started by telling them the lessons learned.

Tonight, I’m hoping we can just get to know each other, especially amongst yourselves – us Pivotal people know each other well already!.

Most organizations feel like they’re the only ones suffering. They think their problems are unique. I get to talk with a lot of organizations, so I see the opposite. In general, everyone has the same problems and usually the same solutions.

Given that, I’d encourage you to talk with each other about what you’re planning, or going through. Chances are someone right next to you is in the same spot, or, if you’re lucky, has gotten past it.

As an example of that, we’re lucky that [customer who’s here] wanted share what’s been going on at [enterprise]. There’s lots of great stories in there…

So, let’s hear them…then let’s eat!

Discussing the common “CIO agenda”

I get asked to talk with “executives” more and more. That’s part of why Pivotal moved me over to Europe. People make lots of claims about what executives want to hear, the conversations you can have with them as a vendor. They don’t have time. You have have to be concise. They don’t want to hear the details. They just want to advance their careers.
None of those are really my style, even part of my core epistemes. When I have a good conversation with anyone, it’s because we’re both curious about something we don’t know. The goal is to understand it, sort of hold it out on a meat-selfie-stick and look at it from all angles. This find that most people, especially people in management positions charged with translating corporate strategy to cash enjoy this. Some don’t, of course.
Anyhow, I’ve been writing down some common themes and “unknowns” for IT executives:
  1. Innovation – use IT to help change how the current business functions and create new businesses. Rental car companies want to streamline the car pick-up process, governments want to go from analog and phone driven fulfillment to software, insurers want to help ranchers better track and protect the insured cows. Innovation is now a vacuous term, but when an organization can reliably create and run well designed software, innovation can actually mean something real, revenue producing, and strategic.
  2. Keep making money – organizations already have existing, revenue producing businesses, often decades old. The IT supporting those businesses has worked for all that time – and still works! While many people derisively refer to this as “keeping the lights on,” it’s very difficult to work in the dark. Ensuring that the company can keep making money from their existing IT assets is vital – those lights need to stay on.
  3. Restoring trust in IT’s capabilities – organizations expect little from IT and rarely trust them with critical business functions, like innovating. After decades of cost cutting, outsourcing, and managing IT like a series of projects instead of a continuous stream of innovation. The IT organization has to rebuild itself from top to bottom – how it runs infrastructure, how it developer and runs software, and the culture of IT. Once that trust is built, the business needs to re-set its expectations of what IT can do, reinventing IT back into everyday business.
What happens next is the fun part: how do executives reprogram their organization to do the above?
That’s my take on “to talk with executives,” then: learning what they’re doing, even validating my assumptions like the above. This is, or course, filled in with all sorts of before/afterr performance anecdotes (“proof points” and “cases”). Those are just conversational accelerants, though. They’re the things that move the narrative forward by keeping the reader engaged, so to speak, by keeping you interested (my self as well).
Anyhow. Even all this is a theory on my part, something to be validated. As I have more of these conversations, we’ll see what happens.

DevOps, monolithic architectures, craftsmanship – an unpublished interview

I’m too wordy when I reply to reporters. This is mostly true everywhere I produce content. I don’t like trite, simple answers. Brevity and clarity makes me suspicious, especially on topics I know well. As a consequence, I don’t think this interview by email was ever published.


What’s a DevOps advocate?

If you mean what I do, it means studying  people and organizations who are trying trying to improve how they do software, summarizing all those, ongoing, into several different types of content, and then trying to help, advise, educate people on how they can improve how they do software. A loop of learning and then trying to teach, in a limited way. For example, I’m working on finish up a book that contains a lot of this stuff that I’ve found over the past couple of years.

What is the foundation of DevOps: automation, agility, tools, continuous or all of them?

Yes, those are the core tools. The traditional foundation is “CALMS” which means Culture, Automation, Lean, Measurement, and Sharing. Ultimately, these are things any innovation-driven process follows, but they’re called out explicitly because traditional IT has lost its way and doesn’t usually focus on these common sense thing. A lot of what DevOps is trying to do is just get people to follow better software development and delivery practices…ones they should have been doing all along but got distracted from with outsourcing, SLAs, cost cutting, and the idea of treating IT like a service, or utility rather than an innovation engine for “the business.”

Anyhow, CALMS means:
  • Culture – the norms, processes, and methodology IT follows. You want to shift from a project delivery culture to a product culture, from service management to innovation. Defining “culture,” let along how to change it and how to use it is slippery. I wrote up what I’ve figured out so far here.
  • Automation – this is the easiest to understand of all the DevOps things. It means, to focus on automating as much as possible. If you find yourself manually doing some configuration or whatever, or relying on people opening a ticket to get something
  • (Like a database, etc.), figure out how to automate that instead.
  • Lean – software development has been borrowing a lot from Lean for the past 15 years. DevOps takes most all of it, but the key concepts it brings in are eliminated waste (effort spent that has “no value” to customers, in IT, often wait time for things like setting up servers and such) and working on incremental, more frequent (like weekly) releases rather than big, yearly releases.
  • Measurement – DevOps, like agile, is actually very disciplined if done properly. In addition to monitoring your applications and such in production, in order to continuously improve, DevOps is interested in measuring metrics around process. How many bugs are in each release? How frequently do we deploy software? And so forth. The point is to use these measurements to indicate areas of improvement and figure out if you’re actually improving or not.
  • Sharing – this was added after the initial four concepts. It’s straight forward and means that people across groups and even across organizations should share knowledge with each other. It also means, within organizations, having more unified teams of people rather than different groups that try to work with each other.
Today, we can ship every day. What impact for the teams and developers?

Shipping more frequently means you have more input on the usefulness of your software and it also adds much more stability and predictably into your software process. Because you’re shipping weekly, or daily, you can observe how people use your software and make very frequent changes to improve your software. There’s a loop of trying our a new feature, releasing it and observing how people use it, and then coming up with a new way to solve that problem better.

Stability and predictability are introduced because you establish a realistic rate of feature delivery each week. When you’re delivering each week, you quickly learn how much code (or features) you can do each week. This means that rather than having developers estimate how many features they can deliver in a year, for example, you learn how much they can actually deliver each week. Estimates are pretty much always wrong, and complete folly. But, once you calibrate and know how many features the team can deliver each week, they’re predictable and the overall process is more stable.

Monolithic’ architecture vs modular’ approach. Are we talking micro-service? Container?

Yes, a monolithic architecture implies software that’s made of many different parts, but that all depend strongly on each other. To be frank, it also means software that’s complex, poorly tested, and, thus, not well understood. “Monolith” is often used for “software I’m scared to change,” that is, “legacy software.” In contrast, if you’re fine to change software and don’t fear doing so, you just call it “software.”

A microservice architecture is the current approach to break up “monoliths” into more independent components, different services that evolve on their own but are composed together for an application. Buying a product online is a classic example. If you look at the product page, it could be composed of many different services: pictures of the product, figuring out the pricing for your region, checking inventory for the product, listing reviews, etc. A monolithic architecture would find all of that information all at once, in “one” piece of code. An application following a microservices architecture would treat all of these things as third party, not under your control services and compose the page from calling all those services.

To over simplify it, we used to call this idea “mashups” in the Web 2.0 era: pulling data from a lot of different sources and “mashing” that data up into a web page. All the rotating ads and suggested content you see on news sites are a metaphoric example as well: each of those components are pulled in from some other service rather than managed and collected together by the news site CMS. This is why the ads and suggested content are often awful, of course: there’s no editorial control over them.

Infra as Code? Another thing?

“Infrastructure as code” means using automation tools the building and configuring of servers (the software parts, not the hardware) and other “infrastructure” and then treating those automation workflows as if they were software code: you check them into version control and track them like a version of your application. This means that you can check out, for example, a version of the server you’re configuring and automatically create it. The point of doing this is get more visibility and control over that configuration by removing manual, human-driven configuring and such. Humans create errors, forget how things were done, have bad hair days, and otherwise foul things up. Computers don’t (unless those annoying humans tell them to).

For you, what is the ideal architecture?

An annoying, though accurate answer would be “it depends. I don’t really code anymore, so I couldn’t really say. Usually, you start with the minim needed and just add in more complex architectures as needed. That sounds like the opposite of architecture, but it’s worse to end up with something like all those giant, built out cities that end up having few people living in them.

Kanban, craftsmanship: friend or enemy of DevOps?

Kanban is used a lot in DevOps, maybe not fully. But, the idea of having cards that represent a small feature, a backlog that contains those cards ranked by some priority, and then allowing people to pull those cards and put them in columns marked something like “working on” and “complete” is used all the time.

I’m not sure what “craftsmanship” is in this context, but it it means perfecting things like some master furniture maker, most DevOps people would encourage you to instead “release” the cabinets more frequently to find out how they should be designed than assuming you knew what was needed and working on it all at once: maybe they want brutalist square legs instead of elegant rounded legs topped with a swan.

 

And, of course, if “craftsmanship” means “doing a good job and being conscious of how you’re evolving your trade,” well, everyone would say they do that, right? :)

American Airlines is a good profile of enterprise cloud buyer’s needs, hopes & dreams – Notebook

While this is sort of a bummer story for Pivotal (we’d like to have this account), it has a good profile of American and their needs in it. All of which are representative of other large organizations, e.g.:

  • Application types: “The first result is that the airline will migrate to the IBM Cloud some of its critical applications, including the main website, its customer-facing mobile app and its global network of check-in kiosks. Other workloads and tools, such as the company’s Cargo customer website, also will be moved to the IBM Cloud.”
  • Managed data-centers/cloud: “The airline will be able to utilize the global footprint of IBM Cloud, which consists of more than 50 data centers in 17 countries, in addition to a wide range of application development capabilities.”
  • Long-term planning: “We wanted to make sure that the cloud provider would be using Cloud Foundry and open-source technologies so we don’t get locked in by proprietary solutions,” Grubbs said. “We also wanted a partner that would offer us the agility to innovate at the organizational and process levels and have deep industry expertise with security at the core.”
  • We want to do all the new meat-ware: “As part of this process, American will work with IBM Global Services to use IBM’s Garage Methodology of creating applications through a micro-services architecture, design thinking, agile methodology, DevOps and lean development, the company said.”
  • Legacy, it’s how you got here: “IBM Cloud will help enable developers to build and change application functionalities for the airline’s customers. These customer-facing systems will be on the IBM Public Cloud, while American will maintain backend connectivity to other on-premise legacy and third-party systems, for true Hybrid Cloud functionality.”
  • There’s a lot going on: “American Airlines and its subsidiary, American Eagle, offer an average of 6,700 flights per day to about 350 destinations in more than 50 countries. American has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C.”

Source: American Airlines Heads for a New Cloud with IBM

Shifting IT spending drives sales-force changes – Notebook

Looking at how company’s arrange their sales (and marketing) organizations is an interesting view into the effect of “cloud” on how IT is used and consumed. This week Microsoft is re-arranging it’s sales force to make it more cloud-friendly, people say.

From what I can tell with my dilettante analyst, Microsoft’s theory appears to be that:

  • sales people need to be more technically savvy on cloud,
  • have more vertical knowledge (how does cloud apply to my industry?), and,
  • target larger accounts (where the top and bottom line revenue is worth having a big sales venture, and to bring in volume and cash to public cloud).

Also, with 75% being outside of the US, it’s a dramatic change internationally.

Here’s some excerpts from coverage:

Summarized by Nicole Henderson:

The company said it is implementing the changes not to cut costs, but to improve how it handles sales; specifically, it said it will use employees who are more knowledgeable about specific verticals so they can sell bigger packages, CNBC reports.

As Microsoft vies for more enterprise cloud clients, having better trained salespeople, who are knowledgeable about a specific vertical, will mean they are better equipped to meet client needs. To that end, Microsoft said in an internal memo that it would split commercial sales into two segments – one targeting the biggest customers and one on small and medium clients. In addition, Microsoft employees will be aligned around six industry verticals – manufacturing, financial services, retail, health, education and government.

See also coverage from CNBC, and The Register’s coverage, e.g.:

With recent changes to its enterprise agreement to exclude smaller companies, Microsoft is focusing on bigger deals that require fewer staff, while everyone else gets shifted onto a per-person consumption payment model for Microsoft’s cloudy services.

We also discussed this briefly in this week’s Pivotal Conversations.

Shifting spending

Meanwhile, while this doesn’t capture all of the market-shift (you’d also want to see the shift from COTS to SaaS, infrastructure software, and then *aaS spend), some recent charting from IDC shows one of the motivations for changing up your sales approach, i.e., IT infrastructure (hardware) money is shifting around to public and private cloud stacks:

In the above, you see the blue bar slowly decreasing in the out-years meaning less “traditional” spend and more “cloud” spend. The pricing dynamics and units shipping in public cloud are all whack compared to private cloud (Google, Amazon, and Azure’s hardware needs are much different than private cloud needs), but looking at the red bar gives you an interesting perspective on new build out at enterprises. And, thus, you can get a sense for shifting buyer behaviors in IT…and why you’d want to re-arrange how you sell to them. See more recent details from IDC.

Link

Amazon buying Whole Foods – Notebook

I was on vacation last week, so this notebook is a little stale. Perishable news. (JOKES!)

The basics

  • The deal size is $13.7bn, a 30% premium; expected to close in the second half of this year (Todd Bishop)
  • Highly likely to remain independent: “Reading between the lines of Bezos’ statement, Amazon is signaling that it doesn’t plan to disrupt what Whole Foods is doing with a major shakeup of the retailer’s infrastructure or strategy in the near term. Amazon has a history of allowing acquired companies — from Audible to Twitch to Zappos — to continue operating with relative independence, with some product and feature integrations.” (Ibid.)

Not good for competition

  • Investors really believe in that AMZN magic: “In total, those five grocery chains [Target, CostCo, Kroger, Walmart, SuperValu] shed about $26.7 billion in market capitalization between the market’s close Thursday and Friday morning, as investors worried that Amazon deeper push into the industry could be a death knell for some.”
  • EU too: “The worries weren’t just contained to U.S. markets. Some investors in the U.K. and Europe also saw the purchase as a sign that Amazon could take its grocery ambitions global. Shares of French retailer Carrefour fell sharply on the news, about 4%, while in London, Tesco shed 6% and Sainsbury dropped 5%.”
  • See chart too.

Synergies, strategies

  • More brick-and-mortar, foot-traffic, and distribution centers for Amazon: “the acquisition provides the AmazonFresh program, currently only in 15 markets, with 465 new locations [the Whole Foods stores] that generate eight million customer visits per week as well as 11 warehouses.”
  • Amazon now has a big foot-print across the US, at least in affluent neighborhoods.
  • Like Amazon, Whole Foods is big into private label: “Whole Foods generates $2.3 billion worth of private label and exclusive brand sales per year; its private label products account for 32% of items in Instacart’s food category, taking up far more of the shelf than Walmart Grocery (16%) and Peapod (6%).”
  • (Further) driving down supplier costs: “It’s also possible that Amazon will use Whole Food’s partnerships with suppliers to get more of them on the Amazon platform. Amazon and Whole Foods will be tough negotiators, but the lure of the 300 million customer accounts on Amazon.com, in addition to all of its other CPG-related programs, will be tough to turn down.”
  • More: “he scale at which Amazon is making use of this strategy should force CPG brands and Big Box retailers to make some major changes to their distribution strategies.”
  • Ben Thompson, with some multi-sided platform theory sprinkled in:
  • “The truth, though, is that Amazon is buying a customer — the first-and-best customer that will instantly bring its grocery efforts to scale.”
  • “What I expect Amazon to do over the next few years is transform the Whole Foods supply chain into a service architecture based on primitives: meat, fruit, vegetables, baked goods, non-perishables”c
  • “At its core Amazon is a services provider enabled — and protected — by scale.”
  • This should remind you of the “middle-man”/unpaid for buy in my warehouse/drop-ship type of advanced retail play that the likes of Dell made famous.
  • I want pizza and baby-wipes, not software – this kind of argument (though, not really “invalid”) makes me bristle. It’s like a pizza company saying they’re a technology company. As long as the pizza comes in the box and the paper-towels come in the mail, they can call themselves whatever they want…but the pizza shop and Amazon are, to me, a pizza and retail company. How they get the pizza into my mouth is not my problem. Since I’m a paying customer in these instances, it’s not like the “you are the product” epiphany of .com, eye-ball companies.

Instacart?

