The Art of Saying “No”: Part 3
As I said before, early on in my VC career I struggled with exactly how to say “no”. I’d like to think that in most cases I simply said “no”, but I can think of a few cases where I wimped out for one reason or another and made up an excuse to shift the blame. Ultimately I decided that not saying “no” when you really meant it was unprofessional and a huge disservice to entrepreneurs and so I decided to start not only saying “no”, but in most cases actually specifying exactly why I was saying “no”.
Giving a specific “no” is easy in some cases, such as deals that fell outside of my current investment focus, however it’s obviously harder for deals that clearly feel within my bailiwick. In those cases, I now typically try to provide the entrepreneur with a short list of reasons why I am saying no. While those reasons may legitimately include something like “I am too busy right now” they will also typically include concerns about the business’s target market, product (or lack therefore), business model, team, etc.
While I strongly believe that such frankness is not only the right thing to do and is far more valuable to an entrepreneur than a simple “no”, it is admittedly a high-risk strategy. Generally speaking I get one of four main reactions to this kind of “no”:
1. You are wrong, let me help you understand why. To be successful, entrepreneurs must generally be passionate, persistent, and persuasive. Tell them that you won’t invest in their company because of a specific reason and they will naturally try to convince you that you are wrong about that reason. Most entrepreneurs I say “no” to at least makes a token attempt at trying to change my mind. I am fine with this because I realize that in many cases I am wrong as there’s no way I know a good entrepreneur’s business or market the way they do, so it’s good to have someone challenge my reasons for saying “no” as I may indeed change my mind. That said, the problem with engaging in this discussion is that it can be very time consuming and you can end up wasting both people’s time if you are saying “no” because of some hard learned investment “rule” that you hold dear.
2. OK, goodbye. Many hardened entrepreneurs have heard the word “no” quite a lot: from VCs, from sales prospects, from recruits, from you name it. For them, as long as it’s quick, a “no” is in some ways a good as a “yes”. They don’t really care about your reasons for saying “no” because they either have a poor impression of VCs to begin with, they just don’t care what other people think or for them a “no” is par for the course and they’d rather just move on to the next potential pot of money.
3. You are an asshole. Not surprisingly some people have a pretty bad reaction to a specific “no”. At one level it’s totally understandable giving all of the passion, time, and money they’ve invested in their business, but at another level any entrepreneur who has this kind of reaction probably isn’t someone you want to fund because you can be guaranteed that they are going to hear “no” a lot more as they try to grow their business.
4. Thanks, this has been helpful. Let’s talk if we raise another round. If properly done, my experience is that the majority of entrepreneurs will react this way to a “no”. For starters, entrepreneurs are generally good salespeople and they realize that if one customer has an objection, similar customers are likely to have the same objection. Thus the more feedback they can get on their funding pitch, even if it’s negative, the better off they are. In addition, if the entrepreneur feels that the feedback they get is thoughtful they usually appreciate that someone took the time to seriously think about their business. Finally, most entrepreneurs, like VCs, never want to preclude the possibility of a future investment so they do what they can to leave the door open in the future.
If I had to sum it all up, for me I believe that the art of saying “no” in Venture Capital really boils down to three principals:
1. Being honest. It’s tempting to use a convenient excuse, but you and the entrepreneur are both better off if you are upfront and honest. Yeah, you risk alienating some entrepreneurs but if they don’t respect you’re attempt to be honest then they you probably wouldn’t have worked well together anyway.
2. Being specific. To the extent that you can be specific, you owe entrepreneurs the real reasons for why you are saying “no”. Not only is this the right, professional thing to do, but it will also help force you to make sure you are making the right decision.
3. Being quick. A fast “no” is much better than a long draw out “no”, both for the entrepreneur and for you.
Following these principals is harder than it might seem (especially #3), but I believe that if you do, everyone is the better off for it.
The Art of Saying “No”: Part 2
In my first post on the art of saying "no", I tried to lay out way VC's don't like to say "no". In this post I lay out of few of the more common ways VCs try to say "no" without really saying "no".
