Where have you been? — Lots of things going on in our world of infrastructure — in June the battle lines were drawn. Microsoft announced Surface. Apple unveiled IOS 6. Google announced Nexus 7. Cisco gave a glimpse of its SDN plans. Dell kept buying more companies. HP announced a huge layoff. Do you see a pattern here? (Google introducing hardware, Apple introducing software, Microsoft doing both, Cisco becoming a software company?) As kids we used to have opposite days — spaghetti for breakfast, cereal for dinner. Now doing the opposite is no longer news. We’ve been trying to figure out our corner of the space. PC makers desperate to stay relevant. Mobility stuff is hot. The trinity — Mobile, Big Data and the Cloud are simultaneously over-hyped and underrated. Plus the conference circuit has kept us busy – Synergy 2012 (Citrix user conference), EMC World 2012, Hadoop Summit, Cisco Live, Velocity, Structure, Apple Developer Conference and the Google Developer Conference. It’s like the Super Bowl, World Series, the Stanley Cup and the NBA finals happening all at once.
We’re starting off this issue with Peter Christy’s commentary on Cisco’s newly announced SDN (software-defined networking) plans.
At the Cisco Live! Users Group meeting, Cisco outlined their “SDN” solution. It’s a very interesting offering for the many customers with a large investment in Cisco equipment, although it’s bound to be controversial within the SDN community.
SDN is a “complicated” topic. It began as an investigation into how research networks might be constructed using commercially available switches. This in turn lead to the development of OpenFlow — a new protocol by which the packet forwarding hardware within modern switches can be managed by a software application external to that switch (a “controller”). Toward that specific SDN goal (research), Cisco introduced a prototype OpenFlow controller and the intention to adapt some of the existing switches so they can be controlled via OpenFlow. Cisco also put in place agreements providing support to some of the best research institutions studying OpenFlow today. Check that box!
As the OpenFlow discussion started to gel, it engendered a couple of much broader discussions (beyond research) within the network community. First, it suggested a general way of automating switch management that could help address some of the vexing current problems such as automating network configuration management in a virtualized data center.
OpenFlow also suggested a path by which the network business could be radically transformed, analogous to how the server business has been transformed by virtualization. A modern data center server is a commodity item. They all can be virtualized; after they are virtualized, software running on a virtual machine is isolated from any of the special details of the server (what previously might be valuable marketplace differentiation). With virtualization, all servers are the same and software runs on any, unchanged. Network devices like switches are just the opposite: the switch hardware is more or less all the same, but the hardware is sold only in proprietary packages with the software, at a price that is much higher than the part cost. If networks were virtualized like servers had been virtualized, then, it is reasoned, all switches would be more or less the same, and the prices would plummet as they had with servers.
As the largest benefactor of today’s network business model, it’s not surprising that Cisco doesn’t embrace commoditization. Modern Cisco networks are to a large degree differentiated by the substantial software that runs on the switches, not just Cisco’s proprietary packet forwarding ASICs. Cisco points out that a pure OpenFlow solution requires throwing out all that existing software and recreating it in a new form. Cisco’s primary new SDN offering — what they call onePK — provides some external access to the software within Cisco switches, not just to the packet forwarding hardware.
With onePK, Cisco is trying to rotate the question, and ask what the problems are that drive interest in OpenFlow among Cisco customers, and to see how many of them can be addressed by onePK kind of automation. It is clear that onePK can’t do everything OpenFlow might do, especially if manual configuration via CLI remains an option. But the nasty fact is that few customers care how a network operates; they focus on what it can do and how much it costs. For the large number of network buyers with a large amount of Cisco gear, that makes onePK a potentially interesting solution. So far Cisco hasn’t given out many technical details; we’ll just have to wait for them. — Peter Christy
The Chasm … Is Closed — The organizers at the recent Hadoop Summit had Geoffery Moore author of “Crossing the Chasm” as a keynote speaker presumably to explain away the fact that there were relatively few enterprises speaking about their Hadoop projects. The enterprise adoption of Hadoop is not as visible as hoped, compared to the lightening rod adoption of Hadoop by high trafficked Web sites. Moore did a fine job and of course talked about the chasm effect with the early majority of the market patiently sitting by and watching what the early adopters are doing. Everyone that we speak with who is in a position of working with enterprise Hadoop users says that there is a tremendous amount of enterprise interest and activity even though there are only a handful of enterprises that are talking about their Hadoop plans in public. But one does have to wonder how relevant Chasmism is in today’s technology world. Twenty years ago technology adoption by consumers and businesses took time — lots of time. In 1994/1995, it took 18 months for the first million DirecTV units to be sold. But today it takes only hours to pass the million mark — the iPhone 4S reached a million in less than 24 hours after its release in October. It’s hard to believe that only five years have passed since the introduction of the iPhone which has been a tremendous catalyst for changing the way we use technology. Twenty years ago the chasm was created by people resisting change. Today everyone pays attention to new technology developments and enthusiastically experiments with new devices and services. Everyone is an early adopter racing to be the first on their block to sport a shiny new device. The chasm has been replaced by the land grab — how many users can you sign up in the shortest period of time. For consumer related products — how fast can you get to a million users? For businesses focused products the land grab is — how many and how fast can you sign up the Fortune 500? How does this relate to Hadoop? Those groups that are waiting for Hadoop to cross the chasm may be wasting valuable time and instead should examine Splunk’s rapid rise signing 4,000 Big Data customers without waiting for chasms to be crossed. It may be that the initial use cases for enterprise Big Data are happening faster for things like what Splunk does (Google type search query sitting in front of a massive amount of machine generated data), than for other types of data.
