The New Software Industry: Investment Opportunities Panel

Jason Maynard of Credit Suisse moderated a panel on investment opportunities in the new software industry, which included Bill Burnham of Inductive Capital, Scott Russell (who was with two different venture capital firms but doesn’t appear to be with one at this time, although his title is listed as “venture capitalist”), and Ann Winblad of Hummer Winblad Venture Partners.

This was more of an open Q&A between the moderator and the panel with no presentation by each of them, so again, difficult to blog about since the conversation wandered around and there were no visual aids.

Winblad made a comment early on about how content management and predictive analytics are all part of the collaboration infrastructure; I think that her point is that there’s growth potential in both of those areas as Web 2.0 and Enterprise 2.0 applications mature.

There was a lengthy discussion about open source, how it generates revenue and whether it’s worth investing in; Burnham and Russell are against investing in open source, although Winblad is quite bullish on it but believes that you can’t just lump all open source opportunities together. Like any other market sector, there’s going to be winners and losers here. They all seem to agree, however, that many startups are benefiting from open source components even though they are not offering an open source solution themselves, and that there are great advantages to be had by bootstrapping startup development using open source. So although they might not invest in open source, they’d certainly invest in a startup that used open source to accelerate their development process and reduce development costs.

Russell feels that there are a number of great opportunities in companies where the value of the company is based on content or knowledge rather than the value of their software.

SaaS startups create a whole new wrinkle in venture: the working capital management is much trickier due to the delay in revenue recognition since payments tend to trickle in rather than be paid up front, even though the SaaS company needs to invest in infrastructure. Of course, I’m seeing some SaaS companies that are using hosted infrastructure rather than buying their own; Winblad discussed these sort of rented environments, and other ways to reduce startup costs such as using virtualization to create different testing environments. There are still a lot of the same old problems however, such as sales models. She advises keeping low to the ground, getting something out to a customer in less than a year, getting a partner to help bring the product to market in less than two years. As she put it, frugality counts; the days of spending megabucks on unnecessary expenses went away in 2000 when the first bubble burst, and VCs are understandably nervous about investing in startups that exhibit that same sort of profligate spending.

Maynard challenged them each to name one public company to invest in for the next five years, and why:

  • Russell: China and other emerging markets require banking and other financial data, which companies like Reuters and Bloomberg (more favoured) will be able to serve. He later made comments about how there are plenty of opportunities in niche markets for companies that own and provide data/information rather than software.
  • Burnham: mapping/GPS software like Tele Atlas, that have both valuable data and good software. He would not invest in the existing middleware market, and specifically suggested shorting TIBCO and BEA (unless they are bought by HP) — the two companies whose user conferences that I’m attending this week and next.
  • Winblad: although she focusses on private rather than public investments, she makes Amazon is a good bet since they are expanding their range of services to serve bigger markets, and have a huge amount of data about their customers that allows them to . She thinks that Bezos has a good vision of where to take the company. She recommends shorting companies like CA, because they’re in the old data, infrastructure and services business.

Audience questions following that discussion focussed a lot on asking the VCs opinions on various public companies, such as Yahoo. Burnham feels that Yahoo is now in the entertainment industry, not the software industry, so is not a real competitor to Google. He feels that Google versus Microsoft is the most interesting battle to come. Russell thinks that Yahoo is a keeper, nonetheless.

Questions about investments in mobile produced a pretty fuzzy answer: at some point, someone will get the interface right, and it will be a huge success; it’s very hard for startups to get involved since it involves them doing long negotiations with the big providers.

Burnham had some interesting comments about investing in the consumer versus the business space, and how the metrics are completely different because marketing, distribution and other factors differ so much. Winblad added that it’s very difficult to build a consumer destination site now, like MySpace or YouTube. Not only are they getting into a crowded market, but many of the startups in this area have no idea how to answer basic questions about the details of an advertising revenue model, for example.

Burnham had a great comment about what type of Web 2.0 companies not to invest in: triple-A’s, that is, AdSense, AJAX and arrogance.

Winblad feels that there’s still a lot of the virtualization story to unfold, since it is seriously changing the value chain in data centres. Although VMware has become the big success story in this market, there are a number of other niches that have plenty of room for new players. She also thinks that companies providing specialized analytics — her example was basically about improving financial services sales by analyzing what worked in the past — can provide a great deal of revenue enhancement for their customers. As a final point on that theme, Maynard suggested checking out Swivel, which provides some cool data mashups.

The New Software Industry: Open Source panel

First up after lunch is a panel on the role of open source in service management, moderated by Martin Griss of CMU West, and including Kim Polese of SpikeSource, and Jim Berbsleb and Tony Wasserman of CMU West.

Polese is included in the panel because her company is focussed on creating new business models for packaging and supporting open source software, whereas the other two are profs involved in open source research and projects.

The focus of the session is on how open source is increasingly being used to quickly and inexpensively create applications, both by established companies and startups: think of the number of web-based applications based on Apache and MySQL, for example. In many of these cases, a dilemma is created by the lack of traditional support models for open source components — that’s certainly an issue with the acceptance of open source for internal use within many organizations — so new models are emerging for development, distribution and support of open source.

Open source is helping to facilitate unbundling and modularization of software components: it’s very common to see open source components from multiple projects integrated with both commercial software components and custom components to create a complete application.

A question from the audience asked if there is a sense of misguided optimism about the usefulness open source; Polese pointed out in response that open source projects that aren’t useful end up dying on the vine, so there’s some amount of self-selection that tends to promote successful open source components and suppress those that are less successful through market acceptance.

As I mentioned during the Brainstorm BPM conference a few weeks back, it’s very difficult to blog about a panel — much less structure than a regular presentation, so the post tends to be even more disjointed than usual. With luck, you’ll still get some of the flavour of the panel.

Bits and pieces

I’m heads-down on a project this week so not much time for catching up on the news and blogging. However, interesting things keep happening whether I’m watching or not…

  • RUNA WFE 1.0.1, an open-source workflow based on JBOSS-JBPM was released. More details here, including a link to an online demo. Open source BPM is going to be a market force in some sectors, so best to be aware of what’s happening there.
  • Greg Wdowiak published an interesting post on the role of integration brokers within an integration stack. In particular, he discusses what you should expect to get from the integration broker portion of the stack, and where some of the vendors are lacking. If you’re new to EAI, you can read his excellent background post on bus versus broker models. In particular, he talks about how organizations move from a broker to a bus model as their integration needs become larger and more complex.
  • BEA buying Plumtree has been all over the tech news, with lots of interesting analysis. MWD blog thinks that the purchase may not be about what BEA says that it’s about, but more about moving away from complete Java-centricity and into a more neutral technology territory by supporting .Net. The Butler Group sees this as a better fit than some of the previous portal buy-outs, although an earlier post ponders the fate of the Plumtree-Fuego OEM agreement in light of BEA’s existing BPM strategy.
  • On the enterprise architecture front, The first issue of the Journal of Enterprise Architecture was published. Via Nick Mudge’s blog.

Lastly, if you’re free today at noon Eastern, there’s a webinar roundtable on Winning at BPM discussing IBM‘s WebSphere process integration products.


More open source BPM

An infrequently-updated but informative blog on open source BPM:

We share our discoveries in our search for open source workflow management tools. For tools that we find interesting, we download the code, try to execute the engine, or even get our reference process model working.

Also includes a list of open source BPM tools, including their evaluation notes where applicable.

Note that these are the only two sections of the site in English; for the rest, you’d better brush up on your Dutch (or use AltaVista’s Babel Fish translation utility, since Google’s translation doesn’t support Dutch).