In an attempt to avoid saying “no”, VCs have created a number of very creative, indirect, and often disingenuous ways to say “no”. Some of the more popular “no” avoidance strategies include:
1. Bring me the Witches broom! This involves saying “no” by telling the entrepreneur you will seriously consider funding their company only if they accomplish a highly improbable feat within a very short time period, similar to what the Good Witch of the West did to Dorothy in the Wizard of Oz. The idea is that when the entrepreneur fails to accomplish the task, the VC is off the hook for saying “no” and can simply wait for the next round of funding (if applicable and so desired).
2. I’d Love To Date You, But My Parents Won’t Let Me. This strategy involves telling the entrepreneur that you’d personally love to fund their business but the rest of your partners won’t let you do the deal for any variety of silly reasons. This strategy allows the VC to avoid passing personal judgment on the deal thus allowing him to maintain a friendly relationship with the entrepreneur.
3. You’re a really great guy, but I’m just not ready to get back into a serious relationship right now. This strategy involves telling the entrepreneur that you’d love to invest in their company, but unfortunately you are just too busy with your existing portfolio right now to seriously consider doing a new deal. This strategy is perhaps the easiest because it completely leaves open the possibility to invest in a future round without having to create any negative waves in the short term.
The hard part for the entrepreneur is that while such excuses are often used to avoid saying a direct “no”, they are also often totally legitimate because some partnerships do require certain milestones to be met before they will fund a deal, and some partners do try to block other partners' deals, and some partners are so busy that prudence demands they don’t invest in any new deals. Figuring out whether the excuse is genuine or contrived is therefore not as easy as it might seem.
In Tomorrow's Part 3 I will wrap up with my personal "no" approach and how it's worked for me
The Art of Saying “No”: Part 1
Believe it or not, saying “no” to a potential investment opportunity is one of the hardest things to do the Venture business. It’s also, unfortunately one of the things that VCs have to do most often.
Personally, I must admit that for the first couple years of my VC career I was pretty bad at saying “no”. Sometimes I would say “no”, but sometimes I would say “maybe” when I really meant “no”, and sometimes I wouldn’t say anything at all in the hopes that the entrepreneur wouldn’t try to contact me again (like when I got unendorsed/irrelevant business plans via e-mail).
The issue with saying “no” in the venture business is that there’s really isn’t any upside to saying “no” due to the fact that:
A. You might be saying “no” to providing the initial funding to the next Google or Cisco or Yahoo. By saying “no” you risk alienating the entrepreneur to the extent that your are shut out of their next round of financing, thus completely missing the boat.
B. Even if you say “no” to a company that is in fact going no-where, you risk alienating the entrepreneur to the point where they don’t bother contacting you when they create their next start-up, which will inevitably happen to be Google, Cisco, Yahoo, etc.
C. Saying “no” to any entrepreneur is not fun and creates enemies. It’s like telling someone their baby is ugly or their child is stupid. At best they will walk away puzzled at your inability to “get it”, at worst they will berate for your stupidly and declare a permanent pox on your house.
Net, net: no one likes to make enemies and saying “no” is a pretty easy way to do it.
Also See: Part 2, How VC's Say "No" Witout Really Saying "No"
Clash of the Titans: Oracle and SAP
The battle fought between Oracle and SAP over Retek is simply the opening shot in what is likely to be an increasingly contentious war between the two software titans as they each seek to dominate the ERP market.
The battle started off with SAP making an unsolicited bid for Retek, a provider of ERP systems to the retail industry. Oracle, caught somewhat off-guard in the midst of digesting its recent Peoplesoft acquisition, quickly responded with a counter offer of its own which SAP in turn countered, only to have Oracle finally close in for the kill today and sign a definitive merger agreement. SAP could theoretically still try and wage a proxy battle (ironically similar to what Oracle did to Peoplesoft) but with today’s announcement it looks like Round 1 of the SAP/Oracle M&A war goes to Oracle.