  • Whole Foods had invested in Instacart in May 2016. What up with that, now?
  • Laura Entis: “Just last year, Instacart and Whole Foods signed a five-year delivery partnership, which gave Instacart exclusive rights to deliver Whole Foods’ perishable items.”
  • I guess it’d make sense for someone like Walmart to acquire them. Can Instacart be stand-alone now?

Getting that cash

  • For TAM:
  • FMI put estimate the US TAM at $668.680bn in 2016.
  • Statista, on the US market: $606.26 in 2015.
  • Very old, but the USDA in 2011 said, “The [US’s] 212,000 traditional foodstores sold $571 billion of retail food and nonfood products in 2011.”
  • Online grocery TAM: “Last year, online grocery sales were about $20.5 billion.” The growth rates, of course, are huge compared to in-store.
  • More market slicing numbers.
  • Room to grow, future cash to grab:
  • “Grocery remains the most under-penetrated e-commerce category, with less than 5% of sales happening online. However, with 20% of grocery sales estimated to begin online by 2025, brands investing in digital will reap the rewards.” (Elisabeth Rosen)
  • Online groceries penetration: “The online grocery business is still in its infancy. Last month, for example, 7% of U.S. consumers ordered groceries online, according to Portalatin. Of this group, 52% already has an Amazon Prime account. Groceries represent “the final frontier for Amazon — they haven’t quite cracked the code on that, but they already have a relationship with consumers.”
  • Some interesting grocery spending trends, by demographic, from Nielsen in 2015, via Cooper Smith:

grocery-spending.png

  • Mint says that last year, my family of two adults and two kids spent ~$15,000 at the grocery store. So that’s around what you’re upper-middle-class people (or whatever I am somewhere in the 90th percentile) spend, I guess.

For us consumers…

  • Many predict either free or highly discounted delivery fees for Amazon Prime members. That certainly makes sense as Amazon Video and Music, and Prime Now, shows.

More

DevOps at Disney, management lessons learned – Notebook

New types of software and delivery mechanisms (SaaS, mobile) mean new problems and scale:

“We were so used to dealing with tens of servers and suddenly it was hundreds and thousands of servers,” which in turn created more work for the development teams.

More:

“The digital expansion of business equals more work and firefighting,” Cox said.

Less time spent doing dumb-shit:

employees used to spend the eight hours of the park closed every night, manually updating each server. Now only one person can update the whole fleet in 30 minutes.

Some guiding principals and management challenges:

Cox said that leading a change of this order of magnitude involved three crucial ingredients:
1. Collaboration: break down silos, mutual objectives.
2. Curiosity: keep experimenting.
3. Courage: candor, challenge, no blaming or witch-hunting.
But  these can come with its own leadership challenges, including:
• The politics of command and control.
• How new leadership can take a company in a new direction.
• The blame bias of who versus what.

And, some good motivation:

We keep moving forward, opening up new doors, doing more things because we’re curious.

All from Jennifer Riggins’s write-up at TheNewStack

451’s container orchestration usage survey – Notebook


As part of CoreOS’s conference this week, 451 put out a sponsored study on container orchestration. It’s been much cited and is free, so it’s worth taking a look. Here’s my highlights and notes:

  • Leadgen yourself to CoreOS get a copy of the report.
  • This report is really more of a “container orchestration usage” report than much about “hybrid cloud.”
  • Demographics:
    • “We surveyed 201 enterprise IT decision-makers in April and May 2017. This was not a survey of developers; rather, we received responses from those in C-level and director-level positions, including CISO, CTO, CIO, director of IT, IT Ops and DevOps, and VPs and managers of IT.”
    • All from the US
    • “All of our survey respondents came from organizations using application containers, and all were familiar with their organization’s use of containers.” – This survey, then, tells you what people who’re already using containers are doing, not what the entire market is thinking and planning on.
    • “A significant slice of the survey respondents represented large enterprises.”
  • Organizations are hoping to use containers for “[a] ‘leapfrog’ effect, whereby containers are viewed as a way to skip adoption of other technologies, was tested, and a majority of respondents think Kubernetes and other container management and orchestration software is sufficient to replace both private clouds and PaaS.”
  • Obviously I’m biased, being at Pivotal, but the question here is “to do what?” As we like to say around here, you’re going to end-up with a platform. People need a “platform” on-top of that raw IaaS, and as things like Icito show (not to mention Pivotal’s ongoing momentum), the lower levels aren’t cutting the mustard.
  • There’s an ongoing semantic argument about what “PaaS” means to be mindful of, as well: in contexts like these, the term is often taken to mean “that old stuff, before, like 2009.” At the very least, as with Gartner’s PaaS Magic Quadrant, the phrase often means means “only in the public cloud.” Again, the point is: if you’re developing and running software you need an application development, middleware, and services platform. Call it whatever you like, but make sure you have it. It’s highly likely that these “whatever you want to call ‘PaaS’ PaaSes” will run on-top of and with container orchestration layers, for example, as Cloud Foundry does and is doing.
  • That said, it’s not uncommon for me to encounter people in organizations who really do have a “just the containers, and maybe some kubernates” mind-set in the planning phase of their cloud-native stuff. Of course, they frequently end-up needing more.
  • Back to the survey: keeping in mind that all respondents were already using containers (or at least committed to doing so, I think), ~27% had “initial” production container use, ~25% of respondents had “broad” containers in production. So, if you were being happy-path, you’d say “over half of respondents have containers in production.”
  • In a broader survey (where, presumably, not every enterprise was already using containers), of 300+ enterprises, production container use was: 19% in initial production, 8% were in broad production implementation.
  • Nonetheless, 451 has been tracking steady, high growth in container usage for the past few years, putting the container market at $2.7B by 2020 and $1.1bn in 2017.
  • As the report says, it’s more interesting to see what benefits users actually find once they’re using the technology. Their original desires are often just puppy-love notions after actual usage:

  • Interesting note on lock-in: “Given that avoiding vendor lock-in is generally a priority for organizations, it might seem surprising that it was not ranked higher as an advantage since much of the container software used today is open source… However, our respondents for this study were users of containers, and may have assumed that the technology would be open source and, thus, lock-in less of a concern.” (There’s a whole separate report from Gartner on lock-in that I’ll take a look at, and, of course, some 140 character level analysis.)
  • On marketshare, rated by usage, not revenue:

  • On that note, it’s easy to misread the widely quoted finding of “[n]early three-quarters (71 percent) of respondents indicated they are using Kubernetes” as meaning only Kubernetes. Actually, people are using many of them at once. The report clarifies this: “The fact that almost 75% of organizations reported using Kubernetes while the same group also reported significant use of other container management and orchestration software is evidence of a mixed market.”

As one last piece of context, one of the more recent Gartner surveys for container usage puts usage at around 18%, with 4% of that being “significant production use”:


Of course, looks at more specialized slices of the market find higher usage.

This early in the container market, it’s good to pay close attention to surveys because the sample size will be small, selective, and most people will only have used containers for a short while. But, there’s good stuff in this survey, it’s definitely worth looking at and using.

Analysis of Mary Meeker’s Internet Trends – Notebook


Each year, Mary Meeker and team put together the Internet Trends report that draws together an ever growing collection of charts and analysis about the state of our Internet-driven world, from the latest companies to industry and economic impact. Over the years, the report has gone on to include analysis of markets like China and India. Being a production of the Kleiner Perkins Caufield & Byers venture capital firm, the focus is typically on new technologies and the corresponding business opportunities: you know, the stuff like “millennials like using their smartphones” and the proliferation of smartphones and Internet globally.These reports are good for more than just numbers-gawking, but can also give some quantitative analysis of new, technology innovations in various industries. The consumer and advertising space consumes much of this business analysis, but for example, in this year’s report, there’s an interesting analysis of health-care and transportation (bike sharing in China!). For enterprises out there, it may seem to over-index on startups and small companies, but that doesn’t detract from the value of the ideas when it comes to any organization looking to do some good, old-fashioned “digital transformation.”

Normally, I’d post my notebook things here, but the Pivotal blog overlords wanted to put this in on the Pivotal blog, so check it out there.

Figuring out fixing federal government IT – Notebook

In the US, we love arm-chair strategizing government IT, in particular federal IT. Getting your arms around “the problem” is near impossible.

What do we think is wrong, exactly?

As citizens, our perceptions seem to be that government IT has poor user experience, none at all (there’s no app to do things, you have to go to an office to fill something out, etc.), and that it costs too much. More wonky takes are that there’s not enough data provided, nor insights generated by that data to drive better decision making.

When I’ve spoken with government IT people, their internal needs revolve around increasing (secure) communication, using more modern “white-collar” tools (from simply upgrading their copies of Office, to moving to G Suite/Office 365 suites, or just file sharing), and addressing the citizen perceptions (bringing down costs, making sure the software, whether custom made or “off the shelf,” have better customer experiences.

Is it so hard, really?

It’s also easy to think that government is a special snow-flake, but, really, they have mostly the same problems as any large organization. As highlighted below, the government contracting, procurement, and governance processes are more onerous in government IT, and the profile of “legacy” systems is perhaps higher, but, worse, more of a pull down into the muck.

From my conversations, one of the main barriers to change is systemic inertia, seemingly driven by avoidance of risk and overall lack of motivation to do anything. This lack of motivation is likely driven by the lack of competition: unlike in the private sector, there’s no other government to go to, so there’s no fear of loosing “business,” so what care to change or make things better?

Anyhow, here’s a notebook of federal government IT.

“Legacy”

  • “92 percent of Federal IT managers say it’s urgent for their agency to modernize legacy applications, citing the largest driving factors as security issues (42 percent), time required to manage and/or maintain systems (36 percent), and inflexibility and integration issues (31 percent)” from an Accenture sponsored 2015 survey of “150 Federal IT managers familiar with their agency’s applications portfolio”
  • Theres a large pool of legacy IT, though not as large as you might think: ~60% of portfolio are from before 2010(https://www.gartner.com/document/3604417).
  • That said, the same report says that ~25% of portfolios are pre-1999, with 5% from the 1980’s.
  • On spending: “The government has been reporting that 75 to 80 percent of the federal IT budget is spent on running legacy (or existing) systems.”
  • But, actually, that’s pretty normal: “That may sound alarming to those who aren’t familiar with the inner-workings of a large IT organization. However, the percentage is in-line with the industry average. Gartner says the average distribution of IT spending between run, grow and transform activities — across all industries — is 70 percent, 19 percent and 11 percent respectively. Those numbers have been consistent over the past decade.”
  • However, the spending items above are from Compuware’s CEO, who’s clearly interested in continuing legacy spending, mostly on mainframes.

Priorities

Source: “2017 CIO Agenda: A Government Perspective,” Rick Howard, Gartner, Feb. 2017.

Other notes:

  • In the same survey, data & analytics skills are the leading talent gap, with security coming in second. Everything else is in the single digits.
  • Why care about data? On simply providing it (and you, know, the harder job of producing it), the UN e-Government survey says “Making data available online for free also allows the public – and various civil society organizations –to reuse and remix them for any purpose. This can potentially lead to innovation and new or improved services, new understanding and ideas. It can also raise awareness of governments’ actions to realize all the SDGs, thus allowing people to keep track and contribute to those efforts.”
  • And, on analytics: “Combining transparency of information with Big Data analytics has a growing potential. It can help track service delivery and lead to gains in efficiency. It can also provide governments with the necessary tools to focus on prevention rather than reaction, notably in the area of disaster risk management.”
  • Reducing compliance and overall “bureaucracy” is always a problem. My benchmark case is an 18F project that reduced the paperwork time (ATO) down from 9-14 months to 3 days.

The workloads – what’s the IT do?

  • And, while it’s for the Australian government, check out a good profile of the kinds of basic services, and, therefore, applications that agencies need, e.g.: booking citizenship process appointments, getting permits to open businesses, and facilitating the procurement process.
  • If you think about many of the business services governments do, it’s workflow process: someone submits a request, multiple people have to check and co-relate the data submitted, and then someone has to approve the request. This is a core, ubiquitous thing handled by enterprise software and, in theory, shouldn’t be that big of a deal. But, you know, it usually is. SaaS offerings are a great fit for this, you’d hope.

The problems: the usual old process, expensive COTs, contractors, compliance

  • If you accept that much of government IT is simple workflow management, much of the improving the quality and costs of government IT would likely come from shifting off custom, older IT to highly commoditized, cheap (and usually faster evolving, and more secure), SaaS-based services.
  • Jennifer Pahlka: “When you consider that much of what ails government today is the use of custom development at high cost when a commodity product is readily and cheaply available, we must acknowledge that agile is one useful doctrine, not the doctrine. “
  • So, if you do the old “IT – SaaS = what?” you suck out a lot of resources (money, attention, etc.) by moving from janky, expensive COTs systems (and all the infrastructure and operations support needed to run them). You can both cut these costs (fire people, shut down systems), and then reallocate resources (people, time, and money) to better customizing software. Then, this gets you back to “agile,” which I always read as “software development.”
  • In my experience, government IT has the same opportunities as most companies, taking on a more “agile” approach to IT. This means doing smaller, faster to release batches, with smaller, more focused, “all in teams.” Again, the same thing as most large organizations.
  • An older survey (sponsored by Red Hat): “Just 13% of respondents in a recent MeriTalk/Accenture survey of 152 US Federal IT managers believed they could ‘develop and deploy new systems as fast as the mission requires.’”
  • Mikey Dickerson, 2014: “We’ll break that up by discouraging government contracts that are multibillion-dollar and take years to deliver. HealthCare.gov would have been difficult to roll out piecemeal, but if you, a contractor, have to deliver some smaller thing in four to six weeks while the system is being constructed, you’ll act differently.”
  • Government contractors and procurement are a larger problem in government IT, though. The structure of how business is done with third parties, and the related procurement and compliance red-tape causes problems, and, as put by Andrew McMahon, it creates “a procurement process that has become more important than the outcome.”
  • While there’s “too much” red-tape, in general we want a huge amount of transparency and oversight into government work. In the US, we don’t really trust the government to work efficiently. This become frustrating ironic and circular, then, if your position is that all of that oversight and compliance is a huge part of the inefficiency.
  • As put by one government CIO: “Government agencies, therefore, place a business value on ‘optics’—how something appears to the observant public. In an oversight environment that is quick to assign blame, government is highly risk averse (i.e., it places high business value on things that mitigate risk)…. the compliance requirements are not an obstacle, but rather an expression of a deeper business need that the team must still address.”

Success story

  • Tom Cochran: “While running technology for Obama’s WhiteHouse.gov, open-source solutions enabled our team to deliver projects on budget and up to 75% faster than alternative proprietary-software options. More than anything, open-source technology allows governments to utilize a large ecosystem of developers, which enhances innovation and collaboration while driving down the cost to taxpayers.”
  • As with “agile,” it’s important to not put all your eggs-of-hope in one basket on the topic of open source. My theory is that for many large organizations, simply doing something new and different, upgrading – open or not – will improve your IT situation:
  • While open source has different cost dynamic, I’d suggest that simply switching to new software to get the latest features and mindset that the software imbues gives you a boost. Open source, when picked well, will come with that community and an ongoing focus on updates: older software that has long been abandoned by the community and vendors will stall out and become stale, open or not.
  • One example of success, from Pivotal-land, is the IRS’s modernization of reporting on diligent taxes. It moved from a costly, low customer service quality telephone based system to an online approach. As I overuse in most of my talks, they applied a leaner, more “agile” approach to designing the software and now “taxpayers have initiated over 400,000 sessions and made over $100M in payments after viewing their balance.”

If you’re really into this kind of thing, you should come to our free Pivotal workshop day in D.C., on June 7th. Mark Heckler and I will be going over how to apply “cloud-native” thinking, practices, and technologies to the custom written software portion of all this. Also, I’ll be speaking at a MeetUp later that day on the overall hopes and dreams of cloud-native, DevOps, and all that “agile” stuff.

The Bathroom Bill, Texas SB6 – Notebook

As you can imagine, things like the so-called “bathroom bill” drive me crazy. It also makes me sad for whatever happened to my fellow Texans, who support it, that they’d be this cruel, uninformed, and ignorant. And, of course, there’s the people effected.

Stealing some of Matt Ray’s notes for our Software Defined Talk recording, here’s a notebook and highlights on the topic.

