Category Archives: Initial public offering

Interview by SandHill.com on Big Data, Cloud Computing, and the Future of IT

Posted on August 19, 2011 | 1 Comment

[This is a re-post of a recent interview with me, authored by Darren Cunningham of Informatica. The post originally appeared on SandHill.com where Darren writes a column on Cloud Computing.]

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The Cloud in Action

Big Data, Cloud Computing and Industry Perspectives with Dave Kellogg

BY Darren Cunningham

I had the pleasure of working with Dave Kellogg early in my marketing career and continue to learn from him as a regular subscriber to his popular blog, Kellblog. A seasoned Silicon Valley executive, Dave has been a board member (Aster Data), CEO (MarkLogic), CMO (Business Objects) and VP of Marketing (Versant and Ingres). I recently sat down with Dave to discuss industry trends. As always, he didn’t hold back.

Dave, you’ve written a lot about “Big Data” on your blog. Why is it such a hot topic in the world of data management?

First I think Big Data is a hot topic because it represents the first time in about 30 years that people are rethinking databases. Literally, since about 1980 people haven’t had to think much about databases. If you were an SMB, you went SQL server; if you were enterprise, you’d go Oracle or IBM depending on your enterprise preferences. But in terms of technology, to paraphrase Henry Ford: any color you want, as long it’s relational.

Overall, I think Big Data is hot for three reasons:

Major new innovation is finally happening with databases for the first time in three decades.
Hardware architectures have changed — people want to scale horizontally like Google.
We are experiencing a serious explosion in the amount of data people are analyzing and managing. Machine-generated data, the exhaust of the Web, is driving a lot of it.

I think Big Data is challenging on many fronts from the cool (e.g., analytics and query optimization), to the practical (e.g., horizontal scaling), to the mundane (e.g., backup and recovery).

What’s the intersection with Cloud Computing?

I think when people say cloud computing, they mean one of several things:

SaaS: The use of software applications or platforms as services.
Dynamic scaling: My favorite example of this is Britain’s Got Talent, which uses Cassandra. Most of the time they have nothing to do. Then one night half the country is trying to vote for their favorite contestants.
Service orientation: The ability to weave together applications by calling various cloud services — in effect using a series of cloud services as a platform on which to build applications.

I think Big Data intersects with cloud in several ways. First, the people running cloud services are dealing with Big Data problems. They are hosting thousands of customers’ databases and generating log records from hundreds of thousands of users. I also think Big Data analytics are very dynamic loads. One minute you want nothing, then suddenly you need to throw 100 servers at a complex problem for several hours.

How do you see these trends changing the role of IT?

I think corporate IT is constantly evolving because smart corporations want their internal resources focused on activities that they can’t buy elsewhere and that generate competitive advantage for the business.

IT used to buy and run computers. Then they used to build and run applications. Then they focused on weaving together packaged applications. Going forward, they will focus on tightly integrating cloud-based services. They will also continue to focus on company-proprietary analytics used to gain competitive advantage.

The other trend driving IT is consumerization. The Web sets expectations for functionality, user interface and quality that corporate IT must meet with internal systems. The bar has gone way up – people won’t tolerate old-school ERP-style interfaces at work when they’re used to Facebook or Yelp.

What does that mean for technology sales and marketing?

If Mr. McGuire in The Graduate were dishing out advice today, instead of saying “plastics,” he’d say “data science.” More and more companies will use data scientists to analyze their business and drive tactical operations. First you need to gather a whole bunch of data about your operations and customers. Then you need to throw world-class data analysts at it to get business value and to be sure you don’t draw false conclusions – e.g., mixing causality with correlation.

Today, most companies have their sales departments on salesforce.com. Leading marketing departments are on Marketo or Eloqua, but most marketers still don’t have much technology backing them. Going forward you will see a whole class of analytics applications vendors providing advanced analytics for Salesforce (e.g., Cloud9, Good Data) and the marketing automation vendors will move beyond lead incubation into providing overall marketing suites. I expect Marekto or Eloqua to try to do for the chief marketing officer what SuccessFactors did for the chief people officer – and if they don’t, then there’s a real opportunity for someone else.

Speaking of all things cloud, you often write about Silicon Valley trends. How would you characterize what’s going on in the market right now?

From my perception, the Silicon Valley innovation engine is running full out. Top VCs are raising new funds. I meet a few new startups every day. Of late, I’ve met fascinating companies in next-generation business intelligence, analytics, Big Data, social media monitoring and exploitation and Web application development. One of the more interesting things I’ve found is a VC fund dedicated to big data - IA Ventures (in New York). When I heard about them, I thought: oh, lots of Big Data infrastructure and platform technologies. Then I spent some time and realized that most of their portfolio is about exploiting new Big Data infrastructure technologies via vertical applications. That was really interesting.

People will debate whether we’re in a mini tech bubble or a social networking-specific bubble. Who knows? I just read an article in the The Wall Street Journal that argues $140B valuation for Facebook is realistic, and it was fairly convincing. So you can debate the bubble issue but you can’t debate that the IPO market has been closed for a long time. Now it is starting to open, and that’s a huge change in Silicon Valley.

Entrepreneurs have historically dreamed of creating $1B independent companies. I’d say for most of the last decade they’ve dreamed of getting bought for 5-10x revenues. Michael Arrington had a great quote a while back saying that “an entire generation of entrepreneurs [has been lost] building dipshit companies that sell to Google for $25M.” I think those days are over. When the IPO window opens, people dream of building stand-alone companies.