Of course, this frenzied bidding activity has little to do with Retek (it’s a nice little company but nothing worth going to war over in isolation) and it has everything to do with the respective desires of SAP and Oracle to try and dominate the market for enterprise applications. As both Oracle and SAP know all too well, once a company adopts an ERP platform, it is pretty much a customer for life given that swapping out ERP systems can make a liver transplant look like child’s play. Thus, there’s really no good organic way for Oracle and SAP to grow their applications business other than acquisition. The problem for SAP and Oracle is that there are a very limited number of potential acquisition candidates in each niche and therefore he who acts last will likely be left empty handed. Thus, with both firms resolved not be left empty handed, the stage is now set for a series of pitched battles over seemingly insignificant niche enterprise application providers.
In fact, I was recently talking with an executive from the Emerald Palace (as Oracle is sometimes known in the Bay Area) and he confirmed that Oracle has a “hit list” of niche applications it wants to acquire. As it happens, Retek was on the list, so Oracle felt like it had to join the fight if it was going to be able to execute on its grand strategy of application consolidation.
The only thing that one can be sure of in this acquisition war is that both players will have to overcome some serious handicaps if they hope to win it. For SAP, its handicaps revolve primarily around the popular impression that SAP has an incredibly insular and ponderous culture which translates into a work environment that stifles creativity and fosters an almost fanatical “not-invented-here” perspective. Like most impressions this is probably overblown (I’ll leave Jeff to comment on that), but I will say that many former SAP employees I have chatted with in the past have more or less reinforced that message mostly by saying somewhat cryptically that it’s a “very German” company. Given this impression, convincing American software companies, many of which pride themselves on their freewheeling, authority-defying cultures, to sell out to SAP is a bit of an uphill battle.
Be that as it may, there are indications coming out of SAP that change is afoot and old impressions of the company may be somewhat dated. First SAP is reforming its cumbersome management structure in an effort to make the company more fleet of foot, and second the CEO of TopTier (perhaps SAP’s highest profile and most successful US acquisition) who is apparently a big advocate of selective acquisitions, appears to be taking bigger leadership role in the company. Indeed the offer to acquire Retek, which would have been SAP’s biggest and most technically “diverse” acquisition to date, suggests that SAP is indeed a changing animal. However despite these changes, it will still undoubtedly have a hard time convincing potential targets that it has truly changed its stripes.
The good news for SAP is that Oracle has just as many, if not more handicaps in the eyes of most acquirers. First off, Oracle’s almost comically acrimonious hostile takeover of Peoplesoft ended in a ruthless HR bloodbath that was reminiscent, as a certain Massachusetts Senator might say, of Genghis Khan. Such an outcome can hardly have endeared Oracle to the senior management teams of potential targets and, given Oracle’s “hit list”, may even preemptively drive some firms into the arms of potential white nights well ahead of Oracle’s advance. Second, while Oracle hasn’t foresworn acquisitions to the extent that SAP did in the past, it was not exactly Cisco either. Up until recently, Oracle’s reputation as an acquirer was generally that of a cheap opportunistic bottom feeder. That changed a bit with Peoplesoft and now with even more so with Retek, but most acquirees probably realize that the higher the price Oracle pays up front, the bigger the cuts on the back end. Of course, the dollar (or Euro as the case may be) is king and if the Peoplesoft Saga proved anything it’s that any deal can ultimately get done if the price is high enough.
Perhaps the more interesting question raised by the whole SAP/Oracle battle though is what will the other software giants do, most notably Microsoft and IBM. IBM has publicly foresworn getting back into the applications space, but as I outlined in an earlier post, this position gets more strategically tenuous by the day and the battle between Oracle and SAP only underscores this point. For its part, Microsoft is perhaps the biggest wildcard. Seemingly restrained by the feds from doing any big-bang deals in the software space, it may well have to rely on the acquisition of niche applications to help feed its growth. While up until recently most people assumed Microsoft would confine its acquisition activities to its traditional consumer and SMB applications, its serious flirtation with SAP indicates that Microsoft does indeed harbor enterprise application ambitions. With SAP and Oracle now gobbling up the niche players in the space, Microsoft may have to act now before the game of musical chairs is over or simply give up on ever making serious inroads into enterprise apps.
