Category Archives: Technology Market Trends

Hortonworks, Big Data, and Big Money

So the Hadoop market has finally had its first IPO. Hortonworks’ successful $100 million IPO reflects pent-up demand for those outside the Silicon Valley venture community to get a piece of the action in the fast emerging Hadoop space. Excluding established BI/analytics players who extended their wares to support Hadoop, until now VCs had all the fun. Significantly, Hortonworks and New Relic both conducted successful IPOs that saw share prices surging 40% on the same day that the Dow otherwise went south.

This all comes during a period where there’s been an unquestioned surge in Big Data, and technology investments in general. Before the IPO, all three Hadoop pure plays raised nearly $1 billion in venture funding during this calendar year, and add to that about another $300 million for NoSQL players MongoDB, DataStax, and Couchbase (if you start the clock last fall). In retrospect, what’s interesting about the Hortonworks IPO is not the size, because at $100 million, it’s dwarfed by previous rounds of venture financing.

From our seat way back in the peanut gallery, it appears that Hortonworks IPO was about making a statement that the loss-driven vendor’s business – and Hadoop as a whole – is becoming investment-grade. And we believe it was about getting first in line while the iron was still hot.

This is very much a greenfield market, as almost all sales are new, with few being competitive replacements. It is a high growth market; Hortonworks alone reported YoY tripling of 3x in subscription sales as of the end of Q3 2014. That drops a broad hint on prospective growth: With the overall Hadoop paid installed base (all vendors) at 1000 – 1500 (depending on whether you count paid sandboxes in the cloud), there’s still a lot of virgin market out there. But the flipside of this is the heavy investment, both in product development and building a global go-to-market network from scratch. Looking at the Hortonworks S-1, those two areas gobbled up most of the reported $80 million looses for the first three quarters of this calendar (and fiscal) year.

We don’t expect that Hadoop pure plays (or at least those that haven’t been acquired) will be profitable for at least another 2 – 3 years.

As we’ve noted before, we’re bullish on Hadoop as a pillar of the data platform market in the short run, where we expect sales to grow geometrically, and in the long run, where it joins SQL, NoSQL, and real-time streaming platforms as part of the data ecosystem that enterprises are expected to manage. But we’re concerned over the midterm, where the expectations of capital collide with the realities of greenfield markets. There is growth, but also start-up expense.

Hortonworks’ numbers have been well-known ever since the filing of the S-1 back last month. Admittedly, it is not unusual for high growth companies to IPO while still in the red. But Hortonworks is not the hottest company in its field, but one of three hot companies. They happened to be the one that IPO’d first. Nonetheless, there were several red flags:
* The revenue base is too narrow, being concentrated in its top three customers. Admittedly, the revenue base is getting more diversified, but even this year, the top three customers still accounted for over a third of business.
* The business is too low margin, with over 40% of sales coming from professional services (subscriptions are more profitable and for a product company, a more reliable growth indicator).

Hortonworks states that gross billings is a more reliable trending indicator of their business, as it recognizes revenues that subscription-based accounting normally defers; with that added in, its business the first three quarters of this year is roughly 25% higher. And as of the end of Q3 2014, it is reporting $47.7 million deferred revenue + $17.3 million backlog.

While we’re happy that Hadoop has finally made it to NASDAQ and congratulate Hortonworks for its strong first day showing, our wish is that the company had deferred this offering by another 6 – 12 months to show a more diversified business.

So what does IBM mean when they say they’re in the solutions business?

Ever since IBM exited the applications business, it has been steadily inching its way back up the value chain from pure infrastructure software. IBM has over the past few years unleashed a string of initiatives seeking to deliver, not only infrastructure software and the integration services to accompany them, but gradually more bits of software that deliver content aimed for the needs of specific scenarios in specific verticals. Naturally, with a highly diversified organization like IBM, there have been multiple initiatives with, of course, varying levels of success.

It started with the usual scenario among IT service providers seeking to derive reusable content from client engagements.  Then followed a series of acquisitions for capabilities targeted at vertical industries such as fixed asset management for capital-intensive sectors such as manufacturing or utilities; product information management for consumer product companies; commerce for B2B transactions; online marketing analytic capabilities, and so on. Then came the acquisition of Webify in 2007, where we thought this would lead to a new generation of SOA-based, composite vertical applications (disclosure: we were still drinking the SOA Kool-Aid at the time). At the time, IBM announced there would be Business Fabric SOA frameworks for telco, banking, and insurance, which left us waiting for the shoe to drop for more sectors. Well, that’s all they wrote.

Last year, IBM Software Group (SWG) reorganized into two uber organizations: Middleware under the lead of Robert Leblanc,  and Solutions under Mike Rhodin. Both presented at SWG’s 2011 analyst forum as to what the reorg meant. What was interesting was that for organizational purposes, this was a very ecumenical definition of Middleware: it included much of the familiar products from the Information Management, Tivoli, and Rational brand portfolios, and as such, was far more encompassing (e.g., it also included the data layer).

More to the point, once you get past middleware infrastructure, what’s left? At his presentation last year, Rhodin outlined five core areas: Business Analytics and Optimization; Smarter Commerce; Social Business; Smarter Cities; and Watson Solutions. And he outlined IBM’s staged process for developing new markets, expressed as incubation, where the missionary work is done; “make a market” where the product and market is formally defined and materialized; and scale a market, which is self-explanatory. Beyond, we still wondered what makes an IBM solution.