  • The Hillbillies are obsessed with bathrooms
    • It’s really depressing how aggressively stupid Texas is sometimes. I don’t blame anyone avoiding it.
    • “The consequences of this bill are beyond severe. Not only can transgender people be arrested and jailed for using the bathroom, but they will be assumed to be pedophiles, and be put on the Texas sexual predator watch list. So not only is there the possibility of being hauled off to jail during a conference, the arrest will ruin the rest of your life. Just because you need to pass some water.”
  • Current status: The bill is having trouble in the Senate, however, part of it is about removing a requirement to provide multi-user bathrooms in schools.
    • More: “The differences on the bathroom bill are substantial. The Senate would require transgender Texans to use the restrooms in publicly owned buildings that match their biological sex and would bar local governments from adopting or maintaining their own laws on the subject. The House version would apply only to elementary and secondary schools; after it passed last weekend, Patrick and others criticized it as a change that does very little.”

How’d it go in North Carolina?

  • AP analysis of economic effect in North Carolina, from March 2017:
    Losses of $313m a year – “$3.76 billion in lost business over a dozen years.”
    Some examples, not just bleeding-heart tech companies: “Those include PayPal canceling a 400-job project in Charlotte, CoStar backing out of negotiations to bring 700-plus jobs to the same area, and Deutsche Bank scuttling a plan for 250 jobs in the Raleigh area. Other companies that backed out include Adidas, which is building its first U.S. sports shoe factory employing 160 near Atlanta rather than a High Point site, and Voxpro, which opted to hire hundreds of customer support workers in Athens, Georgia, rather than the Raleigh area.”
    Most of it is from businesses like Paypal and Deutsche Bank pulling out – good for them!

    • “Bank of America CEO Brian Moynihan — who leads the largest company based in North Carolina — said he’s spoken privately to business leaders who went elsewhere with projects or events because of the controversy, and he fears more decisions like that are being made quietly.”
  • For context, The North Carolina economy: “In 2010 North Carolina’s total gross state product was $424.9 billion. In 2011 the civilian labor force was at around 4.5 million with employment near 4.1 million. The working population is employed across the major employment sectors.”
  • So, rough estimate of economic impact is: a decrease of 0.07%/year (this is a bad number since it’s based on 2010 GDP and other forward looking estimates, however, it gives you a ball-park sense.) However, see scenario for larger impact for the future below (I mean, not to mention being a dick-heads and treating people as subhuman for no good reason other than being fucking social-idiots):

Money and jobs prospects for Texas

  • Back to Texas, the next 10 years are critical for North Texas. Many large, international enterprises are setting up big campuses up there in DFW.
    For example, Toyota relocated their NA headquarters there.

    • For Toyota, this means something on the order of 1,000 new jobs in Texas, with an estimated 2,800 existing employees who’ll move to Texas. That’s a lot of new HEB customers, home buyers, and taxpayers.
  • Now, think of other G2000 companies that would want to move to Texas, or beef up their existing presence. The companies will be deciding what to do in the next 2-3 years, and if they skip on Texas, that will be decades of lost cash, not to mention new Texans.
  • Also, from Texas Association of Business: “The business group released a study last month warning that legislation like the transgender bathroom bill could cost the state economy up to $8.5 billion a year and threaten 185,000 jobs.” (Meanwhile, that organization has “remained neutral.”)

Why in the first place?

  • So, what’s the big deal for those in favor of it in the first place? Well, obviously, the idea that there’s “wide-stances” going on is bunk (more).
  • One can only conclude that supporters are confused (and, thus, afraid): there’s a fundamental disagreement about gender and sexuality. But, also, there’s just downright discriminatory. We’ve lived through this before with the gay marriage movement int he past 20 years and know how to spot veiled discrimination.
  • As one ACLU person put it: “that fundamentally [supporters of bathroom bills] just don’t think of transgender people as humans, and they try to erase trans people from existence.””
  • The Economist describes the people effected: ‘The heart of the bill is its concept of “biological sex”; lawmakers define it as “the physical condition of being male or female, which is stated on a person’s birth certificate”. This definition is fraught for several reasons. First, as many as 1 in 1,500 babies are born with ambiguous genitalia that qualify them as “intersex”, though that designation was only used for the first time last week, when a Brooklyn-born, 55-year-old California resident received a revised birth certificate from New York City in the mail. Second, thousands of the 1.4m transgender Americans have had sex-reassignment surgery, which means that many people who were designated as male or female at birth now have “the physical condition” of being another gender. And for transgender people who retain the biological markers of their original gender identification (because they choose not to undergo surgery or cannot afford it), the fact of their sense of themselves remains. Many transgender women and men feel not only uncomfortable but endangered when being forced to use a bathroom that does not mesh with their identity. In a 2013 paper, Jody Herman, a scholar at the UCLA law school’s Williams Institute, discussed a survey finding that 70% of transgender people “reported being denied access, verbally harassed, or physically assaulted in public restrooms”.’ (More from CNN.)
  • Is there anything to actually worry about? The article continues: “No similar research bears out the theory that opening bathrooms to transgender people spurs sexual predators to put on lipstick and a dress to target women and young girls in public facilities. Last year, a coalition of organisations dedicated to preventing the abuse of women issued a letter addressing Mr Patrick’s worry. “As rape crisis centers, shelters, and other service providers who work each and every day to meet the needs of all survivors and reduce sexual assault and domestic violence throughout society”, they wrote, “we speak from experience and expertise when we state that these claims are false”. Texas Republicans say that strict gender segregation in public bathrooms is “common sense”, but their appeal to conventional wisdom is not borne out by the evidence. A police department official in Des Moines, Iowa, said he doubts that bathroom tolerance for trans people would “encourage” illicit behaviour. Sex offenders, he said, will find victims “no matter what the laws are”.”
  • Meanwhile, bathroom bill thinking shows a misunderstanding of the realities of sexual assault: ‘[Laura Palumbo, communications director at the National Sexual Violence Resource Center] said she believes people “must understand the facts about sexual assault,” adding that in 8 out of 10 cases the victim already knows the person who sexually assaulted them, citing Justice Department statistics. However, 64 percent of transgender people will experience sexual assault in their lifetime, she said, citing a study by the National Gay and Lesbian Task Force and National Center for Transgender Equality.’
  • All of this said, other than “there is no evidence,” it’s surprisingly hard to find any numbers and reports on the topic of “is this actually a problem,” based on past crime and incidents. This is true for both sides of the issues!
  • That said, the conclusion would, thus, be that there’s no evidence based on historics that there’s anything close to a material, actual problem (sexual assault) going on here. This is not only intellectually (and socially) frustrating, but it also means that all the effort spent on bathroom bills is wasted and should have been spent on fixing real problems that could prevent actual sexual assault.

Canonical refocusing on IPO’ing, momentum in cloud-native – Highlights

Canonical Party

There’s a few stories out about Canonical, likely centered around some PR campaign that they’re seeking to IPO at some time, shifting the company around appropriately. Here’s some highlights from the recent spate of news around Canonical.

Testing the Red Hat Theory, competing for the cloud-native stack

Why care? Aside from Canonical just being interesting – they’ve been first and/or early to many cloud technologies and containers – there’d finally be another Red Hat if they were public.

Most of the open source thought-lords agree that “there can never be another Red Hat,” so, we’ll see if the Ubuntu folks can pull it off. Or, at the very least, how an pure open source company wangles it out otherwise.

That said, SUSE (part of HPE/Micro Focus) has built an interesting business around Linux, OpenStack, and related stuff. Ever since disentangling from Novell, SUSE has had impressive growth (usually something around 20 and 25% a year in revenue). All is which to, the Red Hat model actually is being used successfully by SUSE, which, arguably, just suffered from negative synergies (or, for those who don’t like big words, “shit the bed”) when it was owned by Novell.

As I’m perhaps too fond of contextualizing, it’s also good to remember that Red Hat is still “just” a $2.5bn company, by revenue. Revenue was $1.5bn in 2014, so, still, very impressive growth; but, that’s been a long, 24 year journey.

All these “Linux vendors,”like pretty much everyone else in the infrastructure software market, are battling for control over the new platform, that stack of cloud-y software that is defining “cloud-native,” using containers, and trying to enable the process/mindset/culture of DevOps. This is all in response to responding to enterprises’ growing desire to be more strategic with IT.

Canonical momentum

From Steven J. Vaughan-Nichols:

Shuttleworth said “in the last year, Ubuntu cloud growth had been 70 percent on the private cloud and 90 percent on the public cloud.” In particular, “Ubuntu has been gaining more customers on the big five public clouds.”

And:

Its OpenStack cloud division has been profitable, said Shuttleworth, since 2015

Al Sadowski has an extensive report on Canonical, mentioning:

[Canonical] now has more than 700 paying customers and sees a $1bn business for its OS, applications and IT operations software. Time will tell if this goal is realized.

And:

Canonical claims some 700 customers paying for its support services on top of Ubuntu and other offerings (double the 350 it had three years ago), and to have achieved more than $100m in bookings in its last financial year…. [Overall, it’s] not yet a profitable business (although its Ubuntu unit is). We estimate GAAP revenue of about $95m.

Strategy

On focusing the portfolio, shoring it up for better finances for an IPO:

we had to cut out those parts that couldn’t meet an investors’ needs. The immediate work is get all parts of the company profitable.

To that end, as Alexander J. Martin reports:

More than 80 workers at Ubuntu-maker Canonical are facing the chop as founder Mark Shuttleworth takes back the role of chief executive officer…. 31 or more staffers have already left the Linux distro biz ahead of Shuttleworth’s rise, with at least 26 others now on formal notice and uncertainty surrounding the remainder

Back to Al on the Job to Be done, building and supporting those new cloud-native platforms:

Rather than offering ways to support legacy applications, the company has placed bets on its Ubuntu operating system for cloud-native applications, OpenStack IaaS for infrastructure management, and Docker and Kubernetes container software.

And, it seems to be working:

Supporting public cloud providers has been a success story for Canonical – year-over-year revenue grew 91% in this area…. Per Canonical, 70% of the guest OS images on AWS and 80% of the Linux images on Microsoft Azure are Ubuntu. Its bare-metal offering, MaaS (Metal as a Service), is now used on 80,000 physical servers.

On OpenStack in particular:

Canonical claims to be building 4,000 OpenStack deployments a month at some 180 vendors…. It claims multiple seven-figure deals (through partners) for its BootStrap managed OpenStack-as-a-service offering, and that the average deal size for OpenStack is trending upward.

On IPO’ing

The Vaughan-Nichols piece outlines Shuttleworth’s IPO plans:

Still, there is “no timeline for the IPO.” First, Shuttleworth wants all parts of the slimmed down Canonical to be profitable. Then “we will take a round of investment.” After that, Canonical will go public.

However, Al’s report says:

It is not seeking additional funding at this time.

Probably both are true, and the answer as Shuttleworth says is “well, in a few years once we get the company to be profitable.

More

Banks are handling disruption well – Highlights

Thus far, it seems like the large banks are fending off digital disruption, perhaps embracing some of it on their own. The Economist takes a look:

  • “Peer-to-peer lending, for instance, has grown rapidly, but still amounted to just $19bn on America’s biggest platforms and £3.8bn in Britain last year”
  • “last year JPMorgan Chase spent over $9.5bn on technology, including $3bn on new initiatives”
  • From a similar piece in the NY Times: “The consulting firm McKinsey estimated in a report last month that digital disruption could put $90 billion, or 25 percent of bank profits, at risk over the next three years as services become more automated and more tellers are replaced by chatbots.”
  • But: “Much of this change, however, is now expected to come from the banks themselves as they absorb new ideas from the technology world and shrink their own operations, without necessarily losing significant numbers of customers to start-ups.”
  • Back to The Economist piece: “As well as economies of scale, they enjoy the advantage of incumbency in a heavily regulated industry. Entrants have to apply for banking licences, hire compliance staff and so forth, the costs of which weigh more heavily on smaller firms.”
  • Regulations and customer loyalty are less in China, resulting in more investment in new financial tech in Asia: 
  • As another article puts it: “China has four of the five most valuable financial technology start-ups in the world, according to CB Insights, with Ant Financial leading the way at $60 billion. And investments in financial technology rose 64 percent in China last year, while they were falling 29 percent in the United States, according to CB Insights.”
  • Why? “The obvious reason that financial start-ups have not achieved the same level of growth in the United States is that most Americans already have access to a relatively functional set of financial products, unlike in Africa and China.”
  • There’s some commentary on the speed of sharing blockchain updates can reduce multi-day bank transfers (and payments) to, I assume, minutes. Thus: ‘“Blockchain reduces the cost of trust,” says Mr Lubin of ConsenSys.’

Fixing legacy problems with new platforms, not easy

  • The idea of building banking platforms to clean up the decades of legacy integration problems.
  • Mainframes are a problem, as a Gartner report from last year puts it: “The challenge for many of today’s modernization projects is not simply a change in technology, but often a fundamental restructuring of application architectures and deployment models. Mainframe hardware and software architectures have defined the structure of applications built on this platform for the last 50 years. Tending toward large-scale, monolithic systems that are predominantly customized, they represent the ultimate in size, complexity, reliability and availability.”
  • But, unless/until there’s a crisis, changes won’t be funded: “Banks need to be able to justify the cost and risk of any modernization project. This can be difficult in the face of a well-proven, time-tested portfolio that has represented the needs of the banking system for decades.”
  • Sort of in the “but wasn’t that always the goal, but from that same article, Gartner suggests the vision for new fintech: ‘Gartner, Hype Cycle for Digital Banking Transformation, 2015, says, “To be truly digital, banks must pair an emphasis on customer-facing capabilities with investment in the technical, architectural, analytic and organizational foundations that enable participation in the financial services ecosystem.”’
  • BCG has a prescriptive piece for setting the strategy for all this, from Nov. 2015.

Case studies

  • A bit correlation-y, but still useful, from that BCG piece: “While past performance is no guarantee of future results, and even though all the company’s results cannot be entirely attributed to BBVA’s digital transformation plan, so far many signs are encouraging. The number of BBVA’s digital customers increased by 68% from 2011 to 2014, reaching 8.4 million in mid-2014, of which 3.6 million were active mobile users. Because of the increasing use of digital channels and efforts to reconfigure the bank’s branch network—creating smaller branches that emphasize customer self-service and larger branches that provide higher levels of personalized advice through a remote cross-selling support system—BBVA achieved a reduction in costs of 8% in 2014, or €340 million, in the core business in Spain. Meanwhile, the bank’s net profits increased by 26% in 2014, reaching €2.6 billion.”
  • And a more recent write-up of JPMC’s cloud-native programs, e.g.: ‘“We aren’t looking to decrease the amount of money the firm is spending on technology. We’re looking to change the mix between run-the-bank costs versus innovation investment,” he said. “We’ve got to continue to be really aggressive in reducing the run-the bank costs and do it in a very thoughtful way to maintain the existing technology base in the most efficient way possible.” …Dollars saved by using lower-cost cloud infrastructure and platforms will be reinvested in technology, he said.’ JPMC, of course, is a member of the Cloud Foundry Foundation which means, you know, they’re into that kind of thing.

Docker’s new CEO, Steve Singh – Highlights

In a mildly surprising announcement (see below), Docker announced a new CEO, Steve Singh, formerly of Concur-cum-SAP. The consensus is that this is the typical startup move to get a “more enteprise-y” leader in place, e.g., this happened at Puppet, Chef, and probably MuleSoft and Cloudera [I don’t know those last two well enough, but ¯_(ツ)_/¯.

As most all non-Docker (myself included and us over on the podcast) are always saying, Docker, Inc. needs to figure out a business model. So huzzah on that!

The PR folks at Docker were nice enough to line up a bunch of interviews. Below are some highlights from them and other places, As always, my comments are in square brackets unless it’s obvious otherwise.

Docker itself

Docker Customers Screenshot 2017-05-03 09.28.20

From outgoing CEO Ben Golub’s blog post announcing this:

  • Customers, in addition to the above: “Docker has rapidly scaled revenues, building a sustainable and exciting subscription business in conjunction with tens of thousands of small and mid sized businesses and over 400 G2000 customers like ADP, the Department of Defense, GE, Goldman Sachs,  Merck,  MetLife, and Visa.”
  • Partners: “we’ve created enduring partnerships with the likes of Accenture, Alibaba, Avanade, AWS, Booz Allen, Cisco, Google, HPE, IBM, Microsoft, Oracle, and more.”