Right now the only certain conclusions in the enterprise application space are that there will be further industry consolidation (Trend #10 in my Top 10) and more fees for M&A bankers. Everything else is up for grabs.
Earth to Friendster: We Have A Problem
The recent public announcement of MySpace's Series A financing combined with Yahoo!'s recent confirmation of its planned Yahoo 360 offering adds up to one thing for Friendster, the heretofore king of social networking: trouble.
You see, despite all the hype about social networking, it has now become readily apparent that social networking is not an application in and of itself, but rather a by-product of other activities. While Friendster represents the previous social networking othodoxy of having the social network itself be the application, MySpace, and now Yahoo 360, reflect the new understanding that social networking will be just one aspect of a fully encompassing online "social environment".
MySpace, has arguably blazed the path in the creation of a social environment. Rather than focus soley on networking, MySpace early on tried to make its site a complete "social experience" by sponsoring real world parties and encouraging interaction within its membership. MySpace has been particularly aggressive in using music as a way to bind and organize its community. To that end, it has aggressively pursued bands to have them launch and maintain fan sites on MySpace and it has encouraged fans of bands to launch their own sites, blogs, and discussion threads about music. This emphasis on music makes tremendous sense given that music tastes are one of the key ways that young people often segment themselves. Thus, MySpace's social network is a actually a multi-dimensional experience that not only connects people who know or indirectly know each other, but links groups of people together by their interests/hobbies/passions. It's no wonder then that MySpace now generates far more page views and time-on-site than Friendster: people on MySpace actually have something fun to do.
Compare this with Frienster which is still stuck back in Social Networking 1.0 with a rather unimaginative focus on dating. Yes, dating is indeed one of the main applications that a pure social network can be highly useful for, but by starkly casting themselves as a dating service Friendster has in some ways become wildly "un-cool". After all, most young people are loath to admit that they need a dating service to meet people, so hanging out at Friendster is the equivalent of walking around with a big "L" on your forehead. Of course, many folks on MySpace are undoubtedly there trying to get a date as well, but at least they are have a bunch of other pretenses for being there and even if they strike out they might still make some new non-romantic friends that share their interests.
Yahoo has clearly grasped that MySpace's "social environment" is the wave of the future and its Yahoo 360 service sounds like it will become a very strong competitor to MySpace over night. That's because Yahoo has some tremendous pre-existing assets in mail, chat, and music, that it can theoretically string together to create a much more rich and functional environment than MySpace. Of course Yahoo is also a big company with a ton a moving parts and it will likely be difficult for them to keep up with the frenzied pace of innovation on MySpace, but MySpace will clearly have its hands full.
How this space ultimately plays out will undoubtedly be interesting to watch. Perhaps "social environments" will emerge at the long term winner, or perhaps the peopleweb, as theorized by Marc Pinus, will overtake centralized "networking desitinations" and instead create a vast, highly distributed, web-based social experience. Whatever happens, it should be fun to watch.
Software's Top 10 2005 Trends: #1 XML
XML, eXtensible Markup Language, is everywhere. It serves as the foundation for just about every data exchange and interface standard created in the past 5 years. It is imbedded into the core of just about every application that has been built in the last few years. And it is at the heart of almost every significant trend in the software industry from Service Oriented Architectures, to Message Aware Networking, to Composite Applications, to Data Abstraction.
For all its importance though, XML has always played second fiddle to HTML. However 2005 may well be remembered as the year in which XML eclipses HTML in terms of overall importance to the web. That’s because XML is now the de facto language of machines-to-machine interaction on the web and such interaction is exploding thanks to adoption of web services and the proliferation of web-capable devices.