This year, Rhodin fleshed out the answer. To paraphrase, Rhodin said that “it’s not about creating 5000 new products, but creating new market segments.” Rhodin defined segments as markets that are large enough to have visible impact on a $100 billion corporation’s top line. Not $100 million markets, but instead, add a zero or two to it.

An example is Smarter Cities, which began with the customary reference customer engagements to define a solution space. IBM had some marquee urban infrastructure engagements with Washington DC, Singapore, Stockholm, and other cites, out of which came its Intelligent Operations Center. IBM is at an earlier stage with Watson Solutions with engagements at WellPoint (for approving procedures) and Memorial Sloan-Kettering Cancer Center (healthcare delivery) in fleshing out a Smart Healthcare solution.

Of these, Smarter Analytics (not to be confused with Smart Analytics System – even big companies sometimes run out of original brand names) is the most mature.

The good news is that we have a better idea of what IBM means when it says solutions – it’s not individual packaged products per se, but groups of related software products, services, and systems. And we know at very high level where IBM is going to focus its solutions efforts.

Plus ca change… IBM has always been about software, services, and systems – although in recent years the first two have taken front stage. The flip side is that some of these solutions areas are overly broad. Smarter Analytics is a catch-all covering the familiar areas of business intelligence and performance management (much of the Cognos portfolio), predictive analytics and analytical decision management (much of the SPSS portfolio), and analytic applications (Cognos products tailored to specific line organizations like sales, finance, and operations).

It hasn’t been in doubt that for IBM, solutions meant addressing the line of business rather than just IT. That’s certainly a logical strategy for IBM to spread its footprint within the Global 2000. The takeaway of getting a better definition of what IBM’s Solutions business is that it gives us the idea of the scale and acquisitions opportunities that they’re after.

The Elegance of Steve Jobs

Outside of politicians there are few individuals that have truly changed the way we live. It’s more than coincidental that Steve Jobs named his company after the record company of The Beatles, the group of four individuals who changed the musical tastes of our generation.

Steve jobs’ life was obviously too short, but in that short life he crammed four public lives. He was one of the first in Silicon Valley who saw a personal future for the technology being invented there; that culminated with the Apple II. His next life introduced the GUI; after a false start with Lisa, the Mac was a fully realized system that made Apple the de facto publishing machine. It also transformed Apple into a corporation, a challenge for which Jobs was not yet prepared. His third life was NeXT, which provided the springboard for his final life #4, returning to Apple.

It would be an accomplishment on its own to say that Jobs returned Apple to its former glory. That’s an understatement. Under hjis (final) watch, Apple evolved from computer company, changing the way we consume music and media; significantly it was Jobs that finally got the record companies to agree on a common pricing model. Then he redefined the mobile experience with the iPhone, and introduced a new form of computing with the iPad.

In so doing, Apple has changed ouir lives and changed industries. Although music downloads were going to happen regardless of the iPod, it not only made CDs obsolete, but also record stores, and arguably, albums. It also made it more accessible for garage bands everywhere to distribute and bypass the record company, a situation from which the record companies shave yet to recover. It’s also changing the nature of the phone business, and realigning major handset providers.

But most of all we’ll miss Steve Jobs’ sense of style. The minimalism that was Apple provided a sense of elegance and peace that cuts through the noise of our everyday lives. For that alone, thank you Steve Jobs.

Mentax

HP does a 180 – Now it’s Apotheker’s Company

HP chose the occasion of its Q3 earnings call to drop the bomb. The company that under Mark Hurd’s watch focused on Converged Infrastructure, spending almost $7 billion to buy Palm, 3COM, and 3PAR, is now pulling a 180 in ditching both the PC and Palm hardware business, and making an offer to buy Autonomy, one of the last major independent enterprise content management players, for roughly $11 billion.

At first glance, the deal makes perfect sense, given Leo Apotheker’s enterprise software orientation. From that standpoint, Apotheker has made some shrewd moves, putting aging enterprise data warehouse brand Neoview out of its misery, following up weeks later with the acquisition of Advanced SQL analytics platform provider Vertica. During the Q3 earnings call, Apotheker stated the obvious as to his comfort factor with Autonomy: “I have spent my entire professional life in software and it is a world that I know well. Autonomy is very complementary.”

There is potential synergy between Autonomy and Vertica, with Autonomy CEO Mike Lynch (who will stay on as head of the unit, reporting to Apotheker) that Autonomy’s user screens provide the long missing front end to Vertica, and that both would be bound by a common “information layer.” Of course, the acquisition not being final, he did not give details on what that layer is, but for now we’d assume that integration will be at presentation and reporting layer. There is clearly a lot more potential here — Vertica for now only holds structured data while Autonomy’s IDOL system holds everything else. In the long run we’d love to see federated metadata and also an extension of Vertica to handle unstructured data, just as Advanced SQL rivals like Teradata’s Aster Data already do.

Autonomy, according to my Ovum colleague Mike Davis who has tracked the company for years, is one of only three ECM providers that have mastered the universal document viewer – Oracle’s Stellent and an Australian open source player being the others. In contrast to HP (more about that in a moment), Autonomy is quite healthy with the latest quarterly revenues up 16% year over year, operating margins in the mid 40% range, and a run rate that will take the company to its first billion dollar year.

Autonomy is clearly a gem, but HP paid dearly for it. During Q&A on the earnings call, a Wall street analyst took matters back down to earth, asking whether HP got such a good deal, given that it was paying roughly 15% of its market cap for a company that will only add about 1% to its revenues.