Singh Interview with Todd Bishop & Tom Krazit

  • Over at Geekwire.
  • “Today we have about 400 enterprise customers, and that’s really been over the course of the last year or so that those enterprise customers have adopted Docker, so the rate of growth is phenomenal. I think our capacity to add value to those enterprise customers is huge. They’re running legacy applications. They’re building new applications on top of the Docker platform, and that’s driving massive economic savings for them. They’re able to see 75-500 percent reduction in the application infrastructure.”
  • It’s rare to see cost reduction used as an argument by cloud-native vendors; usually it’s a value-based sales: “compared to all the growth-money your company will make with this (and, sure, productivity gains), the cost will be nothing.” This might be an early sign of Docker’s enterprise value-prop: it costs less. One part to ponder: how cheaply can they do this w/r/t to sales and marketing? They have some good marketing costs from brand/community – i.e., everyone knows Docker. They need an enterprise salesforce and sales engineers to help buyers evaluate and then procure stacks; that is, unless they go (mostly?) pure inside sales a la Solarwinds. There’s some interesting comparisons here: Red Hat with the pure open source play, traditional middleware & infrastructure vendors with the open-core model, and then Solarwinds and New Relic for more inside, service-driven sales.
  • “My last day at SAP was April 30.” [So two reasons to wait until now (vs. at DockerCon): (1.) it’s traditional to let a standing exec have “one last conference,” and, (2.) Singh still had to officially be out at SAP.]
  • Some product-think, CaaS and building a platform with container parts: “We’re in the fortunate position that we are the leading platform company in this broader container-as-a-service space, number one. Number two, if you think about orchestration — things like Swarm or things like Kubernetes — our view is that what our customers are looking for is a platform to run their applications, manage them and deliver them. We want to take an open platform approach that allows the customers the choice to pick whatever components that they want from Docker and whatever components they want from anyone else, and run them in a model that makes sense for them. We have a number of customers that use the Docker platform as well as components from either the open source community or partners. That’s fantastic. When customers have choice, that’s a great thing.”
  • He skirts naming any competitors, which is standard, but, you know, eye-rolly.

Interview with Ari Levy

  • Over at CNBC.
  • “The software start-up was generating less than $5 million in revenue [in 2015].”
  • “Singh inherits a business that’s growing, with annual revenue in tens of million of dollars, according to sources with knowledge of the company but who asked not to be named because the financials are private. He’s still got money in the bank from the $95 million round that Goldman Sachs led two years ago.”
  • I’d read “tens of millions” as $20 to $30m. If it was $50m, they’d probably say so; if it was $40m, they’d say “nearing $50m”; and if it was $10m, it wouldn’t plural. Also, it doesn’t specify if this is TCV (paid out over 2-3 year contract terms) or ACV (total size of the deal, over all years of the deal’s life-span), but, hey, that’s how all private companies speak of revenue now-a-days. As a point of reference, the product my company, Pivotal, sells in this space: “booked revenue grew 130% (in 2016) to $270 million from $117.4 million for 2015.”
  • “The company started selling its enterprise product early last year and has about 400 customers, Singh said.”
  • “I’m more focused on the road ahead as opposed to things that have happened in the past,” Singh said. “We want to collaborate and make sure customers have choice.”

More

IT’s usefulness is improving, but there’s plenty of room to fix the meatware, Surveys – Highlights

It’s another survey about business/IT alignment. Who knows how accurate these leadgen PDFs are, but why not? This one is of “646 CIOs and other IT leaders and 200 line of business leaders.” Some summaries from Minda Zetlin:

When LOB leaders were asked about the role their companies’ CIOs play, 41 percent said the CIO is a strategic advisor who identifies business needs and opportunities and proposes technology to address them. Another 22 percent said the CIO is a consultant who provides advice about technology and service providers when asked.

But 10 percent said their CIO was a “roadblock” who raises so many obstacles and objections to new technology that projects are difficult to complete. And another 9 percent said the CIO was a “rogue player,” with IT making technology decisions on its own, and creating visibility and transparency challenges.

Meanwhile, 36 percent of LOB leaders and 31 percent of IT leaders believe other departments “see IT as an obstacle.” And 58 percent of IT leaders but only 13 percent of LOB leaders agreed with the statement, “IT gets scapegoated by other departments when they miss their own goals.”

This seems better than the usual (kind of out of date) scare chart I used use, from a multi-year Cutter survey:

There’s still, as ever, plenty of room to improve business/IT alignment.

Speaking of that, also in that IDG/CIO Magazine survey, there’s a weird mismatch between the perception of The Business and IT about what IT does:

What does The Business want anyway?

Meanwhile, Vinnie quotes a Gartner survey of 388 CEOs:

  • Almost twice as many CEOs are intent on building up in-house technology and digital capabilities as those plan on outsourcing it (57 percent and 29 percent, respectively).
  • Forty-seven percent of CEOs are directed by their board of directors to make rapid progress in digital business transformation, and 56 percent said that their digital improvements have already delivered profits.
  • 33 percent of CEOs measure digital revenue.

Point being: The Business wants IT to matter and be core to how their organizations evolve. They want programmable businesses. Here’s some examples from another summary of that Gartner survey:

Although a significant number of CEOs still mention eCommerce, more of them align new IT infrastructure investments to advanced commercial activities – such as digital product and service innovation, exploring the Internet of Things (IoT), or adopting digital platforms and associated supplier ecosystems.

According to the Gartner assessment, some CEOs have already advanced their digital business agenda – 20 percent of CEOs are now taking a digital-first approach to business development. “This might mean, for example, creating the first version of a new business process or in the form of a mobile app,” said Mr. Raskino.

Furthermore, 22 percent are applying digital business technologies to their traditional processes. That’s where the product, service and business models are being changed, and the new digital capabilities that support those are becoming core competencies.

There’s demand there, the final result of “the consumerization of enterprise IT,” as we used to crow about. IT needs to catch-up on its abilities to do more than “just keep the lights” on or there’ll be a donkey apocalypse out there.

You seem people like Comcast doing this catching-up, very rapidly. The good news is that the software and hardware is easy. It’s the meatware that’s the problem.

Link

Containers in production survey, RedMonk/Anchore – Highlights

Some highlights from a recent survey on container usage among 338 respondents to a Anchore/DevOps.com survey:

Containers in production:
anchore-cu
…approximately one third of the participants are running containers in production, with development coming in slightly higher.
OS used:
Looking at the top five host operating systems across user roles we see Ubuntu having a particular strong lead among developers and architects.
Mesos, architect-types like it:
Interestingly Mesos still features strongly with architects. Among developer communities we very rarely hear Mesos mentioned anymore. On the other hand we frequently encounter architects have invested in Mesos from the perspective of their big data environments and are looking at a common approach for their container strategy. That said, this entire market is extremely fluid at the moment.
Jenkins leads CI:
…the combination of Jenkins and CloudBees (commercial Jenkins) approaching 50%.
Security worries:
Bluntly put [security] presents a barrier to adoption, and an opportunity for conservative organisations to hold off on adopting new technologies.
Demographics:
Our population breaks out with over 60% working in companies of greater than 100 people [and ~30% working in companies of greater than 5,000 people]…. With any data set of this nature, it is important to state that survey results strictly reflect the members of the DevOps.com community.
More context:
  • As you’ll recall, 451 estimates that the container market will be $2.7bn in 2020.
  • A 451 Research 1Q16 survey puts production use of containers at ~14%. It’s likely risen sense then, of course: maybe to around 18 to 20%?
  • A 3Q2015 survey put “container orchestration” use at just ~9%. Presumably this is dev/test and production, all uses. And, again, you’d assume that it’s risen since then. The question would be: are people using containers in production without orchestration? That seems slightly crazy except for the simplest workloads, eh?

On-premise IT holding steady around 65% of enterprise workloads – Highlights

barfing cloud.png

One of the more common questions I’ve had over the years is: “but, surely, everyone is just in the public cloud, right?” I remember having a non-productive debate with a room full of Forrester analysts back in about 2012 where they were going on and on about on-premise IT being dead. There was much talk about electricity outlets. To be fair, the analysts were somewhat split, but the public cloud folks were adamant. You can see this same sentiment from analysts (including, before around 2011, myself!) in things like how long it’s taken to write about private PaaS, e.g., the PaaS magic quadrant has only covered public PaaS since inception).

Along these lines, the Uptime Institute has some survey numbers out. Here’s some highlights:

Some 65% of enterprise workloads reside in enterprise owned and operated data centers—a number that has remained stable since 2014, the report found. Meanwhile, 22% of such workloads are deployed in colocation or multi-tenant data center providers, and 13% are deployed in the cloud, the survey found….

On-prem solutions remain dominant in the enterprise due to massive growth in business critical applications and data for digital transformation, Uptime Institute said
Public cloud workload penetration:
Some 95% of IT professionals said they had migrated critical applications and IT infrastructure to the cloud over the past year, according to another recent survey from SolarWinds.
Budgets:

That survey also found that nearly half of enterprises were still dedicating at least 70% of their yearly budget to traditional, on-premise applications, potentially pointing to growing demand for a hybrid infrastructure….

Nearly 75% of companies’ data center budgets increased or stayed consistent in 2017, compared to 2016, the survey found.

Metrics, KPIs, and what organizations are focusing on (uptime):

More than 90% of data center and IT professionals surveyed said they believe their corporate management is more concerned about outages now than they were a year ago. And while 90% of organizations conduct root cause analysis of an IT outage, only 60% said that they measure the cost of downtime as a business metric, the report found.

Demographics: “responses from more than 1,000 data center and IT professionals worldwide.”

Pretty much all Pivotal Cloud Foundry customers run “private cloud.” Many of them want to move to public cloud in a “multi-cloud” (I can’t make myself say “hybrid cloud”) fashion or mostly public cloud over the next 5 to ten years. That’s why we support all the popular public clouds. Most of them are doing plenty of things in public cloud now – though, not anywhere near “a whole lotta” – and there are of course, outliers.

This does bring up a nuanced but important point: I didn’t check out the types of workloads in the survey. I’d suspect that much of the on-premises workloads are packaged software. There’s no doubt plenty of custom written application run on-premises – even the majority of them per my experience with the Pivotal customer base. However, I’d still suspect that more custom written applications were running in the public cloud than other workloads. Just think of all the mobile apps and marketing apps out there.

Also, see some qualitative statements from CIO types.

So, the idea that it’s all public cloud in enterprise IT, thus far, is sort of like, you know: ¯_(ツ)_/¯

Red Hat OpenShift Momentum – Highlights

Brian Gracely of Red Hat (and formally an analyst who did some of the best “cloud-native”/cloud platform work early on) has a momentum post on Open Shift. Here’s my highlights:

Sizing up revenue and deal-size:
[Q3, FY 2017] Also of note, we closed our second OpenShift deal over $10 million and another OpenShift deal over $5 million. And significantly, we actually had over 50 OpenShift deals alone that were six or seven figures, so really strong traction. [Q4, FY 2017] with our largest deals in Q4 approximately one-third had an OpenShift container platform component.
Red Hat hasn’t yet been too clear on OpenShift revenue, so you have to tea-leave out these revenue spreads, which I haven’t really done. Earlier in April, Jeffrey Burt at The Next Platform had this to say:
During the final three months of last year, subscription revenue for Red Hat’s application development-related [JBoss, etc] and other emerging technologies – which includes OpenShift – hit $125 million, a 40 percent increase from the same period in 2015, and revenue for the group accounted for about 20 percent of Red Hat’s overall revenues for the fourth quarter.
Today, we also announced that Barclays Bank, the Government of British Columbias Office of the CIO, and Macquarie Bank are also using Red Hat OpenShift Container Platform to modernize application development…. airplane manufacturer Airbus about their DevOps journey, and digital travel platform Amadeus about their transformation of handling 2,000x the number of online transactions…. how Amsterdams Schipol Airport (AMS) is using OpenShift to redefine the in-terminal travel experience, how Miles & More GmbH is better managing rewards programs for travelers, and how ATPCO is rethinking how they publish fare-related data to the airline and travel industry.
Much of the write-up focuses on community momentum, true to Red Hat, open source form:

The OpenShift Commons community has 260+ member organizations….

Red Hat engineers lead or co-lead in 10 of the 24 Kubernetes SIG activities.
Finally, some commentary on their strategic shift to Kubernetes:
The huge architectural shift that we made a few years ago in adopting open standards for containers and the Kubernetes container scheduler has allowed us to delivered a unified platform to containerize existing applications and deliver agility and scalability for cloud-native applications and microservices. We call this combination Enterprise Kubernetes+, or Enterprise-Ready Kubernetes.
Red Hat’s OpenShift is, of course, a competitor to us over at Pivotal.

Cloud-native at Comcast, working with Pivotal – Highlights

I’m doing a podcast with Comcast in a few weeks, so I’ve been going over all their public talks on their cloud-native efforts. They’ve been working with Pivotal since around 2014 and are one of the more impressive customer cases with over a 1,000 applications now on Pivotal Cloud Foundry.
Here are some highlights from the talks I’ve been watching. As always, things I put in square brackets are my own comments, the rest are quotes or summaries of what people said:

August, 2016 – Empowering Devops with Cloud Foundry – Sergey Matochkin, Neville George; Comcast

  • Sergey Matochkin.
  • Slides.
  • (17:00) Every deployment to production took at least 6 weeks, but most commonly around 2 months end-to-end. Which also means you need to plan capacity much in advance.
  • We started to use virtualization and containerization “well, well before Docker existed… it was some success, we had some improvements, but those improvements were marginal.”
  • Traditionally, it’d take at least 4-6 months to setup your dev/test infrastructure. But, luckily, virtualization came along.
  • (9:20) Business drivers… Comcast phone service, set-top boxes get DVRs, VoD, etc. All of these require apps on the backend, so the portfolio of apps starts to grow, and with they way they were before it meant they had to build a new datacenter every six months. Virtualization helped here, of course.
  • Also, virtualization allowed us to put a service layer [think “platform”] on-top of the infrastructure.
  • It’d take 4-6 weeks for testing environment, but now it takes 10-15 minutes in a self-service portal.
  • Demo of using Pivotal Cloud Foundry for much of the automation needed to deploy and scale an application.
  • (~32:00) We used to have things like “order servers” and “make load-balancer changes” and somewhere in the bottom of the backlog was “write some code and do some testing.” [That is, they were focusing on items with low business value, below “the value line,” rather than customer features.]
  • “What Cloud Foundry essentially helped us with was to get all those unnecessary user stories out of our backlog so we can focus on the writing code, on testing, and deploying rather than managing infrastructure.”
  • (33:45) momentum/proof-points:
  • momemtum
  • 9 PCF instances; 900+ developers; 2,000+ active apps “most of which are in “the critical path of our customer experience”; 4,100 application instances; 2,000 requests per second.
  • Lots of Slack/ChatOps usage for monitoring and such.

August 3rd, 2016 – Transforming the monolith at 20M tph – Nick Beenham, Comcast

  • Slides.
  • Existing state:
    • 250m transaction per day.
    • Would take 3 months to get a server useful, from moment of purchasing to using.
    • “Over a 100 services run by development teams.”
    • In functional, silo roles.
  • (3:45) “We knew we had that large, rigid infrastructure. [Pivotal] Cloud Foundry and it’s adoption really enables us to change that to gain the agility, to gain the elasticity at scale.
  • Taking away roles to reduce finger-pointing and all the negative stuff, and unified team, of course.
  • (7:35) Anecdote of Nick going from “ops guy” to writing code and liking coding.
  • (12:18) ESP router that was a small router written in Go to translate SOAP requests as part of a strangler pattern. Decades old SOA layer that they wanted to modernize. But they couldn’t strip it out, would take so long. So, were going to duck-type as SOA, but do REST and micro services underneath. Strangler pattern, etc. This is what the ESP router does marshals and unmarshalls between microservices and SOAP stuff. But new things need to be done in new style.
  • Also, “de-mingling data,” moving off Oracle RAC/GoldenGate for multi-site. Some simpler CRUD services to front the data.
  • (~15:00) Used to take a week+ to deploy the entire stack, but with Pivotal Cloud Foundry it takes minutes. It gives us a great deal of velocity that we’ve never had before. “Sometimes we’ll deploy multiple times an hour.”
  • (17:00) From 1,000’s of lines of bash to deploy out to various WebLogic clusters, which has for the most part moved to Cloud Foundry.
  • Improving production updates: bringing new node up and shutting old node down slowly; canary updates, with a CI test suite, then switching over to a production install.