In some respects XML is not very impressive. On its face, it is a highly simplistic and very expensive way to represent data structures and interfaces. However the last decade’s massive improvement in raw compute power has made XML a much less expensive technology and its simplicity has allowed legions of HTML programmers to easily graduate to the supposedly more complex world of data and service representations.
Now XML is evolving to the point where many new XML-based standards seek to embed within XML aspects previously only associated with complied code, such as business logic and state. In this way XML messages are now becoming free standing bits of code and integral parts of applications. In essence, XML messages are becoming software.
For software VCs, XML does not present many direct investment opportunities, but rather colors almost every opportunity they look at. The existence of a universal machine-to-machine interface and data standard has huge implications for everything from middleware, to databases, to applications. Of course at some point there will be something better than XML created, there always is, and that may create a whole new set of investment opportunities, but until then software VCs that invest without a deep understanding of the context, benefits and drawbacks of XML are shooting in the dark.
For a complete list of Software's Top 10 2005 trends click here.
Software's Top 10 2005 Trends: #2 Open Source
Open Source is one of the most important and perhaps the most controversial trends within the software industry. While some see Open Source as a kind of communal catalyst for innovation and creativity others see it as a wildly destructive trend that threatens to undermine the economic viability of the entire software industry.
To date, Open Source projects have largely been focused on broad horizontal platforms within infrastructure software. These projects have been so numerous and so successful that many pundits now talk about building applications on top of the all-Open Source LAMP (Linux, Apache, MySQL, Php/Python/Perl) stack. And that stack continues to get bigger as Open Source projects start migrating to more complex infrastructure platforms, such as applications servers (J-Boss, Zope, JonAs, Enhydra). In fact, there are Open Source projects currently underway for just about every major infrastructure software technology you can think of from Content management, to BPEL, to you name it.
One of the biggest questions facing the software industry in 2005 is whether or not Open Source will “jump the species barrier” and start to become a major factor in the enterprise applications space. A quick look at Sourceforge confirms that to date most Open Source efforts in the applications space have been confined to niche applications in the academic space, but there are now numerous efforts underway, such as SugarCRM, to try and create enterprise-ready Open Source applications. Whether these applications efforts are successful or not is one of the key issues keeping software company executives up at night.
For software executives, Open Source presents three major choices: beat it, join-it, or co-opt it. The conventional wisdom suggests that the way to beat Open Source is to “out-engineer” Open Source by providing a more stable, secure and feature rich product while at the same time “out-servicing” Open Source by providing robust 24/7 support. This strategy appears to be keeping many Global 2000 customers “in the fold” for now, but even at these customers Open Source software is increasingly showing up in non-mission critical areas.
Joining Open Source is an option many companies, especially many small infrastructure software companies, increasingly appear to be taking. These companies typically develop their software in-house and then once finished (or almost finished) declare to their software to be “Open Source”. The strategy is essentially to use “free Open Source software” as a way to acquire customers that can then be charged services and maintenance fees. This strategy sounds great but has several drawbacks, chief of which is that simply declaring a software product to be Open Source does not automatically create a large community of diverse programmers who are willing to devote substantial free time to improving the product, but it definitely does make the company’s IP public domain. Thus, many of these companies face the prospect of getting little or no development leverage from Open Source in return for giving up the copyright to all of their code.
Attempting to co-opt Open Source is probably the most popular and most complicated approach to dealing with the issue. IBM is the poster child of Open Source co-opting. IBM primarily sees Open Source as a way to commodify the main revenue sources of its key competitors. IBM’s bear hug of Linux was largely part of a (arguably wildly successful) strategy to undermine the value of Solaris and Windows NT and thereby stall their push into the glass house. But IBM’s love of OpenSource only goes so far. You don’t see them pushing J-Boss at the expense of Websphere or MySQL at the expense of DB2. Indeed IBM continues to lay out big bucks for “proprietary” software, so their love of Open Source appears to only go as far as they can co-opt it. Taking IBM’s lead, most of the other major software vendors (save Microsoft) now appear to be selectively co-opting Open Source to use as a weapon against their competitors.