Great, expensive acquisition aside, HP’s not doing so well these days. Excluding a few bright spots, such as its Fortify security software business, most of HP’s units are running behind last year. Q3 net revenue of $31.2 billion was up only 1% over last year, but down 2% when adjusted for constant currency. By contrast, IBM’s most recent results were up 12% and 5%, respectively, when currency adjusted. Dennis Howlett tweeted that it was now HP’s turn to undergo IBM’s near-death experience.

More specifically, HP Software was the bright spot with 20% growth year over year and 19.4% operating margin. By contrast, the printer and ink business – long HP’s cash cow – dropped 1% year over year with the economy dampening demand from the commercial side, not to mention supply chain disruptions from the Japanese tsunami.

By contrast, services grew only 4%, and is about to kick in yet another round of transformation. John Visenten, who ran HP’s Enterprise services in the Americas region, comes in to succeed Ann Livermore. The problem is, as Ovum colleague John Madden states it, HP’s services “has been in a constant state of transformation” that is making some customers’ patience wear thin. Ever since acquiring EDS, HP has been trying – and trying – to raise the legacy outsourcing business higher up the value chain, with its sights literally set in the cloud.

The trick is that as HP tries aiming higher up the software and services food chain, it deals with a market that has longer sales cycles and long-term customer relationships that prize stability. Admittedly, when Apotheker was named CEO last fall, along with enterprise software veteran ray Lane to the board, the conventional wisdom was that HP would train its focus on enterprise software. So to that extent, HP’s strategy over the past 9 months has been almost consistent – save for earlier pronouncements on the strategic role of the tablet and WebOS business inherited with Palm.

But HP has been around for much longer than 9 months, and its latest shifts in strategy must be viewed with a longer perspective. Traditionally an engineering company, HP grew into a motley assortment of businesses. Before spinning off its geeky Agilent unit in 1999, HP consisted of test instruments, midrange servers and PCs, a token software business, and lest we forget, that printer business. Since then:
• The 2001 acquisition of Compaq that cost a cool $25 billion, under Carly Fiorina’s watch. That pitted it against Dell and caused HP to assume an even more schizoid personality as consumer and enterprise brand.
• Under Mark Hurd’s reign, software might have grown a bit (they did purchase Mercury after unwittingly not killing off their OpenView business), but the focus was directed at infrastructure – storage, switches, and mobile devices as part of the Converged Infrastructure initiative.
• In the interim, HP swallowed EDS, succeeding at what it failed to do with its earlier ill-fated pitch for PwC.

Then (1) Hurd gets tossed out and (2) almost immediately lands at Oracle; (3) Oracle pulls support for HP Itanium servers, (4) HP sues Oracle, and (5) its Itanium business sinks through the floor.

That sets the scene for today’s announcements that HP is “evaluating a range of options” (code speak for likely divestment) for its PC and tablet business – although it will keep WebOS on life support as its last gasp in the mobile arena. A real long shot: HP’s only hope for WebOS might be Android OEMs not exactly tickled pink about Google’s going into the handset business by buying Motorola’s mobile unit.

There is logical rationale for dropping those businesses – PCs have always been a low margin business in both sales and service, in spite of what it claimed to be an extremely efficient supply chain. Although a third of its business, PCs were only 13% of HP’s profits, and have been declining in revenue for several years. PCs were big enough to provide a distraction and low enough margin to become a drain. And with Palm, HP gained an eloquent OS, but with a damaged brand that was too late to become the iOS alternative – Google had a 5-year headstart. Another one bites the dust.

Logical moves, but it’s fair to ask, what is an HP? Given HP’s twists, turns, and about-faces, a difficult one to answer. OK, HP is shedding its consumer businesses – except printers and ink because in normal times they are too lucrative – but HP still has all this infrastructure business. It hopes to rationalize all this in becoming a provider of cloud infrastructure and related services, with a focus on information management solutions.

As mentioned above, enterprises crave stability, yet HP’s track record over the past decade has been anything but. To be an enterprise provider, technology providers must demonstrate that they have a consistent strategy and staying power because enterprise clients don’t want to be left with orphaned technologies. To its credit, today’s announcements show the fruition of Apotheker’s enterprise software-focused strategy. But HP’s enterprise software customers and prospects need the assurance that HP won’t pull another about face when it comes time for Apotheker’s successor.

Postscript: Of course we all know how this one ended up. One good 180 deserved another. Exit Apotheker stage left. Enter Meg Whitman stage right. Reality has been reversed.

Big Data analytics in the cloud could be HP’s enterprise trump card

Unfortunately, scheduling conflicts have kept us from attending Leo Apotheker’s keynote today before the HP Analyst Summit in San Francisco. But yesterday, he tipped his cards for his new software vision for HP before a group of investment analysts. HP’s software focus is not to reinvent the wheel – at least where it comes to enterprise apps. Apotheker has to put to rest that he’s not about to do a grudge match and buy the company that dismissed him. There is already plenty of coverage here, interesting comment from Tom Foremski (we agree with him about SAP being a non-starter), and the Software Advice guys who are conducting a poll.

To some extent this has been little surprise with HP’s already stated plans for WebOS and its recently announced acquisition of Vertica. We do have one question though: what happened to Converged Infrastructure?

For now, we’re not revisiting the acquisitions stakes, although if you follow #HPSummit twitter tags today, you’ll probably see lots of ideas floating around today after 9am Pacific time. We’ll instead focus on the kind of company HP wants to be, based on its stated objectives.

1. Develop a portfolio of cloud services from infrastructure to platform services and run the industry’s first open cloud marketplace that will combine a secure, scalable and trusted consumer app store and an enterprise application and services catalog.