What advice do you have for both entrepreneurs and IT veterans?

Don’t build or run things that you can buy or rent. If you follow that mantra, you will follow market trends, and always stay at the right stack-layer to ensure that you are adding value as opposed to leveraging old skill sets. While you may know how to run a Big Data center, you can now rent time in one more cost-effectively. So either go work for a company that runs data centers (e.g., Equinix) if that’s your pleasure, or go leverage the people who do. Put differently, don’t be static. If you’re still using skills you learned 10 years ago, make sure that you’re not teeing yourself up to get left behind.

As always, great advice, Dave! Thank you.

Darren Cunningham is VP of Marketing for Informatica Cloud.

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[Notes: Minor changes made from the SandHill post. I added emphasis via bolding and I corrected the attribution of the famous lines "plastics" from The Graduate. It was not Mr. Robinson, but Mr. McGuire, who said it.]

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Posted in Big Data, cloud computing, Information technology, Initial public offering, Innovation, IPO, NoSQL, Uncategorized, Venture Capital

The Valley and the Bust

Posted on November 12, 2008 | Leave a comment

I found an interesting article in Forbes the other day entitled The Silicon Lining / Why the Bust is Good for Silicon Valley and I thought I’d discuss it a bit here.

Let’s start with this excerpt with some interesting IPO-related stats:

Wall Street has been broken for eight years now, as far as Silicon Valley is concerned. Alan Patricof, a legendary venture capitalist, recently remarked: “We no longer invest with the idea of taking our companies public. If they do [IPO], it’s an accident.”

… Since 2002, there have been just 351 IPOs out of 19,300 VC-backed companies–fewer than one in 50 …

… The ratio of mergers and acquisitions to IPOs has gone from roughly 1:1 from 1996 to 2000 to 6:1 during 2001 through 2008.

As I wrote in Built to IPO, Flip or Last, the IPO bar has been raised and the window has been largely closed for quite some time. This has a number of effects:

It takes longer to build an above-bar company (I believe the bar has gone up from ~$30M to ~$50M to ~$75M in TTM revenues per the data in this and prior reports.)

Since 2001, the IPO window has been closed more than it’s been open so those relatively few companies who get above-bar often end up all dressed up with nowhere to go (e.g., Endeca).

Ceteris paribus, a time delay shouldn’t depress venture returns. Provided a company can maintain its impressive trajectory, the whole process should simply take longer at roughly constant IRR. Theoretically, the money remains at risk longer but, ceteris paribus, the IRR should be the same.

But, in the real world, ceteris aren’t paribus. Some companies derail between $30M and $60M. Valuations and multiples fluctuate. The lack of IPO exits can potentially depress M&A valuations. So, all things considered, I believe Forbes’ assertion that the net effect of a high bar and a closed window is depressed venture returns. Recent data from the NVCA support the claim as well. (See chart, noting particularly the grim situation in early-stage VC.)

The result of all this, says Forbes, is a sort of infanticide of great companies:

The sad truth is that we are replacing potentially great companies with under performing divisions of mature companies. Acquisitions invariably remove both the future risk and rewards–not just for the company but for society as a whole. Innovation is stifled, and that hurts us all.

Competing with EMC and watching what they’re doing with (or should I say to) their xDB division (formerly EMC Documentum XML Store, formerly x-Hive), I get a visceral sense of their point. Consider the fate of Amazon, says Forbes, in an similar IPO-shut environment:

For example, a company like Amazon.com which went public in 1997, could never have had an IPO in this environment. Instead it would have become a part of Walmart and likely would have been shut down during the tech bust.

While that’s a bit harsh, my beef has always been simple: why can’t the public buy a share of Endeca stock? They’re a $100M company. They’re far past the stage that should require accredited investor status.

All of my previous employers went public in the roughly year in which we did $30M. While I don’t agree with Endeca’s increasingly de-focused (or should I say decreasingly focused) strategy (the latest thing is now digital asset management), I do firmly believe that John Q. Public should be able to buy their stock. By raising the IPO bar to $50 or $100M, you effectively lock the public out of early- to mid-stage investments. That’s bad for the public. It’s bad the companies. It’s bad for the VCs.

But the past is the past. What’s happened in the past 8 years neither dictates nor predicts the coming 8. I recall when I quit Versant being absolutely sure the company would never go public, only to find it IPO-ing 18 months later. (Happily, I’d nevertheless exercised at least half my options on the Kellogg Uncertainty Principle: when in doubt, do half.)

I’m not alone in having some optimism about the future. The Forbes article continues:

The $100 million technology company will become an attractive investment again. Both Silicon Valley and Wall Street will once again bet on creating the next Amazon.com. And in my opinion, the bar for an IPO will go down over the next few years, once again creating a vibrant ecosystem in Silicon Valley.

Economist and former Chairman of the Federal Reserve Paul Volcker has said that the so-called “financial innovations” of the last few years largely rearranged existing resources instead of making real contributions to the economy. As a society we want financial returns to be aligned with value creation. This crisis will jar the the two back into alignment. Value creation is hard. But no one does it better than Silicon Valley.

For a dose of real venture optimism, check out this video I found on the related news section of Forbes.com where VC Charlie Harris predicts an eventual IPO boom.