August 1st, 2016 – James Taylor – The Power of Partnership & Building a Cloud Native Tier-1 Platform

  • @jctbmwi8
  • “Sparrow, Service Activation Platform.”
  • “Helping someone put a smile on their face is one of the greatest gifts we can give each other.”
  • Their VP provides the feedback loop of things to focus on. Right now: reducing technical debt, reducing incidents, increasing velocity, experimentation.
  • (~6:30) “You can’t move forward – innovate – if you don’t have time to try new things.”
  • (~18:35) “If you’re spending time configuring a Docker container, that’s time you’re not spending coding or solving a problem.”
  • (13:51): “At the end of the day, [business] value is what puts money in everyone’s pocket. If our company, Comcast, can’t create something of value, no one’s gonna pay for us…if we can’t create value. So it’s important for us to understand ‘how can you create value?’”
  • (~22:02, starting epic rant!) “Who is our customer and what value do we bring to our customers…”
  • If you’re spending money on support, that’s cutting into your margins. A call coming in costs $8 right off the bat, then more as it takes longer. So you want to figure out preventing customer support problems… which points to understanding your customers more.
  • [A good overview of thinking about “value” in the context of a specific application, their customer activation center, Sparrow.] “If you have a [support] call rate of 30%, you’re probably cutting out all the value… So we try to figure out, how do we prevent calls?” [Very similar to IRS cloud-native story.]
  • “We’ve been holding technical workshops”: Internal training things every month with Pivotal people, leveraging Pivotal knowledge. With our development teams every month: webinar, or on-site visit.
  • Sparrow: 5 junior Java developers… we built it from scratch in parallel while existing teams maintained the platform… we then had to integrate the processes together… figure out decomposing the monolith platforms, etc….then we had to just cut off stuff when it was too much of a hassle.

August 17th, 2016 – Greg Otto SpringOne Platform keynote

  • Slides.
  • X1 boxes – a new release about once a month.
  • Processing 10’s of millions of transactions on this new platform daily on Pivotal Cloud Foundry/new platform.
  • “About a 75% lift in velocity as well as time to market, and the business is really feeling it.”
  • Developer reactions:
  • comcast what customers are saying.png
  • Momentum Stats:
  • comcast key state from otto.png
    • 40 apps to 900 apps, 2015 to 2016
    • 300 AIs to 4,100 AIs, 2015 to 2016
  • All with “zero outbound marketing from my team, this all word of mouth from all those happy developers.”

June 9th, 2016 – Greg Otto CF Summit keynote

  • “Late last year in 2015” – live in production [on Pivotal Cloud Foundry] with business critical systems from our back-office systems on our Cloud Foundry environment.
  • We put Pivotal Cloud Foundry directly in the customer critical path.
  • Applications doing 30,000 event a second on Cloud Foundry.
  • Started in 2014, met with Pivotal.
  • Had sort of thrown all the people into the Pivotal Cloud Foundry pool, they had to do a lot of research and such.
  • But, people were really interested in the ease of working with the platform [the productivity improvements].
  • Successful prototype app 30 days after platform.
  • Idea to feature, before after: “several weeks, at least”/“2-3 days”
  • Time-line and summary:
  • comcast otto summary.png

June, 2016 – Open source at Comcast story

  • Write-up.
  • “If Comcast has a problem to solve, there are three possible approaches: solve it themselves by making an investment in teams and resources; solve it through a commercial vendor that could build a product for them; or work with the open source community.”
  • OpenStack: “In addition to Linux, Comcast is a heavy user of OpenStack. They use a KVM hypervisor, and then a lot of data center orchestration is done through OpenStack for the coordination of storage and networking resources with compute and memory resources. Muehl said that Comcast has roughly a petabyte of memory and around a million virtual CPU cores that they are running under the OpenStack umbrella. As an operator, Comcast does a lot of things around operations, and they use Ansible to deploy and manage OpenStack at scale.”
  • Cloud Foundry: “They also use Cloud Foundry, but according to Muehl that work is in the very early stages at Comcast.”

May 2015 – Running Cloud Foundry at Comcast talk

  • Neville George, Sam Guerrero, Tim Leong, Sergey Matochkin
  • They wanted to make custom URLs.
  • Used Puppet for stuff.
  • (~8:30) Their requirements for a platform:
  • comcast platform requirements.png
  • A lot of emphasis on self-service and the micro services benefits of operating independently, product management wise.
  • They use OpenStack, Docker, and [Pivotal] Cloud Foundry.
  • Pre-provisioning resources for a pool of containers that are ready to go, etc.
  • (~27) a couple applications in production today… we’ll be ramping up quickly.
  • (Either this video or the 2016 one, a few minutes from the end) Q, training mode. A, Sergey: “I can’t say we have a really good training model…. We do brown-bags to have people aware. We focus on 12 factor application model… on overall microservices model, not just to shape application, but also data. Developers need to understand how they [do] applications for PaaS instead of traditional.

Reactions to Cloudera’s IPO, prospects – Notebook

There’s lots of opinions on Cloudera’s IPO today. Here’s some that I’ve collected in my notebook.

Not valued high enough?

Despite the share-price being up 20% at close, some negative commentary focuses on their valuation dropping from Intel’s funding round, e.g., from Brenon at 451:

The chipmaker paid up for the privilege, putting a ‘quadra unicorn’ valuation of $4.1bn on Cloudera. Altogether, Cloudera raised more than $1bn from private market investors, making the $225m raised from public market investors seem almost like lunch money.

And then there’s the small matter of valuation. In its debut, Cloudera is only worth about half of what Intel thought it was worth when it made its bet.

https://twitter.com/alex/status/857992394595119104

The counter-point goes a little something like this (as pointed out by Derrick Harris):

“Much has been made of the huge valuation of that Intel-led round, but that’s all misguided noise,” according to IPO Candy, a website founded by Kris Tuttle, the director of research at Soundview Technology Group. “Intel didn’t make the investment for a financial return so the valuation isn’t relevant.”

Back in 2014, Intel was still smarting from missing the shift to mobile computing and Big Data was a favorite as the next big thing. The Santa Clara chip giant’s bet was placed chasing a strategic return, not so much banking a direct return on investment.

You know, all of this is a little bit of ¯_(ツ)_/¯. As I recall, Facebook’s IPO was all wiggly-woggly. If Cloudera makes a lot of money, gets bought for a lot of money, etc., no one will care to remember, just like with Facebook. Success is the best deodorant.

Their business, finances

Also from 451, earlier this month, a profile of their business:

Cloudera is nearly one-third bigger than Hortonworks, recording $261m in sales in its most recent fiscal year compared with $184m for Hortonworks. Both are growing at roughly 50%.

Since 2008, the company has grown steadily. As of January 31, it reports more than 1,000 customers. However, Cloudera is currently emphasizing and banking its success on what it calls the Global 8,000, which are the largest enterprises worldwide. The company notes that its number of Global 8,000 customers increased from 255 as of January 31, 2015, to 381 as of January 31, 2016, and 495 as of January 31. For the year ended January 31, the Global 8,000 represented 73% of Cloudera’s total revenue, while a further 10% of total sales came from the public sector. The company reports 1,470 fulltime employees as of January 31, a slight increase from its headcount of 1,140 the prior year.

More from Katie Roof at TechCrunch:

Cloudera’s market cap is now about $2.3 billion, significantly less than the $4.1 billion valuation Intel gave in 2014. This increasingly common phenomenon is now nicknamed a “down round IPO.”

In an interview with TechCrunch, CEO Tom Riley insisted that this was not a problem for the company because of the “growth prospects ahead of us.” If it performs well in the stock market, it could ultimately achieve the $4 billion-plus value. Square, which went public in 2015 at half its private market valuation, has since seen its share prices more than double.

(Side-note: comparisons of companies, Square and Cloudera, that have nothing to do with each other except being “tech” – and Square is payment processing, not “pure tech,” at that! – drive me a bit crazy, as listeners know.)

And a quick revenue/spend write-up from her:

Cloudera’s revenue is growing, totaling $261 million for the fiscal year that ended in January. The company brought in $166 million at the same time last year.

Losses were $186.32 million, down from $203 million in the same period the year before.

And, according to Jonathan Vanian: “Cloudera spent $203 million on sales and marketing in its latest fiscal year, up 26% from the previous year.”

TAM

I don’t really follow this space well enough anymore to quickly figure out the TAM: I suspect Cloudera operates in several data and BI related ones.

Cloudera isn’t only Hadoop, but 451 put the Hadoop market at $1.3b in 2016, growing to $4.4b in 2020, with a CAGR of 38.3% between 2015 & 2020.

If you throw data warehousing, BI, analytics, and an injection of the mega-databases TAM together, you get a really big TAM, anyhow. Keep in mind though that one of the traps of (definitionally orthodox) disruptors in this space is lowering the TAM of their respective markets, a la Red Hat in operating systems. I don’t get the sense that Cloudera is on that game plan, but others in the market might be.

Buyers’ plans & needs

With respect to what people would do with Cloudera and others in this space (including Pivotal), here’s a good ranking of the information infrastructure priorities Gartner recently found in enterprises:

info plans survey

Also of public/private cloud interest from the summary of that survey: “Based on survey responses, plans for on-premises deployments for production uses of data will drop from today’s 45% to 14% in 2018.”

Looking forward

People in the tech industry care a great deal about IPO’s like this. We’re all curious what The Market’s read on valuation of enterprise IT business models is for our own benefit, and just a general sense of the health of the sector. There’s also usually people you know at the company, so “yay” for people you know.

One day isn’t long enough to tell anything, though, cf., in a completely different space, that Facebook debut weirdness. People got all excited about Cisco buying AppDynamics because that seemed to show some “healthy” signs that money valued this kind of software/SaaS.

At any rate, people still seem to love the Big Data and such. From Cloudera’s CEO, Tom Reilly: “We’re competing with IBM and Watson, so our customers seeing the strength of our finances allows us to do more.” Think of all the free marketing!

And, Mike Olson (original CEO) adds:

The ensuing years have been remarkable. Our company has grown with the market. The original technology has morphed almost beyond recognition, adding real-time, SQL, streaming, machine learning capabilities and more. That’s driven adoption among some of the very biggest enterprises on the planet. They’re running a huge variety of applications, solving a wide variety of critical business problems.

Our early bet has proven correct: Data is changing the world. In applications like fraud detection and prevention, securing networks against cyberattacks and optimizing fleet performance in logistics and trucking, we’re delivering value. We’re helping to address big social challenges, improving patient outcomes in healthcare and helping law enforcement find and shut down human trafficking networks.

Against that background, an IPO takes on a more appropriate scale. We started Cloudera because we believe that data makes things that are impossible today, possible tomorrow. There’s more data coming, and there are plenty of impossible things to work on. Our journey is only well begun.

I admittedly don’t know Cloudera’s business model too well, but my sense is that they align well with the “have something to sell” model that many open source companies in the enterprise space forget to put in place.

Spanning goes private, what might happen next?

Long ago, Spanning Sync was the only viable way to synchronize your GMail calendar and contacts with the (then) OS X iCal and Address Book. It was great! I also know one of the original founders, Charlie Wood, and we’d talk from time to time about the growing company. At some point, it became a Google Apps (now “G Suit”) back-up service that had a clever value prop: cloud storage, sure, but it’s not redundant you know, you gotta do the basics.

Anyhow, I always kept a close eye on the company. It was a little odd to see EMC buy them back in 2014: as VMware demonstrated with their dropbox competition products years ago, Apple is pretty goofy here, and even Google has demonstrated over the year, large software companies are pretty and at long-term plays for individual software; Microsoft is of course an exception with Office and sort of proves the rule.

We’ll see what Insight Venture Partners does with them. I’m guessing if you just left Spanning alone, more or less, it’d turn into a cash machine at some point. That said, I don’t think Dropbox and Box are exactly profitable. Here’s Box’s last four financial years:

…but it seems like a back-up service could controls costs better and do a lot less marketing: Box and Dropbox have been acquiring companies and re-positioning themselves as they go from more than just to cloud storage to something like “sort of Office, but not really, but maybe – or like Trello… er… let’s acquire another company and go to a conference where we have wooden floors and free espresso in the booth and think about this at next year’s company retreat in Italy.” (I KID! I KID!)

Spanning Momentum

Here’s some Spanning momentum from one of the write-ups:

Spanning has seen 70 percent year-over-year revenue growth and more than 7,000 customers, according to a press release. It restored around 18 million items for customers in 2016, and expects to continue growth with its global data center expansion, and distribution agreements with major channel partners.

A wet-finger-in-the-wind business case

It’s hard to quickly find pricing for Spanning on their page (smells like enterprise software!), but a few searches, particularly from Spiceworks, says it’s like $35 a month.

There’s certainly discounts on some of those customers, but let’s say the revenue would be a max of $2,940,000 annual to something like $1.5m on the low-end if you do all sorts of discounting on clusters of users.

Now, 70% y/y growth is pretty impressive, but not too insane for a relativly new offering. Let’s say they do that two more years and then it goes down to like 30 or 40% for any length of out years we care about.

Then, let’s just take a swag at storage costs. Who knows if they use S3, but let’s assume they can get down to similar pricing, we’ll take S3’s mid-tier: $0.0125/GB/month. My work Google Drive says it’s 22 GB, but I save a lot more stuff than most people do. Let’s just go with 20GB as an average. Then let’s assume you at least duplicate it, so you’re paying for 40 GB a month (across two cloud zones), which is $6/year. (Let’s ignore networking transfer charges – adding that in is left as a exercise for the reader!)

Then you need all the meat-sacks. You could probably get by with 6 to 12 product staff (programmers, product manager – you probably outsource design at this point as needed).

You need the CEO, HR, CFO, and probably 1-2 people to work for them (6 people max); you could probably cut out HR depending on how Insight likes to run HR (outsourced or pooled across companies). Maybe the CFO, but probably not.

I’m no enterprise SaaS business expert, but I’m guessing it’s marketing and sales heavy, so:

Then you need probably 2-3 people in marketing (if you were slick, you could outsource a lot of this, esp. for something as easy to understand as “backup”): 5-10 face-to-face enterprise hustlers, and let’s say a team of 5 “inside/web” sales people who send all those annoying “Re: catching-up. I see you read out white paper on BACKUP. Would you like to talk more? Are you the right person at your organization?” emails. So, max 18.

That’s around 36 people, which seems really low to me. But, if you were, I don’t know, a private equity firm, you’d probably think that was OK, if not a little heavy for a company that basically just copies files from one place to the other (yes, I’m being MBA-fatuous).

Without getting a spreadsheet to do some clustering, doing salary cost across such a diverse set is hard. Many of them are in Austin (I assume, still), so let’s just of with $150,00 all-in per head (I’m sure the admin staff and your “strategic account” sales people get paid well plus extra comp, and the more senior tech staff get paid more). So, that’s something like $5,400,000 in people expenses. Then there’s going to conferences, probably a large ad budget, that nice office they have in downtown Austin (which I think is an EMC office, so they’ll get the boot?) which means buying a lot of organic beef-jerky and craft beer etc., then there’s flying those 5-10 enterprise hustlers around and their $70-100 a day per diems, plus wining and dining. Let’s just trow in another million and go to $6.5m.

So, with some mumbo jumbo business casing (I grow revenue by 70% for two years, then level it off to 30% for the last two years; I grow staff up to 60 people max), you have something like this:

Screenshot 2017-04-23 09.16.10

Those storage costs look insanely off. And from their press release, they claim to have actual data-centers (probably co-lo’d racks that are, at best, caged for compliance reasons, far from “having data centers”), which sounds like building your own, which might actually be as cheap, or slightly higher.

Who knows. Cloud storage is insanely cheap, so maybe that figure isn’t so bonkers. Of course, you need networking transfer chargers, etc. So, double, even quadruple the cost if you care too: still “nothing,” relative to the other numbers.

With this kind of Sunday morning, armchair analysis, there’s no end of flaws. Like I should have found the comparable costs, growth, the TAM, and staffing for Box, BackBlaze, etc., and even made sure I actually understand Spanning’s business model, but: ¯_(ツ)_/¯

Over years, that’s a pretty small gap to close to be profitably, and there’s a lot of things to play with in the spreadsheet (can we fire most all the sales and marketing people and go pure channel, hiring up a biz dev team of 2-3 people to get 5 or so key channel partners?).