This hits two points on the checklist: provide a natural market for all those PCs that HP sells. The next part is stating that HP wants to venture higher up the food chain than just sell lots of iron. That certainly makes sense. The next part is where we have a question: offering cloud services to consumers, the enterprise, and developers sounds at first blush that HP wants its cloud to be all things to all people.

The good news is that HP has a start on the developer side where it has been offering performance testing services for years – but is now catching up to providers like CollabNet (with which it is aligned and would make a logical acquisition candidate) and Rally in offering higher value planning services for the app lifecycle.

In the other areas – consumer apps and enterprise apps – HP is starting from square one. It obviously must separate the two, as cloud is just about the only thing that the two have in common.

For the consumer side, HP (like Google Android and everyone else) is playing catchup to Apple. It is not simply a matter of building it and expecting they will come. Apple has built an entire ecosystem around its iOS platform that has penetrated content and retail – challenging Amazon, not just Salesforce or a would-be HP, using its user experience as the basis for building a market for an audience that is dying to be captive. For its part, HP hopes to build WebOS to have the same “Wow!” factor as the iPhone/iPad experience. It’s got a huge uphill battle on its hands.

For the enterprise, it’s a more wide open space where only Salesforce’s AppExchange has made any meaningful mark. Again, the key is a unifying ecosystem, with the most likely outlet being enterprise outsourcing customers for HP’s Enterprise Services (the former EDS operation). The key principle is that when you build a market place, you have to identity who your customers are and give them a reason to visit. A key challenge, as we’ve stated in our day job, is that enterprise customers are not the enterprise equivalent of those $2.99 apps that you’ll see in the AppStore. The experience at Salesforce – the classic inversion of the long tail – is that the market is primarily for add-ons to the Salesforce.com CRM application or use of the Force.com development platform, but that most entries simply get buried deep down the list.

Enterprise apps marketplaces are not simply going to provide a cheaper channel for solutions that still require consultative sells. We’ve suggested that they adhere more to the user group model, which also includes forums, chats, exchanges of ideas, and by the way, places to get utilities that can make enterprise software programs more useful. Enterprise app stores are not an end in themselves, but a means for reinforcing a community — whether it be for a core enterprise app – or for HP, more likely, for the community of outsourcing customers that it already has.

2. Build webOS into a leading connectivity platform.
HP clearly hopes to replicate Apple’s success with iOS here – the key being that it wants to extend the next-generation Palm platform to its base of PCs and other devices. This one’s truly a Hail Mary pass designed to rescue the Palm platform from irrelevance in a market where iOS, Android, Adobe Flash, Blackberry, and Microsoft Windows 7/Silverlight are battling it out. Admittedly, mobile developers have always tolerated fragmentation as a fact of life in this space – but of course that was when the stakes (with feature phones) were rather modest. With smart device – in all its varied form factors from phone to tablet – becoming the next major consumer (and to some extent, enterprise) frontier, there’s a new battle afresh for mindshare. That mindshare will be built on the size of the third party app ecosystem that these platforms attract.

As Palm was always more an enterprise rather consumer platform – before the Blackberry eclipsed it – HP’s likely WebOS venue will be the enterprise space. Another uphill battle with Microsoft (that has the office apps), Blackberry (with its substantial corporate email base), and yes, Apple, where enterprise users are increasingly sneaking iPhones in the back door, just like they did with PCs 25 years ago,

3. Build presence with Big Data
Like (1), this also hits a key checkbox for where to sell all those HP PCs. HP has had a half-hearted presence with the discontinued Neoview business. The Vertica acquisition was clearly the first one that had Apotheker’s stamp on it. Of HP’s announced strategies, this is the one that aligns closest with the enterprise software strategy that we’ve all expected Apotheker to champion. Obviously Vertica is the first step here – and there are many logical acquisitions that could fill this out, as we’ve noted previously, regarding Tibco, Informatica, and Teradata. The importance is that classic business intelligence never really suffered through the recession, and arguably, big data is becoming the next frontier for BI that is becoming, not just a nice to have, but increasingly an expected cost of competition.

What’s interesting so far is that in all the talk about big Data, there’s been relatively scant attention paid to utilizing the cloud to provide the scaling to conduct such analytics. We foresee a market where organizations that don’t necessarily want to buy all that and that use large advanced analytics on an event-driven basis, to consume the cloud for their Hadoop – or Vertica – runs. Big Data analytics in the cloud could be HP’s enterprise trump card.

The Second Wave of Analytics

Throughout the recession, business intelligence (BI) was one of the few growth markets in IT. Given that transactional systems that report “what” is happening are simply the price of entry for remaining in a market, BI and analytics systems answer the question of “why” something is happening, and ideally, provide intelligence that is actionable so you can know ‘how’ to respond. Not surprisingly, understanding the whys and hows are essential for maximizing the top line in growing markets, and pinpointing the path to survival in down markets. The latter reason is why BI has remained one of the few growth areas in the IT and business applications space through the recession.

Analytic databases are cool again. Teradata, the analytic database provider with a 30-year track record, had its strongest Q2 in what was otherwise a lousy 2010 for most IT vendors. Over the past year, IBM, SAP, and EMC took major acquisitions in this space, while some of the loudest decibels at this year’s Oracle OpenWorld were over the Exadata optimized database machine. There are a number of upstarts with significant venture funding, ranging from Vertica to Cloudera, Aster Data, ParAccel and others that are not only charting solid growth, but the range of varied approaches that reveal that the market is far from mature and that there remains plenty of demand for innovation.