Death of the Salesman? — There is an ongoing argument in Silicon Valley about the relevance of having an outside (read expensive) sales force. Some venture investors have told us that they will no longer fund any companies needing outside sales and instead will seek out “freemium sales models” as the primary sales channel. There are two sides for this story. On one hand, outside sales forces can be expensive, can have runaway costs if the hiring plan is either too early or too late and is not as effective as in the past. On the other hand, the absence of a direct sales team may ruin the chances for an otherwise successful infrastructure investment. Since the “no salesman” theory is in vogue there isn’t much out there in the way of defense for the outside salesman so we thought we’d give it a try. The argument in defense of the outside sales person has three elements — first it doesn’t have to be wasteful — smart hiring decisions, fast “onboarding” of new hires, and well thought out sales team (outside, inside, systems engineer) can keep costs under control while the customer acquisition rate ramps up. Secondly, the outside sales team can play a big role in communicating the value proposition and positioning. But finally the most important argument in favor of the outside sales teams is that — IT WORKS.” Just look at the last three infrastructure companies that recently went public. The table below shows the cost of sales and marketing from the companies’ S1 filings. These percentages, while being high compared to a freemium model, make the point that effective sales teams remain a key for a successful strategy. While the percentages seem high keep in mind that these companies may not have achieved
“exit velocity” without their direct sales forces.
Cost of sales and marketing (% of revenue)
Was that North Azerbaijan or South? — We had a group come by our offices recently that was working on a product which would make everyone re-think their data center strategies. They are an early stage startup company (meaning of course a new product with few, if any customers). What they were saying seemed logical but then we got to the question of who are the beta users and what are the use cases? The fact that that they were not able to answer these questions was alarming — if their product was so good then why didn’t they have any users? And when we asked who their early reference customer was they mentioned
an Azerbaijan ISP. We’re sure that the Azerbaijan ISP is a vibrant organization with a significant infrastructure in place but it sort of defeats the purpose of a reference account for an early stage company. Customers are (rightfully) cautious about what does and what does not get put in their data centers. They’re more than curious about who else will be using a new product and how are they using it. If you’re chasing the Fortune 500 market, it’s hard to see how any service provider, especially one in a remote corner of the world, would be a helpful referral. What’s more, if that’s the best you can do it’s not unreasonable
for a potential customer to lose interest if that’s all you’ve got. A startup that’s interested in a market segment, let’s say for instance the healthcare market, in addition to building a product should build a knowledge base about the vertical markets that they’re most interested in. Considering that reasonable funding is available for most of the infrastructure startups understanding a market segment costs very little and the process should reveal which customers set the “Gold Standard” as reference sites. While it might cost hundreds of thousands and even millions of dollars to build the product, it’s only a small fraction of
that amount to determine the value within the key verticals, who might make good references, and who the “poster child” should be. (On our website is a template for our Market Opportunity Analysis (MOA) framework. If you’re interested:
IRG’s Market Opportunity Analysis.).
