After FAANG, What Comes Next?
Earlier this year marked the 25th anniversary of Netscape going public. Few noticed given how 2020 has gone. Nonetheless, it was an important date in the technology timeline. On August 9th, Netscape placed 5 million shares on NASDAQ at $28 per share. It opened at $71 and closed at $58.25 per share. The age of the Internet had arrived.
The success of Netscape created a frenzy in Silicon Valley. The following spring saw IPO’s for Yahoo and Excite. New companies were being funded daily. VC’s were throwing money at any and all ideas. I jumped into the frenzy in 1997 to find my own Internet dreams. I still remember the parade of tech entrepreneurs celebrating their first fund raises at the Bubble Lounge in downtown San Francisco.
Groundbreaking Start, PAYNE-ful Ending
While there were exciting tech companies launching during the Dot Com rise, most of the excitement was in the consumer space. This was the PAYNE age, companies that best defined the time; PayPal, AOL, Yahoo, Netscape, and eBay. It was browser wars, mega Internet directories, and selling everything and anything online. Most can still recall eToys, Pets.com, Kozmo, and Webvan. One of my personal favorites was UrbanFetch (similar to Kozmo), which I definitely overused for deliveries and always wondered how they could be profitable. Short story, they weren’t.
My interests were elsewhere however. I was deeply involved in the developer space and was fascinated by how software could transform entire companies to operate better. During the late 90’s, I helped several state courts systems launch functional web apps for the public that cut search times for basic filings from days to minutes. I built a CRM (customer relationship management) app that consolidated all customer account information in one place for anyone in the company to view. I wanted to transform business.
MISO Want Some Enterprise
I eventually found my way to Siebel, a rising star in the world of CRM. They had already landed hundreds of big business customers, fully integrated the merger of Scopus for customer support functionality, and was the dominant leader in a fast growing market. Siebel was part of a new trend, enterprise tech was exciting again!
Enterprise tech was a trend already well underway. Deep tech and infrastructure tech helped support the scaling needs of the consumer tech companies. Names like RedHat and Akamai to handle infrastructure or Splunk and Tableau to manage data are still familiar and significant for many of us today.
Most of the activity and investment after the dot com bust however was directed to the enterprise business applications market. With the viability of robust and scalable web applications proven, a new software emerged called SaaS (Software-as-a-Service). The first generation of these companies are now well-known public companies like Salesforce, ServiceNow, Workday, and Zuora.
Even still, the idea of renting software in something called the cloud back in 2007 was not something many enterprises felt was a viable option. While the 2000’s ushered in the birth of SaaS, this was a decade ruled by MISO companies; Microsoft, IBM, SAP, Oracle. They were the kings of enterprise business applications.
Microsoft had been in the enterprise space for longer than many realize having built the business on the power of a spreadsheet. When Excel overtook Lotus, Microsoft became the de facto office suite powering small businesses and enterprises. Coupled with the rise of their Windows NT operating system, Microsoft quickly grew into an enterprise software giant. Their acquisitions of Great Plains Software for almost $1 billion in 2001 and Navision for $1.3 billion over one year thrust them squarely into the enterprise business application space.
SAP and Oracle have been the most direct competitors in the enterprise business applications market for the past 15 years. SAP was the true original of ERP (enterprise resource planning) since the 1970’s. It was only by the mid-00’s that Oracle offered a competitive ERP suite through the acquisitions of PeopleSoft for HR and Siebel for CRM to add to their Oracle eBusiness Suite.
IBM may be the only oddball of the group. They never had a strong suite of business applications, but their near monopoly in the mainframe market meant that most enterprises needed a mainframe integration strategy in order to implement an ERP system. WebSphere became a common architectural component of these integration projects, as did Tivoli for monitoring and Rational for application development (a little UML anyone).
Rise of the Engineering FAANG’s
If you ever had to develop application using UML, ABAP, or anything supported by Oracle, it was always a painful experience. In fact, building anything using the same frameworks of the enterprise tech leaders simply led to delays and buggy code. The dominate architecture of the day was a monolith and most projects were still managed in a waterfall methodology.