We are seeing today a second wave of innovation in BI and analytics that matches the ferment and intensity of the 1995-96 era when data warehousing and analytic reporting went commercial. There isn’t any one thing that is driving BI innovation. At one end of the spectrum, you have Big Data, and at the other end, Fast Data — the actualization of real-time business intelligence. Advances in commodity hardware, memory density, parallel programming models, and emergence of NoSQL, open source statistical programming languages, cloud are bringing this all within reach. There is more and more data everywhere that’s begging to be sliced, diced and analyzed.

The amount of data being generated is mushrooming, but much of it will not necessarily be persisted to storage. For instance, if you’re a power company that wants to institute a smart grid, moving from monthly to daily meter reads multiplies your data volumes by a factor of 30, and if you decide to take readings every 15 minutes, better multiple all that again by a factor of 100. Much of this data will be consumed as events. Even if any of it is persisted, traditional relational models won’t handle the load. The issue is not only because of overhead of operating all the iron, but with it the concurrent need for additional equipment, space, HVAC, and power.

Unlike the past, when the biggest databases were maintained inside the walls of research institutions, public sector agencies, or within large telcos or banks, today many of the largest data stores on the Internet are getting opened through APIs, such as from Facebook. Big databases are no longer restricted to use by big companies.

Compare that to the 1995-96 time period when relational databases, which made enterprise data accessible, reached critical mass adoption; rich Windows clients, which put powerful apps on the desktop, became enterprise standard; while new approaches to optimizing data storage and productizing the kind of enterprise reporting pioneered by Information Builders, emerged. And with it all came the debates OLAP (or MOLAP) vs ROLAP, star vs. snowflake schema, and ad hoc vs. standard reporting. Ever since, BI has become ingrained with enterprise applications, as reflected by recent consolidations with the acquisitions of Cognos, Business Objects, and Hyperion by IBM, SAP, and Oracle. How much more establishment can you get?

What’s old is new again. When SQL relational databases emerged in the 1980s, conventional wisdom was that the need for indexes and related features would limit their ability to perform or scale to support enterprise transactional systems. Moore’s Law and emergence of client/server helped make mockery of that argument until the web, proliferation of XML data, smart sensory devices, and realization that unstructured data contained valuable morsels of market and process intelligence, in turn made mockery of the argument that relational was the enterprise database end-state.

In-memory databases are nothing new either, but the same hardware commoditization trends that helped mainstream SQL has also brought costs of these engines down to earth.

What’s interesting is that there is no single source or style of innovation. Just as 1995 proved a year of discovery and debate over new concepts, today you are seeing a proliferation of approaches ranging from different strategies for massively-parallel, shared-nothing architectures; columnar databases; massive networked and hierarchical file systems; and SQL vs. programmatic approaches. It is not simply SQL vs. a single post-SQL model, but variations that mix and match SQL-like programming with various approaches to parallelism, data compression, and use of memory. And don’t forget the application of analytic models to complex event processes for identifying key patterns in long-running events or coming through streaming data that is arriving in torrents too fast and large to ever consider putting into persistent storage.

This time, much of the innovation is coming from the open source world as evidenced by projects like the Java-based distributed computing platform Hadoop developed by Google; MapReduce parallel programming model developed by Google; the HIVE project that makes MapReduce look like SQL; the R statistical programming language. Google has added fuel to the fire by releasing to developers its BigQuery and Prediction API for analyzing large sets of data and applying predictive algorithms.

These are not simply technology innovations looking for problems, as use cases for Big Data or real-time analysis are mushrooming. Want to extend your analytics from structured data to blogs, emails, instant messaging, wikis, or sensory data? Want to convene the world’s largest focus group? There’s sentiment analysis to be conducted from Facebook; trending topics for Wikipedia; power distribution optimization for smart grids; or predictive analytics for use cases such as real-time inventory analysis for retail chains, or strategic workforce planning, and so on.

Adding icing to the cake was an excellent talk at a New York Technology Council meeting by Merv Adrian, a 30-year veteran of the data management field (who will soon be joining Gartner) who outlined the content of a comprehensive multi-client study on analytic databases that can be downloaded free from Bitpipe.

Adrian speaks of a generational disruption occurring to the database market that is attacking new forms of age old problems: how to deal with expanding datasets while maintaining decent performance. as mundane as that. But the explosion of data coupled with commoditization of hardware and increasing bandwidth have exacerbated matters to the point where we can no longer apply the brute force approach to tweaking relational architectures. “Most of what we’re doing is figuring out how to deal with the inadequacies of existing systems,” he said, adding that the market and state of knowledge has not yet matured to the point where we’re thinking about how the data management scheme should look logically.

So it’s not surprising that competition has opened wide for new approaches to solving the Big and Fast Data challenges; the market has not yet matured to the point where there are one or a handful of consensus approaches around which to build a critical mass practitioner base. But when Adrian describes the spate of vendor acquisitions over the past year, it’s just a hint of things to come.

Watch this space.

IBM’s Software Complex

Sometimes the news is that there is no news. Well, Steve Mills did tell us that IBM is investing the bulk of its money in software and that between now and 2015, it would continue to make an average of $4 – 5 billion worth of strategic acquisitions per year. In other words, it would continue its current path, and it will continue buying making acquisitions for the strategic value of technology with the guideline of having them become revenue accretive within 2 – 4 years. Again, nothing new, as if there were anything wrong with that.