|“Getting It Right The First Time” —
Thanks to many of our newsletter readers who bought the hard copy edition our publisher, Praeger, has issued a new paperback edition of our book. The big news here is that it’s priced at $19.95 on Amazon (and $17.96 for you Kindle owners). For those of you unfamiliar with our book, it’s about our methodologies to accurately predict market conditions — especially the market changes that will occur within the crucial 18-to-36-month innovation window. Or, to paraphrase the advice hockey superstar Wayne Gretzky received from his father: “Skate to where the puck is going to be, not to where it is.” More >>
Citrix Synergy2012 — Wow, if my computer files serve me right, the first Citrix Users’ Group meeting I went to was in 2005, just after Citrix announced their intent to acquire our friends at Netscaler. I was struck then, as this year, by the family nature of Citrix and their customers, starting at the top with Mark Templeton (the only thing like that meeting I had seen was the Apple WWDC). At the time, Citrix represented the most remarkable example of coopetition with their relationship with Microsoft. Now, eight years later, an amazing amount of water has flowed over the dam as Citrix has evolved through a remarkable set of acquisitions. The new businesses are increasingly important as the Windows franchise is clearly starting to wane, given the onslaught of iDevices and Cloud computing. Thru it all, Citrix has continued to provide “any-to-any” services, even though the “any’s” continue to evolve in a fascinating and turbulent fashion, as well as growing the on-line services business. Maybe the biggest difference in Mark’s keynote this year from those previous was that he spent less time speculating on interesting changes to come (Mark saw and talked about “consumerism” very early) — Most of the things he talked about in the past are absolutely happening now, and everyone is fully occupied just keeping up. — Peter Christy
Tale of Two companies — IS THIS the best of times OR THE worst of times. Already there have been some liquidity events in the Big Data arena — in April VMware announced its acquisition of Cetas software — a Palo Alto based Big Data Analytics startup — before Cetas had shipped its first products. And in early May, Cisco acquired Truviso — a Foster City based startup providing real-time network data analytics. In both cases the financial terms were not disclosed. The sixty four dollar question that everyone is asking — what’s the valuation of Big Data analytics firms. There are a bunch of them out there and more on the way. In the past, Cisco has been generous when it comes to acquiring companies in a space it wants to enter. So Cisco’s Truviso acquisition would make you believe that valuations are likely to be high. VMware on the other hand has typically been frugal with many of its smaller acquisitions. So does this push down valuations? Maybe not — in the Cetas case there may have been some urgency to plant a stake in the Big Data space). So the question of how much will Big Data analytics firms be valued if and when acquired is still not known. It is interesting that Big Data analytics space has already begun a consolidation of sorts. We’ll just have to wait and see what’s next.
Thomas Lee Bookwalter 1946-2012 — You will be missed! — None of us recall exactly how Thomas found his way to our annual N-Square dinners. But if there ever was a poll for the person who embodied the Networking Networking theme of those dinners, Thomas would have received everyone’s vote. He was always the first to RSVP and would arrange his trips to Silicon Valley from New Mexico around our dinners. It got to the point where he would bring his own contingent taking over a corner of the room and staying till the wait staff asked if they could go home. Sadly we learned this week that Thomas died on July 4th of complications with cancer. The dinners will continue but we’ll all miss his ever present cowboy hat, his easy going manner and his smile.
Funding News: Twenty-three start-ups captured $298.8M in the last couple of months.
|5/29||10gen||Database||Series E||$42.0||$73.0||New Enterprise Associates, Flybridge Capital
Partners, Sequoia Capital, Union Square Ventures
|4/18||Eucalyptus Systems||On-Premise Cloud Computing Platform||Series C||$30.0||$55.5||Institutional Venture Partners, Benchmark
Capital, BV Capital, New Enterprise Associates
|6/27||Blue Jeans Network Inc.||Video Conferencing||Series C||$25.0||$48.5||New Enterprise Associates, Accel Partners,
Norwest Venture Partners
|Social Media Monitoring Software||$24.0|
|4/26||NComputing Inc.||Virtual Desktops||Series C||$22.0||QuestMark Partners, Daehong Technew Corp.