For software VCs, Open Source creates a number of tricky investment problems. If one continues to invest in proprietary software, you run the risk of getting “Open Sourced” if the space becomes attractive enough to create either a developer community groundswell or interest from an elephant like IBM. If one invests in Open Source, you run the risk competing with 5 other companies selling the same product and turning software margins into services margins.
However, there is some middle ground. For example, companies that offer software as a service are somewhat protected from Open Source pressures as customers are buying the whole service not just the code. Indeed companies that offer software as a service can leverage a lot of Open Source software to lower their own costs. In addition, while Open Source projects may make some headway into a few large horizontal applications, chances are that it will be very difficult for them to penetrate specialized vertical niches because there just aren’t a lot of developers out there that understand the business logic required for those niches, thus making it much harder for an Open Source project to attain critical mass.
Ultimately the biggest issue for VCs is whether or not Open Source has effectively “capped” the home-run potential of software deals by guaranteeing that any new horizontal software platform that achieves critical mass will inevitably face intense competition from a free, Open Source equivalent.
Personally, I’d like to think that the answer to that issue is “no”, but I also believe that creating a next-generation “home run” platform company is now a whole harder thanks to Open Source.
For a complete list of Software's Top 10 2005 trends click here.
Software's Top 10 2005 Trends: #3 Software As A Service
Software as a service has a bit of a bad reputation thanks largely to the Application Service Provider (ASP) debacle of the mid-1990s. Back then, a huge amount of money was poured into ASPs such as US Internetworking, Corio, and Interliant in the belief that companies would like to buy enterprise applications as hosted services
As it turned out, not many companies were interested in buying mission critical software as a hosted service. Not only did hosted apps have significant security and performance issues, but they were difficult to customize and integrate into an enterprise’s other systems. On top of this, the economics of providing enterprise software as a service were terrible. ASPs were required to make huge upfront investments in hardware and software but they only got paid a monthly subscription (which could often be cancelled with little notice). In addition, competition from other venture funded startups drove pricing down and drove customer churn and factor costs (such as hosting and bandwidth charges) up. This turned out to be a recipe for disaster and many ASP’s ultimately ended up going bankrupt under crushing debt loads.
Fast forward to 2005 and things are now actually quite different. First off, the main costs required to offer software as a service have declined dramatically. As Ryan McIntyre outlines in his excellent post on data center economics, datacenter/hosting costs have plummeted in the last 10 years with bandwidth costs declining 88%, storage costs declining an amazing 99.7% and CPU costs declining an even more amazing 99.9%! (When you think about this from a business economics standpoint it really is stunning.) With lower costs, the upfront investment required to offer software as a service is actually now quite reasonable.
Outside of lower costs, three other developments have helped make software a service much more attractive. First, developers have created new applications that have been engineered from the ground up to be offered as a hosted service and even many existing applications have been re-engineered to make them more “hosting-friendly”. Second, the advent of XML and web services has made it easier for companies to integrate hosted applications and data into their own legacy systems. From a technical perspective, this has removed one of the last major drawbacks of hosted software. And finally, 10 years of exposure to the web has made many corporate managers much more comfortable with the idea of hosted-applications. Even many IT managers, who at first resisted hosted applications as a potential threat to their jobs and influence have now warmed up to hosted-apps as a way to quickly meet business unit needs without adding significant costs to their own organization. For many developers, selling a hosted software solution is now an easier and faster process than selling installable code.
On the strength of these developments, 2005 may very well turn out to be the year that software as a service goes from being an alternative means of delivering software to being the preferred means.
