Lots of growth, it’s all just public cloud, though.
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.
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.
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.
I was on vacation last week, so this notebook is a little stale. Perishable news. (JOKES!)
- 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.
- 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.
- 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:
- 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.
- This Cooper Smith guy is a good Amazon analyst.
- While bunch of survey and demographics data, globally, in this April 2015 Nielsen report.
- Bold predictions and cow animated gifs on Amazon in as a whole, after this, from Scott Galloway. (Yeah, that dude who does the machine-gun, yelling Mary Meeker style slides on e-commerce and such.)
- As always, what’s not to like about the booze-y tone of some Matt Levine commentary?
As covered by Axios, in a report from IAM/PwC. As noted in the notes below the chart, these figures are based on a sub-set of the market, 20 advertising outfits. No doubt, they represent a huge part of revenue however. It’s hard to imagine that there’s many more millions in podcast advertising.
Also as highlighted by Sara Fischer:
Edison Research and Triton Digital estimates 98 million U.S. adults listen to podcasts.
MuleSoft’s IPO kicks up some interest and, here, a brief check-in with SnapLogic and Liaison.
Including some market-sizing:
The iPaaS market is expected to reach $2.9 billion in 2021, which Consoli said is a fraction of the overall integration market, which stands at about $12 billion today
It’s a sore point for many shoppers, who are ready and eager to spend more on designer clothes if only they were available: 78% of respondents in a recent survey of plus-size shoppers said that they’d be willing to spend more money if designers offered more options, and 80% said they’d likely purchase an item from their favorite designer if that designer made plus sizes.
File under “if anything, more money. Plus, bonus: morals!”:
More and more designers and retailers seem to be waking up to that fact. The market for plus-size women’s clothing is over $20 billion, by some measures
[O]ur users clearly thought of us as an open-source developer tools company, because that’s what we really were. Which turned out to be very unfortunate, because the open-source developer tools market is one of the worst markets one could possibly end up in. Thousands of people used RethinkDB, often in business contexts, but most were willing to pay less for the lifetime of usage than the price of a single Starbucks coffee (which is to say, they weren’t willing to pay anything at all). Link
How big is the pie?
Any company selling developers tools needs to figure out the overall market size for what they’re selling. Developers, eager to work tools for themselves (typically, in their mid to late 20s developers work on at least one “framework” project) often fall prey to picking a market that has little to no money and, then, are dismayed when “there’s no money in it.”
What we’re looking for here is a market category and a way of finding how much money is being spent in it. As a business, you want grab as much as the money as possible. The first thing you want to do is make sure there’s enough money for you to care. If you’re operating in a market that has only $25m of total, global spend, it’s probably not worth your while, for example.
Defining your market category, too, is important to find out who your users and buyers are. But, let’s look at TAM-think: finding what the big pie of cash looks like, your Total Addressable Market.
The TAMs on the buffett
If you’re working on developer oriented tech, there are a few key TAMs:
- The database TAM, which is huge: around $35.9bn in 2015, which grew $2.8bn y/y. (It’s slightly different in Gartner’s official mega TAM pivot table of awesomeness, but just by a few billion.)
- Application development, $9.01bn in 2016, by Gartner – all the tools used to create software, ALM, etc. Atlassian and CI/CD tools go here, but also IDEs.
- Application infrastructure and middleware, $25.4bn in 2016, by Gartner – this is the stuff used to run all that software developers create (but not the systems management tools used to monitor it, nor OSes and IaaS type stuff that it runs atop).
Another interesting TAM for startups in the developer space is a combo one Gartner put out recently put together that shows public and private PaaS, along with “traditional” application platforms: $7.8bn in 2015. 451 has a similar TAM that combines public and private cloud at around $10bn in 2020.
I tried to come up with a public and private PaaS TAM – a very, very loose one – last year and sauntered up to something like $20 to $25bn over the next 5-10 years.
There are other TAMs, to be sure, but those are good ones to start with.