Menlo Ventures, Scale Venture Partners
|6/7||Quixey Inc.||App Search||Series B||$20.0||$24.2||Atlantic Bridge, SK Telecom Ventures,
TransLink Capital, US Venture Partners, WI Harper Group,
|6/21||CloudOn||Productivity Software on iPad||Series B||$16.0||Social+Capital Partnership, Translink
Capital, Foundation Capital, Rembrandt Venture Partners, and
|4/26||Start Garden||Idea Seed Fund||$15.0||Amway|
|5/31||Sonian Inc.||Cloud Archiving||Series C||$13.6||OpenView Venture Partners, Summerhill Venture
Partners, Prism VentureWorks
|3/8||Exinda||WAN Optimization Solutions||Series B||$12.0||OpenView Venture Partners, Greenspring
|4/25||Symform||Cloud Storage Network||Series B||$11.0||WestRiver Capital, OVP, Longworth Venture
|4/30||Tegile Systems||Hybrid Storage Systems||Series B||$10.0||August Capital|
|6/19||Bluebox||Mobile Security||Stealth||$9.5||Andreessen Horowitz, SV Angel and others|
|5/23||Yottaa Inc.||Website Optimization||Series B||$9.0||General Catalyst Partners, Stata Venture
Partners, Cambridge West Ventures and others
|5/16||Vox Mobile||Managed Mobility Solutions||$7.5||Edison Ventures, Permal Capital|
|6/27||Jirafe Inc.||Online Marketing||Series A||$7.0||Foundry Group, FirstMark Capital, OATV,
|5/2||DataSift Inc.||Social Media||Series A||$7.0||GRP Partners, IA Ventures|
|5/2||Appthority Inc.||App-Security||Series A||$6.25||Venrock, U.S. Venture Partners, Gunderson
|5/14||InsightSquared||SaaS for SMEs||Series A||$4.5||$5.5||Atlas Venture, NextView Ventures, Bessemer
Venture Partners, Salesforce.com
|Network Security BYOD||Series C||$3.0||$10.0||Updata Partners, Windspeed Ventures|
|5/7||Nuevora Inc.||Big Data Analytics||Series A||$2.25||Fortisure Ventures|
|5/29||Junar Inc.||Data Management Service||$1.2||Aurus, Austral Capital and others|
|4/12||WalkMe||On-Screen Web Guidance System||Series A||$1.0||Mangrove Capital Parners|
Customer Wins — CSC is deploying Cisco‘s Intelligent Automation for Cloud solution to automate the delivery and management of cloud services to clients. PSA Peugeot Citroën family of websites implemented Limelight Networks, Inc.‘s, Limelight Acclerate, dynamic site acceleration. Fiat Group Automobiles chose Akamai Technologies Inc., cloud platform, to improve the performance of both its corporate and brand sites and to optimize the navigation experience from desktop and mobile devicesusing three Akamai solutions: Dynamic Site Accelerator Secure, Mobile Detection and Redirect and Web Application Accelerator. Silver Peak Systems, data center class wide area network (WAN) optimization, announced that its technology will play an integral role in the 2012 Virgin London Marathon as part of information technology (IT) consulting firm Marathon Information Technology Systems’ (ITS). Regent’s College London UK’s largest not-for profit private college of higher education, has deployed Aerohive Network’s wireless LAN (WLAN) solution to deliver learning tools to its students.
Executives On The Move — MarkLogic Corp., database company, hired former Veritas CEO, Gary Bloom as chief executive officer. Ameet Patel is joins Agari’s, email security, Advisory Board. Bob Steinkrauss joins Whaleback Managed Services’ Board of Directors. Robert Condon appointed president of Lemko Europe (EMEA), distributed mobile wireless network. Whaleback Managed Services, managed unified communications services, named Chris Daly as chief revenue officer. DigiCert, Inc., an online security provider for many of the most recognized brands and websites in the world, promotes Chief Operating Officer (COO) Nicholas Hales to CEO, and founder Ken Bretschneider retains overall business strategy oversight with his appointment as Executive Chairman of the Board. G5, digital experience management for the property management sector, appointed former Oracle executive, Mike Seashols as executive chairman of the board. Blue Coat Systems, Inc., Web security and WAN optimization solutions, named Venkat Raghavan as senior vice president of engineering. QLogic, high performance networking, appointed Alex Tan as Vice President of Asia Pacific and Japan. Denise Hayman, formerly of Zscaler, PGP Corp., Vontu and Tripwire, has joined Symplified, cloud identity, as senior vice president of worldwide field operations. Oasis Systems, information technology and services to the Department of Defense hired Timothy Nickerson, in support of its program and strategic growth plans. Limelight Networks named Kirby Wadsworth as chief marketing officer.
Akamai Technologies, Inc., announced that President and CEO Paul Sagan plans to transition out of his role by the end of 2013. Sagan will continue leading the Company until his successor is named, and he intends to remain directly involved with Akamai thereafter to ensure a successful leadership transition.