The blend of acquisition and organic development is obviously bulking up the Software Group’s product portfolio, which in itself is hardly a bad thing; there is more depth and breadth. But the issue that IBM has always faced is that of complexity. The traditional formula has always been, we have the pieces and we have services to put it together for you. Players like Oracle compete with a packaged apps strategy; in more specialized areas such as project portfolio management, rivals like HP and CA Technologies say that we have one product where IBM splits it in two.

IBM continues to deny that it is in the apps business, but as it shows architectural slides of its stack that is based on middleware along with horizontal “solutions” such as a SPSS Decision Manager offering (more about that shortly); vertical industry frameworks which specify processes, best practices, and other assets that can be used to compose industry solutions; and then at the top of the stack, solutions that IBM and/or its services group develops. It’s at the peak of the stack that the difference between “solutions” and “applications” becomes academic. Reviewing Oracle’s yet to be released Fusion applications, there is a similar architecture that composes solutions based on modular building blocks.

So maybe IBM feels self-conscious about the term application as it doesn’t want to be classed with Oracle or SAP, or maybe it’s the growing level of competition with Oracle that made Mills rather defensive in responding to an analyst’s question about the difference between IBM’s and Oracle’s strategy. His response was that IBM’s is more of a toolkit approach that layers atop the legacy that will always be there, which is reasonable, although the tone was more redolent of “you [Oracle] can’t handle the truth.”

Either way, where you sell a solution or a packaged application for enterprise level, assembly will still be required. Services will be needed to integrate and/or train your people. Let’s be adults and get that debate behind us. For IBM, time to get back to Issue One: Defusing Complexity. When you’re dealing with enterprise software, there will always be complexity. But when it comes to richness or simplicity, IBM tends to aim for the former. The dense slides with small print made the largely middle aged analyst audience more self conscious than normal of the inadequacies of their graduated eyeglasses or contacts.

OK, if you’re IBM facing an analyst crowd, you don’t want to oversimplify the presentation into the metaphorical equivalent of the large print weekly for the visually impaired. You must prove that you have depth. You need to show a memorable, coherent message (Smarter Planet was great when it débuted two years ago). But most importantly, you need to have coherent packaging and delivery to market.

IBM Software Group has done a good job of repurposing technologies across brands to fill defined product needs; it still has its work cut out for its goal of making the software group sales force brand agnostic. That is going to take time.

As a result, good deeds don’t go unpunished, with IBM’s challenges with SPSS Decision Manager a great case in point. The product, an attempt to craft a wider market for SPSS capabilities, blends BI analytics from Cognos, rules management from Ilog, and event processing from WebSphere Business Events to develop a predictive analytics solution for fashioning business strategy aimed at line of business users.

For instance, if you are in the claims processing group of an auto insurance company, you can use form-based interfaces to vary decision rules and simulate the results to ensure that accident calls from 19 year old drivers or those who have not yet contacted the police are not fast tracked for settlement.

The problem with Decision Manager is that it is not a single SKU or install; IBM has simply pre-integrated components that you still must buy a la carte. IBM Software is already integrating product technologies; it now needs to attend to integrating delivery.

Leo Apotheker to target HP’s forgotten business

Ever since its humble beginnings in the Palo Alto garage, HP has always been kind of a geeky company – in spite of Carly Fiorina’s superficial attempts to prod HP towards a vision thing during her aborted tenure. Yet HP keeps talking about getting back to that spiritual garage.

Software has long been the forgotten business of HP. Although – surprisingly – the software business was resuscitated under Mark Hurd’s reign (revenues have more than doubled as of a few years ago), software remains almost a rounding error in HP’s overall revenue pie.

Yes, Hurd gave the software business modest support. Mercury Interactive was acquired under his watch, giving the business a degree of critical mass when combined with the legacy OpenView business. But during Hurd’s era, there were much bigger fish to fry beyond all the internal cost cutting for which Wall Street cheered, but insiders jeered. Converged Infrastructure has been the mantra, reminding us one and all that HP was still very much a hardware company. The message remains loud and clear with HP’s recent 3PAR acquisition at a heavily inflated $2.3 billion which was concluded in spite of the interim leadership vacuum.

The dilemma that HP faces is that, yes, it is the world’s largest hardware company (they call it technology), but the bulk of that is from personal systems. Ink, anybody?

The converged infrastructure strategy was a play at the CTO’s office. Yet HP is a large enough company that it needs to compete in the leagues of IBM and Oracle, and for that it needs to get meetings with the CEO. Ergo, the rumors of feelers made to IBM Software’s Steve Mills, and the successful offer to Leo Apotheker, and agreement for Ray Lane as non executive chairman.

Our initial reaction was one of disappointment; others have felt similarly. But Dennis Howlett feels that Apotheker is the right choice “to set a calm tone” that there won’t be a massive a debilitating reorg in the short term.

Under Apotheker’s watch, SAP stagnated, hit by the stillborn Business ByDesign and the hike in maintenance fees that, for the moment, made Oracle look warmer and fuzzier. Of course, you can’t blame all of SAP’s issues on Apotheker; the company was in a natural lull cycle as it was seeking a new direction in a mature ERP market. The problem with SAP is that, defensive acquisition of Business Objects notwithstanding, the company has always been limited by a “not invented here” syndrome that has tended to blind the company to obvious opportunities – such as inexplicably letting strategic partner IDS Scheer slip away to Software AG. Apotheker’s shortcoming was not providing the strong leadership to jolt SAP out of its inertia.