Bending a TAM to your will, and future price changes
In each case, you have to be very, very careful because of open source and public cloud. Open source means there’s less to sell upfront and, that, likely, you’ll have a hard time suddenly going from charging $0 to $1,000’s per unit (a unit is whatever a “seat” or “server” is: you need something to count by!). If you’re delivering your stuff over the public cloud, similar pricing problems arise: people expect it to be really cheap an are, in fact, shocked when it adds up to a high monthly bill.
But briefly: people expect infrastructure software to be free now-a-days. (Not so much applications, which have held onto the notion that they should be paid for: buy the low prices in the app store depress their unit prices too.)
In both cases (open source and public cloud delivery), you’re likely talking a drastically lower unit price. If you don’t increase the overall volume of sales, you’ll whack down your TAM right quick.
So, you have to be really, really careful when using backward looking TAMs to judge what your TAM is. Part of the innovation you’re expected to be doing is in pricing, likely making it cheaper.
The effect is that your marketshare, based on “yesterday’s TAMs,” will look shocking. For example, Gartner pegged the collective revenue of NoSQL vendors (Basho, Couchbase, Datastax, MarkLogic, and MongoDB) at $364M in 2015: 1% of the overall TAM of $35.9bn! Meanwhile, the top three Hadoop vendors clocked in at $323.2M and AWS’s DB estimate was $833.6M.
Pair legacy TAMs with your own bottoms-up TAM
In my experience, the most helpful way for figuring out (really, recomputing TAMs in “real time) is to look at the revenue that vendors in that space are having and then to understand what software they’re replacing. That is, in addition to taking analyst TAMs into perspective, you should come up with your own, bottoms-up model and explain how it works.
If you’re doing IT-lead innovation, using existing (if not “legacy”!) TAMs is a bad idea. You’ll likely end up over-estimating your growth and, worse, which category of software you are and who the buyers are. Study your users and your buyers and start modeling from there, not pivot tables from the north east.
The other angle here is that if you’re “revolutionizing” a market category, it means you’re redefining it. This means there will be no TAM for many years. For example, there was no “IaaS” TAM for a long time, at some point, there was no “Java app server TAM.” In such cases, creating your own TAMs are much more useful.
Finally, once you’ve figured out how big (or small!) your pie of money is, adjust your prices accordingly. More than likely you’ll find that you’ll need to charge a higher price than you think is polite…if you want to build a sustainable, revenue-driven business rather than just a good aggregation startup to be acquired by a larger company…who’ll be left to sort out how to make money.
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
- $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!
451 Research estimated this week the application container segment reached a robust $762 million in 2016 and is forecast to grow at a 40-percent compound rate over the next four years to $2.7 billion.
And, on usage, from an April/May 2016 survey:
451 Research’s Voice of the Enterprise: Software-Defined Infrastructure Workloads and Key Projects survey conducted in April and May 2016 showed that of the roughly 25% of enterprises we surveyed who use containers, 34% were in broad implementation of production applications and 28% had begun initial implementation of production applications with containers.
I’m somewhat suspicious that there’s $762m in container software and services sales, but who knows, really?
I haven’t read through their entire cloud enabling technologies market sizing yet, from Dec 2016, (basically, private cloud software and services, any things used by *aaS vendors, not the actual public cloud services, which are another market) , which is more than just containers. That market is pegged at $23bn in 2016, going to $39bn in 2020:
More on 451’s blog.
The market — defined as A.I.-related hardware, software and services — will surge from $8 billion this year to $47 billion by 2020, predicts IDC, a research firm.
Also, some coverage of Watson business models, including customized cocktail drugs, which I hear is a scary big business in the horizon.
And, there’s some IBM AI spreadsheeting you can fiddle around with:
IBM may have a chance to join that group. By 2020, IDC predicts, 60 percent of the A.I. applications will run on the platform of four companies: Amazon, Google, Microsoft and IBM.
UBS estimates that Watson may generate $500 million in revenue this year and could grow rapidly in the years ahead, possibly hitting nearly $6 billion by 2020 and almost $17 billion by 2022.
Having lived through The Great Cloud Forecasting era around the turn of the decade, my advice is: take all this with care, but enjoy the razzle-dazzle!