It’s probably even easier to bundle up the company for sale to another large company after a few years. Someone like Microsoft or Salesforce might even want them to add that functionality to their own products, or any company that’s concerned about filling in it’s “enterprise SaaS” strategy gaps.

I’ve always like Spanning (RIP Sync). I hope it works out well!

The news from Docker-land, plus, the money being fought over – Notebook

With DockerCon this week, there’s no end of Docker quotables and items. Here’s my collection

General momentum

Once landed in an account, Docker usage grows their CEO says:

There has also been expansion within customers, with organizations that start with Docker expanding their usage on average by five times within six months

Way back in 2015, the (now annual?) DataDog study of Docker usage among their customers said that 2/3 of companies that try Docker adopt it. Which is all to say: once it gets in, it spreads.

Moby

A toolkit for putting together docker stacks:

In essence, Moby is the build system that creates Docker Community Edition, which is akin to Fedora, and Docker Enterprise is derived from Moby and is akin to Red Hat Enterprise Linux. Link

People got all freaked out. I’d even say “freaked the fuck out.” Competitors, of course, gloated, if only in silence. Criticism of handling the announcement aside (ideally, you wouldn’t like to kick up a stink), I feel like it was more like a tempest in a teapot.

Docker momentum/penetration and types of applications/workloads

Global 2000 customers have somewhere on the order of thousands to tens of thousands of applications, and across these major firms, less than 5 percent of the applications have been containerized so far. While somewhere between 5 percent and 10 percent of the applications that are being containerized are net-new, microservices-style applications that everyone is talking about all the time, the other 90 percent to 95 percent are just lifting and shifting legacy applications from bare metal or virtual machines to containers. Link

VMware threat…or just legacy gobbling?

Docker bounces back and forth between “replacement for VMware” and “a different thing, so don’t worry about VMware.” In this round of Docker news, there’s been some strong pull towards the “replacement for VMware” camp. To be fair, it’s more like doing both:

In general, says Johnston, customers who move from bare metal or VMs to Docker containers can provision, scale, and deploy applications up to 75 percent faster, and those moving from bare metal to containers can save 50 percent on compute and those who are moving from VMs will save around 25 percent. Link

This might also come from the obvious move to start gobbling up legacy (more accurately “existing”) applications. Here, Docker had two customer reference:

Northern Trust, a leading international financial services company, experienced  deployment times that were 4X faster and noted a 2X improvement in infrastructure utilization

And, Microsoft IT:

Microsoft is not only a partner in this program; their IT organization is also a beta customer.  Microsoft IT increased app density 4X with zero impact to performance and were able to reduce their infrastructure costs by a third.

There was also a story of Visa using Docker:

Kocherlakota said Visa is aiming to move as many workloads at it can to the container model to help improve overall efficiency.

See more on this legacy migration stuff and the program with Avanade, Cisco, HP, and Microsoft from Docker’s Scott Johnson.

Major vendors

Other tech companies are often cautious about working with Docker. They’re not really certain about how it helps or threatens their position in the IT stack and, therefore, their ability to sell higher profit margin products and services. No one wants to become the x86 manufacturer of the cloud (read: low margin, commodity).

I’ve noticed this cautiousness slightly melting as more and more vendors are at least putting their stuff in Docker images and, on the public cloud front, supporting the use of Docker. My company, Pivotal, ingests Docker images.

A brief whack at why Microsoft cares, from Christopher Tozzi:

Although there remains work to do to get Docker on Windows ready for prime time, the platform will be important in helping Windows Server stay as nimble as Linux environments in hosting the workloads of the future…. Microsoft’s interest in Docker may seem strange. Microsoft already offers traditional virtual machine products, most notably Hyper-V. In some respects, Docker containers compete with virtual machine platforms…. But that’s not necessarily the case. Depending on how they’re used, containers can complement virtual machines, rather than replace them. If you use virtual machines to host the environment in which Docker runs, your Docker environment becomes more scalable and portable than it would be if it ran on bare metal. That’s likely the type of use case Microsoft envisions for containers on Windows.

More from Nick Martin on Microsoft and Docker.

Oracle bundling middleware in Docker containers:

Oracle becomes the latest enterprise IT vendor to jump on the Docker container bandwagon as it seeks to expand its reach in the public cloud market. Among the container-based application, middleware and development tools made available on the container platform are Oracle’s MySQL database and its WebLogic server. Those tools are in addition to the more than 100 images of Oracle products already available on Docker Hub, its cloud-based image registry.

So, what’s going on here? Staking a claim on The New Stack

I’m often asked to explain all the various cloud stacks, to help Pivotal buyers sort out what CaaS, PaaS, cloud-native, and “cloud strategy” means. They’re trying to figure out their planning for building out new IT, for “doing DevOps.” It’s a mess out there w/r/t to figuring all this out if you’re not a vendor or analyst who’s steeped in this shoggoth every day.

In all the Docker, container, and cloud-native wars, the revenue battle for vendors is mostly about two things:

  1. The pool of money in simply migrating the VMware workload to a new, more efficient layer, hence the ongoing attention to “the VMware threat” that Docker poses). I’m not sure how big this market is because, as a disruptive shift (cf. Linux vs. UNIX vs. Windows vs. z) part of it is reducing the overall spend through lower prices and more efficient usage. But, the existing virtualization market is best described as “fucking huge.”
  2. Fighting over who “owns” (and therefore collects the most profit from) the stack that companies are using to build and run their software. By my estimate, this is something like around a $20-25bn market in the future. You can see a Spanish Civil War like precursor going on in the Java application server market; it’s spreading to a “World War” with respect to all custom software stacks.

On that second point, here’s my latest attempt to describe how things are shaking out category/definition wise:

Of all the SPI cloud categories, PaaS is the most problematic place as all us vendors hate the PaaS term and are trying to re-define what it means. I would break PaaS into two categories currently: (1.) container orchestration, and, (2.) cloud platform.

Container orchestration takes an IaaS and manages the installation and configuration of container images on your new cloud. By “images” here, I mean that you’ve chosen to put your software (probably custom written software, not packaged software) into containers (or the delegated way we do it with buildpacks in CF), specified how all the different nodes are wired together with all the ACLs and configuration, and then given it over to the orchestration software to deploy those containers, set the configuration, and do the ongoing health-checks/remediation.

Ideally, the orchestration platform should also have “day 2” tools to help you monitor and manager (“fix”) problems that happen in production. I assume things like kubernetes, the Docker/Moby constellation of things, Mesosphere, etc. fit here.

People are obsessed with container orchestration now and it’s pretty much all anyone talks about. I think all this is what’s becoming known as “CaaS” – Containers as a Service.

(On this next section, I’m extremely monetarily biased, of course:) A cloud platform either has or depends on an orchestration layer, but adds in integrated middle-ware, ALM tools (from basics like “cf push”, and an overall programming and deployment model with all the tools and enforcements. Heroku is the classic example here in public cloud, and now Cloud Foundry (CF) has taken over this model in public and private cloud, the second (it seems) where most of the usage and money is, at least in the enterprise space. I’d argue, that CF is the enterprise market-leader (by revenue at least, but increasingly penetration in the F500 – while Pivotal has impressive numbers, throw in the other CF distros and it’s even larger, no doubt); at the very least, “the highest growth and in enterprise production usage.” That all depends how you slice it, and of course my slicing favors me.

A cloud platform “pulls together” everything into a fully working “cloud” that deploy and provisions the servers, builds/maintains/deploys the containers, takes care of your networking configuration and concerns (inc. firewalls, etc.), and configs/manages all the middleware needed (e.g. “I want a database” means you just ask for it, instead of having to configure it and make container images of it and specify how it all works together).

The end goal of a cloud platform is the original end-goal of a PaaS: developers don’t have to “setup” any of the infrastructure or, really, middleware (databases, queues, etc.) that they use: they just write the “business logic” of their applications.

All this standardization is technically “restrictive” (developers can’t just install anything they download off the Internet, it has to be integrated into the platform). This is why we often call this model “opinionated,” but it follows the same contract/promises model that Google SREs follow: we promise we can support your applications in production if you use only the things we support, otherwise it’s all on you.

However, the benefit of such opinions is a huge jump in productivity as we see at all our customers: one Pivotal customer manages 1,000+ applications (all angles toward very frequent, DevOps-style releases for fast feedback loops and all that small batch stuff) with just 4 PCF operations staff, etc.

Our DIY white paper makes the case that snow-flaking this all out is a bad idea. At the very least, if you build your own platform, you should try to just have one used organization wide.

In comparing CaaS and cloud platform, the key distinction to me is that a cloud platform bundles and integrates together all your middleware and “services” frameworks. For example, if you want to do microservices with all the bulk-heads and such, that functionality should be built into the cloud platform – you should have to go read-up how to set most of that up. PCF, of course, has Spring Cloud and more for that. All of the systems management tools (thing used in production to detect and fix problems) should also be built in, or the cloud platform should be instrumented so deeply that third party tools can do the managing as well.

Now, these two categories are likely to converge, and then the discussion will just be which cloud platforms are more featureful and better. It’ll be like battling Java application servers.

I haven’t made one of my own “burger” stacks of all this in a long time, but I think (again, highly biased) the ones we use for PCF are pretty good:

More

In case you don’t know, working at Pivotal, I obviously have a stake in how all this turns out, so I’m biased on multiple angles of the above whether I want to be or not. 

Microsoft buys Deis, deeper into Kubernetes & $1.1bn container market – Notebook

A round-up of the news and some context around Microsoft burrowing down further into Kubernetes-land by acquiring Deis:

The deal & market

  • Microsoft: “Deis gives developers the means to vastly improve application agility, efficiency and reliability through their Kubernetes container management technologies…. We expect Deis’ technology to make it even easier for customers to work with our existing container portfolio including Linux and Windows Server Containers, Hyper-V Containers and Azure Container Service, no matter what tools they choose to use.”
  • Deis: “We look forward to making Azure the best place to run containerized workloads.”
  • Deis is/was part of EngineYard, right? – Notable that EngineYard (on April 10th, 2017, day of announcement) doesn’t mention it on their blog, or press release list. And that Deis and Microsoft don’t really either. See 451’s Jay Lyman’s coverage of that deal in 2015.
  • No deal-size was disclosed, of course, but Deis was small and I’m guessing it didn’t fit into EngineYard’s overall strategy, or what (little?) cash they got was a nice to have versus synergies of keeping Deis.
  • Containers are rising in usage, as 451’s Donnie said: “Our latest data says production use of containers has doubled from 10.2% to 22.5% of orgs between Q1 and Q3 2015. Amazing.”
  • 451’s January 2016 container market TAMs and forecast:
Screenshot 2017-04-10 13.56.56

The technology: not so much PaaS anymore, but Kubernetes management

Deis stack

Microsoft likes Kubernetes

  • Seems like Microsoft has gone all k8-crazy. So this is adding k8 support and some cloud-native services/middleware (package mgmt, routing, etc.) to Azure?
  • Back in July of 2016, Microsoft hired a k8 big-wheel (and other, “small wheels,” I’d assume), so they’re obviously into the thing…or at least the thinking behind the think. This leave, once again, Amazon as the last major cloud hold-out on k8.
  • That said, I think Microsoft’s new thing is to like everything that layers on-top, below, or around them. As long as you’re in every deal, you make a lot of money even if you’re not all of every deal. It’s pretty hard, now, of course, to compete with the big clouds.
  • Or, put another way: “Satya is like the Pope Francis of software,” says Alex Polvi, founder and CEO of CoreOS, a company that plays in the same area as Deis. “He took this old institution and made it cool again.”

Misc.

The Economist on Amazon – Highlights

  • Video: “In 2017 Amazon is expected to spend $4.5bn on television and film content, roughly twice what HBO will spend. But it has a big payoff.”
  • Prime momentum: “Mr Nowak reckons the company had 72m Prime members last year, up by 32% from 2015.”
  • Cloud: “Last year AWS’s revenue reached $12bn, up by more than 150% since 2014.”
  • Anti-trust, in the US: “If competitors fail to halt Amazon’s whirl of activities, antitrust enforcers might yet do so instead. This does not seem an imminent threat. American antitrust authorities mainly consider a company’s effect on consumers and pricing, not broader market power. By that standard, Amazon has brought big benefits.”

Are investors too optimistic about Amazon?

More on “grim” automation – Notebook

A few weeks back my book review of two “the robots are taking over” came out over on The New Stack. Here’s some responses, and also some highlights from a McKinsey piece on automation.

Don’t call it “automation”

From John Allspaw:

There is much more to this topic. Nick Carr’s book, The Glass Cage, has a different perspective. The ramifications of new technology (don’t call it automation) are notoriously difficult to predict, and what we think are forgone conclusions (unemployment of truck drivers even though the tech for self-driving cars needs to see much more diversity of conditions before it can get to the 99%+ accuracy) are not.

Lisanne Bainbridge in her seminal 1983 paper outlines what is still true today.

From that paper:

This paper suggests that the increased interest in human factors among engineers reflects the irony that the more advanced a control system is, so the more crucial may be the contribution of the human operator.

When things go wrong, humans are needed:

To take over and stabilize the process requires manual control skills, to diagnose the fault as a basis for shut down or recovery requires cognitive skills.

But their skills may have deteriorated:

Unfortunately, physical skills deteriorate when they are not used, particularly the refinements of gain and timing. This means that a formerly experienced operator who has been monitoring an automated process may now be an inexperienced one. If he takes over he may set the process into oscillation. He may have to wait for feedback, rather than controlling by open-loop, and it will be difficult for him to interpret whether the feedback shows that there is something wrong with the system or more simply that he has misjudged his control action.

There’s a good case made for not only the need for humans, but to keep humans fully trained and involved in the process to handle errors states.

Hiring not abating

Vinnie, the author of one of the books I reviewed, left a comment on the review, noting:

For the book, I interviewed practitioners in 50 different work settings – accounting, advertising, manufacturing, garbage collection, wineries etc. Each one of them told me where automation is maturing, where it is not, how expensive it is etc. The litmus test to me is are they stopping the hiring of human talent – and I heard NO over and over again even for jobs for which automation tech has been available for decades – UPC scanners in groceries, ATMs in banking, kiosks and bunch of other tech in postal service. So, instead of panicking about catastrophic job losses we should be taking a more gradualist approach and moving people who do repeated tasks all day long and move them into more creative, dexterous work or moving them to other jobs.

I think Avent’s worry is that the approach won’t be gradual and that, as a society, we won’t be able to change norms, laws, and “work” over fast enough.

McKinsey

As more context, check out this overview of their own study and analysis from a 2015 McKinsey Quarterly article:

The jobs don’t disappear, they change:

Our results to date suggest, first and foremost, that a focus on occupations is misleading. Very few occupations will be automated in their entirety in the near or medium term. Rather, certain activities are more likely to be automated, requiring entire business processes to be transformed, and jobs performed by people to be redefined, much like the bank teller’s job was redefined with the advent of ATMs.

Further:

our research suggests that as many as 45 percent of the activities individuals are paid to perform can be automated by adapting currently demonstrated technologies… fewer than 5 percent of occupations can be entirely automated using current technology. However, about 60 percent of occupations could have 30 percent or more of their constituent activities automated.

Most work is boring:

Capabilities such as creativity and sensing emotions are core to the human experience and also difficult to automate. The amount of time that workers spend on activities requiring these capabilities, though, appears to be surprisingly low. Just 4 percent of the work activities across the US economy require creativity at a median human level of performance. Similarly, only 29 percent of work activities require a median human level of performance in sensing emotion.

So, as Vinnie also suggests, you can automate all that stuff and have people focus on the “creative” things, e.g.:

Financial advisors, for example, might spend less time analyzing clients’ financial situations, and more time understanding their needs and explaining creative options. Interior designers could spend less time taking measurements, developing illustrations, and ordering materials, and more time developing innovative design concepts based on clients’ desires.

Companies want more from offshore IT, likely leading to more on-shore IT growth

The most recent offshoring survey from Horses for Sources suggests that companies will have less use for traditional IT outsourcing.

When it comes to IT services and BPO, it’s no longer about “location, location, location”, it’s now all about “skills, skills, skills”.

Instead of “commodity” capabilities (things like password resets, routine programming changes, etc.), companies want more highly-skilled, innovative capabilities. Either offshorers need to provide this, or companies will in-source those skills.

Because offshorers typically don’t focus on such “open ended” roles, analysis of the survey suggests offshorers will have less business, at least new business:

aspirations for offshore use between the 2014 and 2017 State of the Industry studies, we see a significant drop, right across the board, with plans to offshore services.