Newer ideas of software engineering were starting to emerge though to better cope with the increasing loads and exponential growth in data and compute. Google was developed MapReduce to massively scale their data processing needs. Netflix was implementing purposeful failures into their production systems to build resiliency. Amazon rearchitected their platform to be completely services based. The level of engineering creativity, skillfulness, and collaboration needed to build and support this new era of web and mobile apps had been dramatically elevated.
The companies that best exemplified this modern approach to engineering are known as FAANG; Facebook, Amazon, Apple, Netflix, Google. Engineers were treated with greater respect. They could be promoted without becoming managers. Team culture actually mattered. Rather than representing a particular market segment, what ties FAANG together is belief that great engineering leads to better products, leading many to call this past decade the age of the developer.
Climbing the Peaks of MT. SAAS?
A few weeks ago, Bessemer Venture Partners released a post touting the next stage of growth is a basket of companies they called MT SAAS. This group consists of Microsoft, Twilio, Salesforce, Adobe, Amazon, and Shopify that are the new tech investment darlings, outstripping even the incredible growth of FAANG.
It is frankly an odd collection of companies. Bessemer even notes this, saying, “With this basket you get a mix of application (CRM, ADBE, SHOP) and infrastructure (MSFT, TWLO, AMZN) companies, incumbent giants (MSFT, AMZN) and hypergrowth challengers (CRM, ADBE, SHOP, TWLO).” The grouping is merely a portfolio to maximize equity returns. It does not give a glimpse into the future.
The future is MAGnificant and AIye-Opening
Last week, I learned that Dropbox moved 34 PB of data to an AWS S3 data lake. They recognized that using S3 with EC2 Spot Instances, the cloud gave them more flexibility and scalability to run massive Analytics workloads at lower cost. There are numerous other stories of similar migrations away from on-premises to cloud.
Data shows that only 4% of global IT spend is on the cloud today. That is over 15 years of cloud services being publicly available. The pandemic however has had a profound impact, accelerating the pace of digital transformation and cloud adoption within enterprises. This follows on earlier decisions by SaaS providers like Sumo Logic and consumer sites such as SmugMug that also made the switch to the cloud because of the increased flexibility and scalability provided.
Growth in the cloud is only going to increase as the needs of customers and the pace of innovation demand more adaptable platforms . We could very well be looking at over 75% of workloads on the cloud by end of this decade based on an analysis by Bessemer:
Why? Because the cloud will become an essential commodity. As Aaron Levie, CEO of Box, shares:
“The cloud is becoming as fundamental to how the world runs as the electric grid, telecom network, or the railroad.”
Infrastructure is only one part of the story however. The workloads running on top of the cloud will more and more be machine learning and AI driven services to the point that machine learning and the cloud will become synonymous. The challenge is that only a few companies that will have both the know-how to manage these workloads and the ability to do so cost efficiently. This is because the training data sets and modeling will need to ingest massive amounts of data that very few companies have the internal capacity to run these in their own data centers. These will be the job for the major cloud providers that I call MAG*; Microsoft, Amazon, Google.
Running the infrastructure is only one part. The second is being ability to leverage the vast capabilities of machine learning. Just in the past year, the depth of capabilities and the sophistication of machine learning and AI services now available in the cloud is astonishing. Swami Sivasubramanian, VP of Amazon Machine Learning, gave the machine learning keynote at AWS re:Invent last week covering the latest releases and developments. The chart below is a comprehensive view of all the services currently available, from choice of frameworks and instances, to development environments, to pre-built service ready to use immediately.
While I cannot speak for other providers, it is clear AWS has built a highly flexible and functionally comprehensive platform built for the future. And this is only the start, with much more innovation ahead.
Of course, looking at the crystal ball ten years into the future is always risky business. I am positive other startup still early in their development today will appear from nowhere to become dominant providers in this fast changing market.
What do you think will be the next big innovation ahead? Where do you see the cloud market heading in five years time?
* Note: I left out of this discussion BAT (Baidu, Alibaba, Tencent), but it is clear they are also important to the future of cloud and machine learning.
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