For VCs, the growing acceptance of software as a service combined with its improved economics raises the possibility that it is very risky, if not downright ill-advised, to fund any new enterprise application that is not designed primarily to be offered as a service. It also raises the prospect that new applications architected from the ground up to be offered as a service may be able to displace well established client-server players in the ERP, database, and vertical application space much as those players did to mainframe and mini-computer vendors in 1980’s and 1990’s. Indeed some categories of applications, such as inter-enterprise applications, are not even possible unless offered as a service. All of this adds up to make enterprise applications a much more interesting investment space than it was just a few years ago.
For a complete list of Software's Top 10 2005 trends click here.
Software's Top 10 2005 Trends: #4 Service Oriented Architectures
Service Oriented Architectures (SOAs) are all the rage these days. Almost every software vendor is putting out some kind of SOA-related marketing spin and trade magazines buzz with the pros and cons of various approaches to building and deploying SOAs.
Despite all the talk, very few companies have actually built and deployed a robust SOA yet. That’s because building an SOA requires not just the creation numerous new web services interfaces but often requires significant re-architecting of existing systems.
2005 should see some serious progress on the SOA front though. Over the past two years, many companies have successfully laid the foundation for SOAs by building out a small portfolio of independent web services. With this foundation in place, constructing a full fledged SOA is not only possible now, but increasingly necessary as companies seek a cohesive way to manage their web services portfolios.
While SOAs have been cast as a sort of high-level application integration panacea, they will create some serious problems of their own in areas such as performance, security, and manageability. While a new class of SOA management platforms from companies such as Blue Titan, Amberpoint, and SOA Software have sprung up to meet these challenges, there’s a strong argument that such SOA management capabilities should be built directly into the application server platforms which already have many robust low level management capabilities. In addition to the app server players other folks, such as the directory management and network players players are also staking a claim to space as evidenced by Oblix's recent acquisition of Confluent, CA's acquisition of Adjoin, and HP's acquisition of Talking Blocks. Which group ultimately comes out of top will be one of the more interesting stories to watch in the SOA space.
For a complete list of Software's Top 10 2005 trends click here.
Software's Top 10 2005 Trends: #5 Message Aware Networking
Message Aware Networking sits in the midst of a kind of “no man’s land” in between networking and software. It looks a lot like networking because it requires high speed dedicated devices to process large numbers of messages, but it also looks a lot like software because it requires intelligent middleware to make content and context sensitive decisions.
With the number of messages proliferating rapidly thanks to the rapid adoption of loosely coupled applications that utilize XML-based messaging standards, the need for message aware networking products is growing rapidly. This need will only grow faster as companies begin to deploy composite applications and inter-enterprise applications.
Several start-ups have taken the lead in defining this space including Datapower, Sarvega, and Reactivity. While I am admittedly heavily biased, I’d have to say that Datapower is the clear leader for now thanks to its head start and deep technology base, but there will likely be many twists and turns in this space in the next few years.
Right now the hottest part of the Message Aware Networking space is the “security gateway” space in which edge devices basically scan incoming XML messages to make sure that they are kosher from a variety of perspectives. As the volume of messages increases, other aspects such as performance, routing, and management features will become increasingly important as well.
If it is true that the message is becoming the software, then over time message aware networking equipment will perhaps become as important if not more important than application servers. The high stakes involved raises the question as to which of the big elephants will make the first move to stake their claim to the space. Given that the space doesn’t fall cleanly into either the networking camp or the software camp there’s an opportunity for either side to make a move. On the networking side, you have Cisco and Juniper being the most likely candidates while on the software side you have IBM and Microsoft. The interesting thing to consider is that IBM and Microsoft have both had very cordial relationships with Cisco to date, but if either of these companies were to make an aggressive move into message aware networking (which I believe they must do) one would suspect that their relationships with Cisco could quickly turn a bit chilly.
Whatever the case, 2005 should see increasing adoption and acceptance of message aware networking as well as at least some preliminary moves by the elephants, who can’t afford to sit idly by and watch this potentially huge space get claimed by someone else.
For a complete list of Software's Top 10 2005 trends click here.