Instead, Apotheker’s – and Ray Lane’s for that matter – value proposition is that they know the side of the enterprise market that HP doesn’t. That’s the key to this transition.

The next question becomes acquisitions. HP has a lot on its plate already. It took at least 18 months for HP to digest the $14 billion acquisition of EDS, providing a critical mass IT services and data center outsourcing business. It is still digesting nearly $7 billion of subsequent acquisitions of 3Com, 3PAR, and Palm to make its converged infrastructure strategy real. HP might be able to get backing to make new acquisitions, but the dilemma is that Converged Infrastructure is a stretch in the opposite direction from enterprise software. So it’s not just a question of whether HP can digest another acquisition; it’s an issue of whether HP can strategically focus in two different directions that ultimately might come together, but not for a while.

So let’s speculate about software acquisitions.

SAP, the most logical candidate, is, in a narrow sense, relatively “affordable” given that its stock is roughly about 10 – 15% off its 2007 high. But SAP would be obviously the most challenging given the scale; it would be difficult enough for HP to digest SAP under normal circumstances, but with all the converged infrastructure stuff on its plate, it’s back to the question of how can you be in two places at once. Infor is a smaller company, but as it is also a polyglot of many smaller enterprise software firms, would present HP additional integration headaches that it doesn’t need.

HP may have little choice but to make a play for SAP if IBM or Microsoft were unexpectedly to actively bid. Otherwise, its best bet is to revive the relationship which would give both companies the time to acclimate. But in a rapidly consolidating technology market, who has the luxury of time these days?

Salesforce.com would make a logical stab as it would reinforce HP Enterprise Services’ (formerly EDS) outsourcing and BPO business. It would be far easier for HP to get its arms around this business. The drawback is that Salesforce.com would not be very extensible as an application as it uses a proprietary stored procedures database architecture. That would make it difficult to integrate with a prospective ERP SaaS acquisition, which would otherwise be the next logical step to growing the enterprise software footprint.

Informatica is often brought up – if HP is to salvage its Neoview BI business, it would need a data integration engine to help bolster it. Better yet, buy Teradata, which is one of the biggest resellers of Informatica PowerCenter – that would give HP far more credible presence in the analytics space. Then it will have to ward off Oracle – which has an even more pressing need for Informatica to fill out the data integration piece in its Fusion middleware stack – for Informatica. But with Teradata, there would at least be a real anchor for the Informatica business.

HP has to decide what kind of company it needs to be as Tom Kucharvy summarized well a few weeks back. Can HP afford to converge itself in another direction? Can it afford not to? Leo Apotheker has a heck of a listening tour ahead of him.

Stack envy: Impressions for Oracle OpenWorld 2010

Last year, the anticipation of the unveiling of Fusion apps was palpable. Although we’re not finished with Oracle OpenWorld 2010 yet – we still have the Fusion middleware analyst summit tomorrow and still have loose ends regarding Oracle’s Java strategy – by now our overall impressions are fairly code complete.

In his second conference keynote – which unfortunately turned out to be almost a carbon copy of his first – Larry Ellison boasted that they “announced more new technology this week than anytime in Oracle’s history.” Of course, that shouldn’t be a heavy lift given that Oracle is a much bigger company with many more products across the portfolio, and with Sun, has a much broader hardware/software footprint at that.

On the software end – and post-Sun acquisition, we have to make that distinction – it’s hard to follow up last year’s unveiling of Fusion apps. The Fusion apps are certainly a monster in size with over 5000 tables, 10,000 task flows, representing five years of development. Among other things, the embedded analytics provide the context long missing from enterprise apps like ERP and CRM, which previously required you to slip into another module as a separate task. There is also good integration of process modeling, although for now BPM models developed using either of Oracle’s modeling tools won’t be executable. For now, Fusion apps will not change the paradigm of model, then develop.

A good sampling of coverage and comment can be found from Ray Wang, Dennis Howlett, Therese Poletti, Stefan Ried, and for the Java side, Lucas Jellema.

The real news is that Fusion apps, excluding manufacturing, will be in limited release by year end and general release in Q1. That’s pretty big news.

But at the conference, Fusion apps took a back seat to Exadata, the SPARC HP (and soon to be SPARC)-based database appliance unveiled last year, and the Exalogic cloud-in-a-box unwrapped this year. It’s no mystery that growth in the enterprise apps market has been flat for quite some time, with the main Greenfield opportunities going forward being midsized businesses or the BRIC world region. Yet Fusion apps will be overkill for small-midsized enterprises that won’t need such a rich palette of functionality (NetSuite is more likely their speed), which leaves the emerging economies as the prime growth target. The reality is most enterprises are not about to replace the very ERP systems that they implemented as part of modernization or Y2K remediation efforts a decade ago. At best, Fusion will be a gap filler, picking up where current enterprise applications leave off, which provides potential growth opportunity for Oracle, but not exactly a blockbuster one.

Nonetheless, as Oracle was historically a software company, the bulk of attendees along with the press and analyst community (including us) pretty much tuned out all the hardware talk. That likely explains why, if you subscribed to the #oow10 Twitter hashtag, that you heard nothing but frustration from software bigots like ourselves and others who got sick of the all-Exadata/ Exalogic-all-the-time treatment during the keynotes.

In a memorable metaphor, Ellison stated that one Exalogic device can schedule the entire Chinese rail system, and that two of them could run Facebook – to which a Twitter user retorted, how many enterprises have the computing load of a Facebook?