And:

an increasing majority of customers of traditional shared services and outsourcing feel they have wrung most of the juice offshore has to offer from their existing operations, and aren’t looking to increase offshore investments.

What with the large volume of IT offshorers companies do, and how this outsourcing tends to control/limit IT capabilities, paying attention to these trends can help you predict what the ongoing “nature of IT” is in large offshorers.

This fits the offshoring and outsourcing complaining I hear from most all software teams in large organizations.

To me this read as “yes, we need to refocus IT to help us create and refine new business models.” You know, “digital transformation,” “cloud native,” and all that.

Source: “Offshore has become Walmartas Outsourcing becomes more like Amazon”

Oracle acquiring Apiary, API design for the $660m (in 2020) API market

As for Oracle, the enterprise software vendor wants to use Apiary’s technology set to make its existing API Integration Cloud more robust. Oracle’s API product focuses primarily on services that help companies monetize and analyze APIs. Apiary provides more of a front-end platform for designing, creating and governing APIs. From Natalie Gagliordi f at ZDnet

From CrunchBase:

  • $8.55M in funding, over three rounds
  • Founded April, 2011.

Apigee was acquired, by Google, last year for $625m. Of course, they were public with (let’s hazard a guess) many, many more customers and revenue: $92.03m in FY2016, to be exact.

Back in September 2015, Carl Lehmann at 451 Research said they had 33 employees (up from 22 in Dec 2014) and estimated their revenue at $2-3m. Carl says, now, it’s “likely below $5m in annual revenue.”

What Apiary does

Apiary’s promise is to be quick and easy when it comes to managing the full life-cycle of API design. As their CEO, Jakub Nesetril, put it when I interviewed him in 2015:

It all starts with that first meeting when you’re thinking about building an API and you’re either kind of, you know, you’re inside meeting room ideating on a white board and then taking a photo of it and sending it to a co-worker, or summarizing it down into an email and sending it down to somebody else, saying hey, I just thought would could build something like this. That white board should be. And, if you do that it becomes, you know, we do a lot to try to make it super simple. We have a language that is like really, really simple for developers to write and we can write down a quick API in five minutes. It’s marked down, it’s like very organic, it’s very simple for developers.

What it creates for you, is creates this kind of common space, common language kind of when you talk about it that’s machine readable, human writable so it’s super simple but it’s also machine writable, and machine readable. The important aspect of it is that we take your white board, we take your … we build a language that we have API blue prints. It’s a… We take that API blueprint and we immediately create a API prototype, the moment you hit your first button. So, from day one when you’ve proposed your first API idea, your first resource you know, your first data structure. You have an API that’s sitting out there on the internet, somebody can query it and guess what, if they decide that the API is broken, that they would like to have a different resource, they would like to change the of a certain data structure, they would like add to it, whatever. They can go in, edit that out, click the save button and boom the API prototype is updated immediately.

Load in some enterprise governance and access controls, and you have something nice and useful. See him explaining more in this 2013 InfoQ interview.

Carl at 451 summarized the meat of what they do back in that 2015 report:

Apiary structures its API lifecycle management platform into five phases. The design phase includes the means to ensure API design consistency using a style guide, a collaborative editor and an approval process. The prototype phase includes productivity capabilities such as auto-generated code and a feedback loop for quality assurance. The implementation phase enables agile-inspired and test-driven development practices, helps deploy server code, and provides for framework integration. The delivery phase includes tools for automated documentation, offers code samples, guides the release of final client code, and offers SDKs. The feedback phase includes debugging, support and usage metrics.

The Money – grabbing part of the $3bn pie

Forrester threw out some API management market-sizing back in June of 2015 (there’s likely something more up-to-date behind their paywall):

We predict US companies alone will spend nearly $3 billion on API management over the next five years. Annual spend will quadruple by the end of the decade, from $140 million in 2014 to $660 million in 2020. International sales will take the global market over the billion dollar mark.

With Oracle’s foot-print in all of enterprise applications and IT (they own Java and share much of the JEE market with IBM), there’s likely some genuine synergies to be had. That is, Oracle could be in a position to boost Apiary sales way above what the tiny company could do on its own.

To be clear, as pointed out above, Apiary doesn’t do all that Apigee does. Apiary is just for the development/design time part of APIs, also providing documentation.

That’s helpful for sure, but I’d guess most of Forrester’s $3bn estimation is likely in actually running and managing APIs. And, in fact, it’s probably more realistic to put Apiary in the development tools/ALM TAM, which is probably in the low, single digit billions. That said, I’m guessing Forrester would put Apiary in their API management bucket; after all, it has “API” in it!

As more background, we talked about the API management market back back when the Apigee acquisition was announced both on Software Defined Talk and Pivotal Conversations.

Link

“the obsolescence of Java EE” – Notebook

Bottom line: Java EE is not an appropriate framework for building cloud-native applications.

In preparation for this week’s Pivotal Conversations, I re-read the Gartner write-up on the decline of traditional JEE and the flurry of responses to it. Here’s a “notebook” entry for all that.

From Gartner’s “Market Guide for Application Platforms”

This is the original report from Anne Thomas and Aashish Gupta, Nov 2016. Pivotal has it for free in exchange for leag-gen’ing yourself.
What is an “application platform” vs. aPaaS, etc.?

Application platforms provide runtime environments for application logic. They manage the life cycle of an application or application component, and ensure the availability, reliability, scalability, security and monitoring of application logic. They typically support distributed application deployments across multiple nodes. Some also support cloud-style operations (elasticity, multitenancy and selfservice).

An “aPaaS,” is a public cloud hosted PaaS, of which they say: “By 2021, new aPaaS deployments will exceed new on-premises deployments. By 2023, aPaaS revenue will exceed that of application platform software.”

On the revenue situation:

platforms-and-paas-revenue

Commercial Java Platform, Enterprise Edition (Java EE) platforms’ revenue declined in 2015, indicating a clear shift in the application platform market…. Application platform as a service (aPaaS) revenue is currently less than half of application platform software revenue, but aPaaS is growing at an annual rate of 18.5%, and aPaaS sales will supersede platform software sales by 2023.

And:

Currently, the lion’s share of application platform software revenue comes from license sales of Java EE application servers. From a revenue perspective, the application platform software market is dominated by just two vendors: Oracle and IBM. Their combined revenues account for more than three-quarters of the market.

Decline in revenue for current market leaders IBM and Oracle over last three years (4.5% and 9.5% respectively), meanwhile uptick from Red Hat, AWS, and Pivotal (33.3%, 50.6% and 22.7% respectively).
Decline/shifting is driven by:

given the high cost of operation, the diminishing skill pool and the very slow pace of adoption of new technologies, a growing number of organizations — especially at the low end of the market — are migrating these workloads to application servers or cloud platforms, or replacing them with packaged or SaaS applications.

And:

Java EE has not kept pace with modern architectural trends. Oracle is leading an effort to produce a new version of Java EE (version 8), which is slated to add a host of long-overdue features; however, Oracle announced at Oracle OpenWorld 2016 that Java EE 8 has been delayed until the end of 2017.3 By the time Java EE catches up with basic features required for today’s applications, it will be at least two or three years behind the times again.

Target for cloud native:

Design all new applications to be cloud-native, irrespective of whether or not you plan to deploy them in the cloud…. If business drivers warrant the investment, rearchitect existing applications to be cloud-native and move them to aPaaS.

Vendor selection:

Give preference to vendors that articulate a platform strategy that supports modern application requirements, such as public, private and hybrid cloud deployment, in-memory computing, multichannel clients, microservices, event processing, continuous delivery, Internet of Things (IoT) support and API management.

Responses

Oracle and Java: confusing

Oracle’s stewardship of Java has been weird of late:

It’s all about WebLogic and WebSphere

I think this best sums it all up, the comments from Ryan Cuprak: “What this report is trying to do is attack Oracle/IBM via Java EE.”

I wouldn’t say “attack,” but rather show that their app servers are in decline, as well as TP processing things. The report is trying to call the shift to both a new way of development (cloud native) and the resulting shifts in product marketshare, including new entrants like Pivotal.

I can’t speak to how JEE is changing itself, but given past performance, I’d assume it’ll be a sauntering-follower to adapting technologies; the variable this time is Oracle’s proven ambivalence about Java and JEE, and, thus, funding problems to fuel the change fast enough to keep apace with other things.

HPE Software sold for $8.8bn, to Micro Focus

While HPE is getting $2.5bn in cash, the whole deal value is more like $8.8bn, the non-cash being stock. More details:

The Numbers

  • “Under the deal, HP Enterprise shareholders are expected to end up with Micro Focus shares currently valued at about $6.3 billion. Micro Focus will pay HP Enterprise $2.5 billion in cash.” (WSJ)
  • There’s about 12,000 people in HPE Software. (WSJ)
  • HPE Software revenue: “HPE’s software unit generated $3.6 billion in net revenue in 2015, down from $3.9 billion in 2014.”
  • Put another way, from TBR: “2Q16 software revenue [had a] decline of 18% year-to-year, driven down by a license revenue decline of 28% year-to-year.”
  • HPE has been divesting a lot, getting a hoard of cash: “In earlier transactions, HP Enterprise in May completed a $2.3 billion deal in China to sell a 51% stake in a venture there called H3C that sells networking, server and storage hardware and related services. Later the same month, HP Enterprise announced a deal to spin off a computer services business that employs about 100,000 people—two-thirds of the company’s total head count—and merge it with operations of Computer Sciences Corp.”
  • Also: “The company sold at least 84 percent of its 60.5 percent stake in Indian IT services provider Mphasis Ltd to Blackstone Group for $1.1 billion in April.”

What now for HPE?

Continue reading “HPE Software sold for $8.8bn, to Micro Focus”

Deciding where the Docker ecosystem will make money

The Docker forking hoopla is providing an interesting example, in realtime, of how open communities figure out monetization.

#RealTalk: Open communities are not immune to C.R.E.A.M.

One of the most important decisions an open source community makes is where and how it will make money. I always liked Eclipse’s take because they’re mega clear on this topic; the ASF plays this goofy game where they try really hard to pretend they don’t need to answer the question, which itself is an answer, resulting in only the occasional quagmire; Linux has a weird situation where RedHat figured out This One Cool Trick to circumvent the anti-commercial leanings of the GPL; MySQL has a weird dual licensing model that I still don’t fully grasp the strategic implications of; RIP Sun.

The role of standards plays another defining role when it comes to monetization. Think of Java/J(2)EE, vs .Net, vs PHP (a standard-less standard?), vs HTML and WS-*. vs, the IETF/ISOC RFC-scape that defines how the internet works. While not always, by far, standards are often used tactically to lesson the commercial value (or zero it out completely) of any given component “lower” in the stack, pushing the money “up” the stack to the software that implements, uses, or manages the standard. Think of how HMTL itself is “of no value” (and was strategically pushed that way early on), but that the entire SaaS market is something like a $37.7bn market, part of the overall $90.3bn that, arguably, uses HTMLas one of the core technologies in the stack, at the UI layer, (along with native mobile apps. now).

The dynamics of how open source, standards, and the closed source around it are defined and who “controls” them are one of the key strategic processes in infrastructure software.

The Docker ecosystem is sorting out monetization

Right now, you can see this process in action in the Docker ecosystem. Product management decisions at Docker, Inc. are forcing the community to wrestle with how ecosystem members will make money, including Docker Inc. itself.

By “ecosystem,” I mean “all the people and companies that are involved in coding up Docker and/or selling Docker-based products and services.” Actual end-users play a role, of course, but historically don’t have as much power as we’d like at this stage of an open communities formation.

End-users have to vote with their feet and, if they have one, wallets – whether wearing expensive loafers (enterprise) or cracked sandals (paying with nothing but the pride of ubiquity) – which, by definition, is hard to do until a monetization strategy is figured out, or completely lumped all together.

Looking just at the “vendors,” then, each ecosystem member is trying to define which layers of the “stack”‘will be open, and thus, free, and which layers will be closed, and thus, charged for. Intermixed with this line drawing is determining who has control over features and standards (at which level) and, as a result, the creation of viable business models around Docker.

Naturally, Docker, Inc. wants as big slice of that pie as possible. The creator of any open technology has to spend a lot of nail-biting time essentially deciding how much money and market-share it wants to give up to others, even competitors. “What’s in it for me?” other vendors in the ecosystem are asking…and Docker Inc.’s answer is usually either some strategic shoe-gazing or a pretty straight forwardly the reply “less than you’d like.”

As a side note, while I don’t follow Docker, Inc. as an analyst any more (so I’m not mega up-to-date), it seems like the company consistently puts the end-users first. They’re looking to play the Tron role in this ecosystem most valiantly. This role doesn’t, really, conflict at all with elbowing for the biggest slice of the pie.

chart_vendors-focused-on-deployment-platforms-orchestration-developer-tools-2
From The New Stack’s Docker & Container Ecosystem research

Similar to Docker Inc’s incentives to maintain as much control as possible, the “not-Docker, Inc.” members of the ecosystem want to commoditize/open the lower levels of the stack (the “core”), and leave the upper layers as the point of commoditization. This is the easiest, probably most consistently successful business model for infrastructure software: sell proprietary software that manages the “lower,” usually low cost to free, layers in the stack. From this perspective, not-Docker, Inc. members want to fence in the core Docker engine and app packaging scheme as the “atomic unit” of the Docker ecosystem. Then, the not-Docker, Inc.’s want to keep the management layer above that atomic unit for themselves to commercialize (here “orchestration,” configuration management, and the usual systems management stuff) . But, of course, Docker Inc. is all like “nope! That’s my bag o’ cash.”

As explained by one of those ecosystem vendors, who works at Red Hat:

And while I personally consider the orchestration layer the key to the container paradigm, the right approach here is to keep the orchestration separate from the core container runtime standardization. This avoids conflicts between different layers of the container runtime: we can agree on the common container package format, transport, and execution model without limiting choice between e.g. Kubernetes, Mesos, Swarm.

We saw similar dynamics – though by no means open source – in the virtualization market. VMware started with the atomic unit of the hypervisor (remember when we were obsessed with that component in the stack and people used that word a lot?), allowing the ecosystem to build out management on-top of that “lower” unit.

Then, as VMware looked to grow it’s TAM, revenue, and, thus, share price and market-cap, it expanded upward into management. At this point, VMware is a, more or less, the complete suite (or “solution” as we used to call it) of software you need for virtualization. E.g., they use phrases like “Software Defined Datacenter” rather than “virtualization,” indicative of the intended full-scope of their product strategy. (I’m no storage expert, but I think storage and maybe networking?is the last thing VMware hasn’t “won” hands down.)

“What, you don’t like money?”

Screenshot 2016-09-01 12.09.56.png
From one of Donnie’s recent presentations.

All of this is important because over the next 10-15 years, we’re talking about a lot of money. The market window for “virtualization” is open and wildcatters are sniffing on the wafting smell the money flitting through. Well, unless AWS and Azure just snatches it all up, or the likes of Google decides to zero the market.

We used to debate the VMware to Docker Inc. comparison and competitive angle a lot. There was some odious reaction to the idea that Docker Inc. was all about slipping in a taking over VMware’s C.R.E.A.M. At one point, that was plausible from a criss-cross applesauce state of the market, but now it’s pretty clear that, at least from an i-banker spreadsheet’s perspective, VMware’s TAM is the number your doinking around with.

Figuring out that TAM and market size gives you a model for any given ecosystem member’s potential take over the next 10 years. That’s a tricky exercise, though, because the technology stack and market are being re-defined. You’ve got the core virtualization and container technology, then the management layer, and depending on if you’re one of the mega-tech vendors that does software and hardware, you’ve got actual server, storage, and networking revenue that’s dragged by new spend on “containers,” and then you’ve got the bogie of whatever the “PaaS-that-we-shall-not-call-PaaS” market becomes (disclaimer: that’s the one I work in, care a great deal about, am heavily incentivized to see win, and am rooting for – roll in the bias droids!).

I skipped figuring out the market size last year when I tried to round-up the Docker market. Needless to say, I’d describe it as “fucking-big-so-stop-asking-questions-and-ride-the-God-damn-rocket.”

Looking at it from a “that giant sucking sound” perspective, most all of the members in the Docker ecosystem will be in a zero-sum position if Docker Inc moves, and wins, the upper management layers. Hence, you see them fighting tooth-and-nail to make sure Docker Inc is, from their perspective, kept in their place.