Frankly, Larry Ellison has long been at the point in his life where he can afford to disregard popular opinion. Give a pure hardware talk Sunday night, then do it almost exactly again on Wednesday (although on the second go round we were also treated to a borscht belt routine taking Salesforce’s Mark Benioff down more than a peg on who has the real cloud). Who is going to say no to the guy who sponsored and crewed on the team that won the America’s cup?

But if you look at the dollars and sense opportunity for Oracle, it’s all about owning the full stack that crunches and manages the data. Even in a recession, if there’s anything that’s growing, it’s the amount of data that’s floating around. Combine the impacts of broadband, sensory data, and lifestyles that are becoming more digital, and you have the makings for the data counterpart to Metcalfe’s Law. Owning the hardware closes the circle. Last year, Ellison spoke of his vision to recreate the unity of the IBM System 360 era, because at the end of the day, there’s nothing that works better than software and hardware that are tuned for each other.

So if you want to know why Ellison is talking about almost nothing else except hardware, it’s not only because it’s his latest toy (OK, maybe it’s partly that). It’s because if you run the numbers, there’s far more growth potential to the Exadata/Exalogic side of the business than there is for Fusion applications and middleware.

And if you look at the positioning, owning the entire stack means deeper account control. It’s the same strategy behind the entire Fusion software stack, which uses SOA to integrate internally and with the rest of the world. But Fusion apps and middleware remain optimized for an all-Oracle Fusion environment,underpinned by a declarative Application Development Framework (ADF) and tooling that is designed specifically for that stack.

So on one hand, Oracle’s pitch that big database processing works best on optimized hardware can sound attractive to CIOs that are seeking to optimize one of their nagging points of pain. But the flipside is that, given Oracle’s reputation for aggressive sales and pricing, will the market be receptive to giving Oracle even more control? To some extent the question is moot; with Oracle having made so many acquisitions, enterprises that followed a best of breed strategy can easily find themselves unwittingly becoming all-Oracle shops by default.

Admittedly, the entire IT industry is consolidating, but each player is vying for different combinations of the hardware, software, networking, and storage stack. Arguably, applications are the most sensitive layer of the IT technology stack because that is where the business logic lies. As Oracle asserts greater claim to that part of the IT stack and everything around it, it requires a strategy for addressing potential backlash from enterprises seeking second sources when it comes to managing their family jewels.

SpringSource buying Gemstone: VMware’s written all over it

There they go again. Barely a month after announcing the acquisition of message broker Rabbit Technologies, SpringSource is adding yet one more piece to its middleware stack: it has announced the acquisition of Gemstone for its distributed data caching technology.

SpringSource’s Rod Johnson told us that he was planning to acquire such a technology even before VMware came into the picture, but make no mistake about it, VMware’s presence upped the ante.

SpringSource has been looking to fill out its stack vs. Oracle and IBM ever since its cornerstone acquisition of Covalent (which brought the expertise behind Apache Tomcat and bequeathed the world tc Server) two years ago. Adding Gemstone’s Gemfire becomes SpringSource’s response to Oracle Coherence and IBM WebSphere XD. The technologies in question allow you to replicate data from varied sources into a single logical cache, which is critical if those sources are highly dispersed.

So what about VMware? Wasn’t SpringSource planning to grow its stack anyway? There are deeper stakes at play: VMware’s aspiration to make cloud and virtualization virtually synonymous – or at least to make virtualization essential to the cloud – falls apart if you don’t have a scalable, high performance way to manage and access data. Enterprises using the cloud are not likely to move all their data there, and need a solution that allows hybrid strategies that will invariably involve a mix of cloud- and on premised-based data resources to be managed and accessed efficiently. Distributed data caching is essential.

So the next question is why SpringSource, as a historically open source company that has always made open source acquisitions, buy open source Terracotta instead? Chances are, were SpringSource still independent, it probably would have, but VMware brings deeper pockets and deeper aspirations. Gemstone is the company that sold object-oriented databases back in the 90s, and once it grew obvious that they (and other OODBMS rivals like Object Store) weren’t going to become the next Oracles, they adapted their expertise to caching. Gemfire emerged in 2002 and provided Wall Street and defense agencies an off the shelf alternative to homegrown development or a best of breed strategy. By comparison, although Terracotta boasts several Wall Street clients, its core base is in web caching for high traffic B2C oriented websites.

Bottom line: VMware needs the scale.

There are other interesting pieces that Gemstone brings to the party. It is currently developing SQLFabric, a project that embeds the Apache Derby open source relational database into Gemfire to make its distributed data grid fully SQL-compliant, which would be very strategic to VMware and SpringSource. It also has a shot-in-the-dark project, MagLev, which is more a curiosity for the mother ship. Conceivably it could provide the impetus for SpringSource to extend to the Ruby environment, but would require a lot more development work to productize.

Obviously as the deal won’t close immediately, both entities must be coy about their plans other than the obvious commitment to integrate products.

But there’s another angle that will be worth exploring once the ink dries: SpringSource has been known for simplicity. The Spring framework provided a way to abstract all the complexity out of Java EE, while tc Server, based on Tomcat, carries but a subset of the bells and whistles of full Java EE stacks. But Gemfire is hardly simple, and the market for distributed data grids has been limited to organizations with extreme processing needs who have extreme expertise and extreme budgets. Yet the move to cloud will mean, as noted above, that the need for logical data grids will trickle down to more of the enterprise mainstream, although the scope of the problem won’t be as extreme. It would make sense for the Spring framework to extend its dependency injection to a “lite” version of Gemfire (Gemcloud?) to simplify the hassle of managing data inside and outside of the cloud.