Rackspace goes private for $4.3bn

  • Apollo Global Management paying $4.3bn to acquire Rackspace, $32 a share in cash, a 38 percent premium (Bloomberg)
  • Competing against AWS is hard, plus the other mega public cloud plays: “Google’s parent, Alphabet Inc., Amazon and Microsoft have combined cash holdings of more than $200 billion compared to Rackspace’s less than $1 billion.”
  • Brenon at 451 points out that Rackspace throws off a good amount of cash, “$674m of EBITDA over the past year,” and concludes:
  • More from Brenon: “While we could imagine that focus on customer service as competitive differentiator might set up some tension under PE ownership (people are expensive and tend not to scale very well), Rackspace has the advantage of having built that into a profitable business. In short, Rackspace is just the sort of business that should fit comfortably in a PE portfolio.”
  • Meanwhile, as we discuss on Software Defined Talk (#70, “No one wants to eat a finger-pie”), AWS is at a run-rate of ~$10-11bn and growing.
  • In the recent Gartner IaaS Magic Quadrant, Racksapce is in the dread lower left hand corner. To be fair, a whole other MQ, “Cloud Enabled Managed Hosting,” which maps closer to what Rackspace says is their core strategy in cloud, has Rackspace leading. But, back to that “normal IaaS” MQ:
  • The MQ says “Rackspace has successfully pivoted from its ‘Open Cloud Company,’ OpenStack-oriented strategy, and returned to its roots as “a company of experts emphasizing its managed service expertise and superior support experience.”
  • Also: “Rackspace will continue to divert investment from its Public Cloud to other areas of its business, rather than try to compete directly for self-managed public cloud IaaS against market-leading providers that can rapidly deliver innovative capabilities at very low cost, or against established IT vendors that have much greater resources and global sales reach.”
  • See also Rachel’s analysis over at RedMonk.

img_0102

Finally, check out a tad of commentary on the deal in #32 of Pivotal Conversations.

“De-graniting and de-brassing” – Austin’s downtown tech scene

Austin entrepreneur Campbell McNeill said WeWork’s “high energy environment, cool furniture” and location at Sixth and Congress in the heart of downtown allows his startup, Cocolevio, “to attract the young talent we need for our cloud business.”

“It would be considerably more expensive to set up a similar situation on our own as a new tech startup,” said McNeill, Cocolevio’s co-founder and chief technology officer. “We appreciate we may be paying a lot per square foot, but it is completely worth it when you consider the intangible WeWork benefits like networking with other great startups, making great friends, periodic presentations by industry leaders and WeWork Labs.”

Some more highlights from the piece:

  • “three out of four tenants looking for downtown space are likely to be tech-related, Kennedy said. ‘Ten years ago, it would have been less than half that.'”
  • “Rents for the highest quality office space in downtown Austin average $49.07 a square foot per year, according to Cushman & Wakefield. That’s 40 percent higher than top-tier space in the suburbs, where rates average $35.10 a square foot.”
  • “tenants can expect to pay anywhere from $150 to $200 per month per space for unreserved parking. Reserved spots are as high as $300 per month.”
  • “The number of downtown tech workers — between 14,000 and 15,000, according to estimates from the Greater Austin Chamber of Commerce — is still tiny compared with the region’s overall technology workforce, which the chamber estimates at abou 130,000.”

Source: Austin’s tech scene heats up downtown

The APM market is lively, growing 12% last year

“In 2015, the worldwide application performance management software market grew an estimated 12.1% over that in 2014, in large part because of increased demand for a new generation of solutions designed to support DevOps and multicloud infrastructure initiatives,” explains Mary Johnston Turner, research vice president, Enterprise System Management Software. “This new generation of APM solutions is easier to implement, supports more sophisticated analytics, and is less expensive than earlier offerings. As a result, APM is providing value to a much wider range of developers and IT operations teams that need constant, current visibility into end-to-end application performance and end-user experience.”

The previous y/y was 12.7%, so things are going well in that market I’d say. As I recall, this includes mainframe and other “not normal” revenue. If you look at just the subset market of x86 and web apps, it’s even higher around 17%. That “distributed” APM TAM was estimated at $2.2bn in 2014.

I don’t have access to the full APM report, but the size is around several billion. One Gartner estimate put it around $2.6bn in 2014.

See also this vendor share commentary based on Gartner’s analysis of the APM market.

Source: Worldwide Application Performance Management Software Forecast, 2016–2020

IaaS “won” by AWS & Azure – Highlights from the IaaS Magic Quadrant

This year’s IaaS magic quadrant is out. You can get a free re-print thanks to, I believe, Amazon. Here’s some highlights from my “notebook”:

  • Ducy created an animated gif of the past 6 quadrants.
  • AWS and MSFT have won: “This phase of the market has been ‘won.’ The market consolidated dramatically over the course of 2015. Just two providers — AWS and Microsoft Azure — account for almost all of the IaaS-related infrastructure consumption in cloud IaaS, and their dominance is even more thorough if their PaaS-related infrastructure consumption is included as well.”
  • “We expect the overall competitive environment will not change significantly until 2018 at earliest, and new entrants to the market will have minimal impact before that time.”
  • Buyers, choose wisely. Two clouds dominate, there’s lots of fragmentation, so clouds come and go. This pushes people more towards the market-leaders because they seem more stable, despite there being many competing options. E.g., HP shutting down it’s cloud
  • “Public cloud IaaS provides adequate security for most workloads.”
  • If not already lean in IT, IaaS will save money – “The less efficient your organization, the more likely you are to save money by using a cloud provider, especially if you take advantage of this opportunity to streamline and automate your operations.”
  • Criteria of note: must be top 10 by global market-share, data centers at least 250 miles apart, pretty real IaaS capabilities (self-service, technical profiles, etc.)
  • PaaS and IaaS getting closer: “Most customers who adopt the infrastructure resources within a cloud IaaS offering will also adopt associated management services, such as monitoring, and are highly likely to adopt PaaS-level capabilities, such as database as a service, over time.” More: “This market is wholly separate and distinct from cloud SaaS, but is increasingly entangled with the PaaS market.” Also: “The next phase of the market has not yet emerged. It is likely that the next phase of this market will even more tightly integrate IaaS and PaaS capabilities, including an expanded use of container technologies and automated operations management.”
  • There is no cloud portability: “Cloud IaaS is not a commoditized service, and even providers with very similar offerings and underlying technologies often have sufficiently different implementations that there is a material difference in availability, performance, security and service features.” (There are ways to deal with this up at the PaaS layer.)
  • Bonus: FedRAMP ain’t cheap: “costs ~$3.5m, takes ~18 months”

For more: we discussed all of this more on this week’s Software Defined Talk:

And, thanks to Matt Ray for scrounging the original link up for our show notes.

Would you buy auto insurance from Google? The Kids and auto insurance

The young people account for 20% of of the $180bn US auto insurance market. Here’s some trends in their buying behavior a la a BCG infographic:

Infographic on car insurance buying habits.

Some items:

  • That nearly 40% are willing to buy from Amazon, Google, and others should put traditional insurance vendors in full on freak out mode.
  • Once The Kids start the long (up to two weeks!) research process, they’re 70% more likely to switch than The Olds. So, it’s probably a good idea for incumbents to heavily get involved in research, pointing to native content sponsored “third parties” and providing their own research.
  • As one of our Pivotal customers, Allstate, put it: “Everybody is going to disrupt the insurance industry. It hasn’t been disrupted in eighty-plus years.”

Source: bcg.perspectives – How Digital Switchers Are Disrupting US Auto Insurers

Talend IPO’s

The open source based data integration (basically, evolved ETL) company Talend IPO’ed this week. It’s a ten year old company, based on open source, with a huge French tie-in. Interesting all around. Here’s some details on them:

  • “1,300 customers include Air France, Citi, and General Electric.” That’s way up from 400 back in 2009, seven years ago.
  • In 2015 “Talend generated a total revenue of $76 million. Its subscription revenue grew 39% year over year, representing $62.7 million of the total. The company isn’t profitable: it reported a net loss of $22 million for 2015.”
  • “…much of that [loss] thanks to the $49 million it spent on sales and marketing,” according yo Julie Bort.
  • “Subscription revenue rose 27% to $63m while service fees stayed flat at $13m,” according to Matt Aslett.
  • It looks like the IPO performed well, up ~50% from the opening price.

TAM Time

By this point, I’m sure Talend messes around in other TAMs, but way back when I used to follow the business intelligence and big data market more closely, I recall that much of the growth – though small in TAM – was in ETL. People always like the gussy it up as “data integration”: sure thing, hoss.

That seems still be the case as spelled out a recent magic quadrant of the space (courtesy of the big dog in the space, Informatica):

Gartner estimates that the data integration tool market was worth approximately $2.4 billion in constant currency at the end of 2014, an increase of 6.9% from 2013. The growth rate is above the average for the enterprise software market as a whole, as data integration capability continues to be considered of critical importance for addressing the diversity of problems and emerging requirements. A projected five-year compound annual growth rate of approximately 7.7% will bring the total to more than $3.4 billion by 2019

In comparison, here’s the same from the 2011 MQ:

Gartner estimates that the data integration tools market amounted to $1.63 billion at the end of 2010, an increase of 20.5% from 2009. The market continues to demonstrate healthy growth, and we expect a year-on-year increase of approximately 15% in 2011. A projected five-year compound annual growth rate of approximately 11.4% will bring the total to $2.79 billion by 2015.

Meanwhile check out Carl Lehmann’s recent overview of Informatica and the general data integration market and Matt Aslett’s coverage of IPO plans back in June for a good overview of Talend.

ServiceNow getting momentum in new markets

We’re replacing people staring at spreadsheets all day long.

For a long time ServiceNow has been angling to move beyond it’s initial IT service desk market into new markets that use workflow management at their core. By “workflow management” I mean business processes that have a multistep, often multi-person process of solving some “problem.” Solving IT problems like password resets and on-boarding new employees fits here, but you can also imagine how HR departments would use it on-board new employees for their needs (adding benefits, pay, etc. all with approvals from various staff through-out).

At the last ServiceNow conference, they used drivers license renewal as a good example: there’s a request (I want a new drivers license or to renew one) and a workflow associated with it (verify the requester’s identity, check that they have car insurance, sundry other additional updates and integrations to the government systems, finally, submit some request to another workflow to print and mail a new drivers license).

You get the idea: at the core, there’s pretty much the same software to enable workflows. To grow the TAM they operating in and also their revenue by selling into these new use cases, ServiceNow has aspired to move into these markets for many years (maybe since around 2011 or 2012?).

Momentum expanding out of IT Service Desk

Here’s some recent momentum numbers on that front collected by Stuart Lauchlan and from the earnings transcript:

  • “Emerging products defined as, everything except ITSM, represented 40% of our net new ACV, up from 24% in Q2 2015.”
  • Customer service management: 40 customers, 31% G2,000.
  • Security operations: 32 customers. They recently acquired BrightPoint here.
  • HR: no numbers, but they signed a “$1.4 million HR-led deal for a new public sector customer in Australia.” This was through a Capgemini partnership.

In the most recent quarter, the company reported $341m in revenue, predicting it’d reach “$4 billion in revenue by 2020, a big leap from its $1 billion in 2015 sales.”

VZ/Yahoo!: “The next step is: How do we differentiate our strategy?”

Kara Swisher has a short interview with Verizon/AOL’s Tim Armstrong on the Yahoo! buy, which is still “pending of course.” It’s hard to take any interview about a pending acquisition on super face-value (no one wants to show their hand), but there’s some good indication that Verizon followed the “we’ll sort out the strategy details post-sale” plan. Armstrong himself says they’ll be working on figuring out differentiating, and “sources” say:

Verizon has had little insight into a number of issues, including the terms of the contracts with key employees, that it will need to make plans for the future.

I like the theory that the goal is, really, just to optimize the existing business:

“The deal that we contemplated is about growing the company and did not start with synergies,” said Armstrong. “We will be walking through a pretty direct process about what is structure and then cost structure and there will be synergy, but it is not at the top of our list.”

That seems like a low-risk plan. They’d be the biggest site by eyeballs in the US, which ain’t bad.

Also, more coverage from Reuters on the “RemainCo” company of Alibaba and Yahoo! Japan, and a cameo from Rita McGrath in a Will Oremus’s piece at Slate:

“It’s a beautiful example of a company that has a lot of indispensable pieces, but they don’t add up to an indispensable whole,” says Rita McGrath, professor of management at Columbia Business School. Yahoo’s problems, she believes, stemmed from “a fundamental unwillingness to choose” what kind of company it wanted to be.

And, 451 has their report out, by Rich Karpinski and Scott Denne. Some highlights:

  • “AOL generates roughly $1bn from its owned media properties – Yahoo pulls in 3.5x that amount.”
  • My summary of one of their points: as mobile use grows and grows, over the next 5-10 years, there’s a window for new top-dogs to emerge and take market-share. Seems like a legit theory. 451 describes the market here as: “opportunities in telecom data as a service, a market combining digital advertising, proximity marketing and an array of big-data insight services that 451 Research forecasts will grow to a $79bn addressable opportunity by 2020”
  • They’re not big on the advertising technology and networking component in Yahoo!.
  • There’s some indication that Verizon’s digital business is doing well, so maybe they’re pretty good at integration acquisitions.
  • There’s also details on the financials of “RemainCo.”

Verizon buying Yahoo!’s core businesses for $4.83bn, a third place .com contender?

Verizon is acquiring most of Yahoo! $4.83bn in cash, to be combined with their AOL purchase. As a wet finger in the wind reckoning, this feels like it’ll put Verizon as a distant third place in eyeballs and ad revenue: that’s probably what the business case is targeting.

  • Yahoo! was at ~$4bn runrate (based on $1.09bn in revenue last reported quarter). Revenue has been declining steeply, down 11% q/q.
  • Valuation here is tricky, since Verizon is only buying “core assets.” One back of the envelop analysis put the “core assets” at $1.7bn, suggesting a valuation of ~2.8x.
  • Combined with AOL and other Verizon properties, the company says this will result in “global audience of more than 1 billion monthly active users — including 600 million monthly active mobile users.”
  • There’s fierce competition from Facebook and Google: “According to data from e-marketer in March, Yahoo’s worldwide net digital ad revenues will fall nearly 14% this year to $2.83 billion, from $3.28 billion in 2015. In contrast, Google will see a 9% increase while Facebook will be up by nearly a third year-on-year (31%).”
  • Despite this small pot of marketshare-by-revenue, at least in the US, the combined company will be in the top three of marketshare-by-eyeballs. If you were an i-banker looking at that in your spreadsheet, you’d think: we just need to increase eyeball-to-cash conversion productivity and – POW! – synergies!
  • As a reminder, AOL includes “The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com.” Yahoo! Mail has 225m monthly active users.
  • It keeps getting described as an “assets sale,” because Yahoo’s stake in Yahoo! Japan and Alibaba will stay with Yahol! As the NY Times puts it: “a 15 percent stake, worth about $32 billion based on its recent share price, in the Chinese internet company Alibaba and a 35.5 percent stake, worth about $8.7 billion, in Yahoo Japan.”
  • This will create some interesting post-deal structure for the numbers. The entire Yahoo! company is much bigger than that 1.1x valuation: “Yahoo! stock, which is up 18% this year, had a total market value of $37.4 billion at its close on Friday of $39.38.”
  • It’s pretty clear that the company wants to sell the remaining assets.
  • Rival bidders: “Suitors included Quicken Loans founder Dan Gilbert, communications giant AT&T and private equity firms Vector Capital Management and TPG.” AT&T seems to have been the main competitor. More from Kat Hall: “The telco was one of 40 suitors rumoured earlier this year to be interested, including Google parent Alphabet, Time and even Daily Mail parent DMG.”
  • It increases Verizon/AOL’s advertising marketing share, but Facebook and Google still dominate: “Verizon with AOL currently holds 1.8 per cent of the $69bn US digital ad market, according to The Wall Street Journal. Yahoo controls about 3.4 per cent, while Google and Facebook combined make up half of the total.”
  • Timing the sale of a declining asset is everything: “back in 2008, it turned down a $44 billion offer from Microsoft”
  • See some in-depth history and analysis from Timothy Lee over at Vox. The thesis seems to be: the company could adapt beyond it’s initial success in the 90s and never found a new identity beyond being a “media company.”