By Category By Month Recent Posts
Internet IPOs Internet M&A Software IPOs Software M&A

01/25/2010

What Will IBM Do?

Back in the 1990’s, Lou Gerstner helped engineer one of the great turnarounds in corporate history.  In just a few years, he took IBM from a cash hemorrhaging techno dinosaur on the brink of being broken into little pieces and turned it back into one of America’s most admired corporations.

To help facilitate its transformation into a services-led business, IBM made many strategic decisions but two of them arguably had particularly important impacts on the rest of the IT industry:

  1. IBM decided it would effectively cede the network equipment business to Cisco via a “win-win” partnership.
  2. IBM exited the enterprise application business and instead focused on getting ISVs to adopt IBM’s middleware stack.

A Vintage Strategy?
Most would agree that by tech industry standards these two strategies were very successful for a long time.  However as we enter the second decade of the 21st century both strategies are also showing their age. 

First and most importantly, IBM’s alliance with Cisco has come to a sudden and, at least seemingly to many in IBM, shocking end.  For years the writing has been on the wall that the networking and Server/Mainframe worlds were on an inevitable crash course, yet IBM and Cisco still maintained publicly that they did not see conflict as inevitable.  It was much to IBM’s surprise then that early last year Cisco launched a line of data center servers.  At the time, most of the press ate up Cisco’s party line that this was about competition with HP, but I doubt that fooled anyone in Armonk, NY.  Cisco’s server launch was was the tech industry equivalent of Pearl Harbor; it was a public declaration of war against the single biggest technology company in the world by an upstart competitor thousands of miles to its west.  Much like the United States in 1941, IBM was unprepared for war with Cisco in 2009, but I suspect that it will have no choice to respond forcefully in the next year or so and its responses may well rewrite the networking industry map because, while IBM may not be fleet of foot, it is the equivalent of a tech super-tanker and once it turns and points its bow, watch out.

The other key strategic decision that IBM made, to stay out of the application business, did indeed help IBM develop a strong “ecosystem” for its middleware offerings, but it also provided Oracle with an uncontested path to consolidate the living daylights of the enterprise application space and that’s exactly what it did.  Fast forward 15 years and Oracle has gone from a very small, but pesky competitor focused on a single software product (databases) to a much larger and well diversified competitor with total software revenues just 10–15% less than IBM’s.  What’s more, through it’s acquisition of Sun, Oracle gained control of Java, the key technology underpinning much of IBM’s middleware stack and it also gained the ability to sell an entire “stack” of both enterprise data-center software and hardware, something that arguably only IBM could claim before .  It’s hard to see how IBM just continues to sit back and let Sun consolidate the enterprise application space, yet getting into that space would violate IBM’s detente with many smaller ISVs.

Thus IBM enters 2010 with two huge strategic problems on its plate:  1.  How does it respond to Cisco’s flagrant attack on its data-center turf.  2.  How does is deal with Oracle’s continued expansion within enterprise applications, as well as its rapid emergence as a legitimate “soup to nuts” IT provider.

Your Move Sir
At a high level, the enterprise tech industry, ex-Microsoft, is now consolidating around 4 $100BN+ market cap companies: CSCO, HP, ORCL, and IBM.  All of these companies, except IBM, have recently made major strategic moves with HP acquiring EDS and 3COM (largely in an effort to catch up to IBM and Cisco), CSCO moving into servers (in an effort to take markets from IBM and HP), and ORCL acquiring Sun (in an effort to compete with IBM and HP). 

IBM, the biggest and most established of them all, has arguably yet to make a major move but strategically it appears as though it may be forced to do something big soon.   For example, it could bring the fight to CSCO’s heartland by acquiring Juniper or just head-off Cisco in the data center by acquiring EMC. Then again, maybe it will take on Oracle and acquire SAP.  I have no idea what IBM will do, but I do know there are a lot of smart people at IBM and I can’t believe they are very happy about the way the playing field shifted last year.  Perhaps they’ll do nothing but double down on their services business, and wait for their competitors to be tripped up by their overly ambitious expansions, or maybe they will open up a case a whoop ass and make some stunning moves of their own.  Whatever they do it will be fun to watch because IBM is still the super-tanker of enterprise IT and whereever they go they are guaranteed to leave a very big wake.

January 25, 2010 in Middleware, Software | Permalink

10/17/2005

Datapower: VC Lessons

IBM announced today that it was acquiring Datapower.  I’ve written another post on why I think this announcement is significant from an industry perspective, but given that I was an investor in Datapower, I thought I would also write a post about some of the venture capital aspects of the deal.

I invested in Datapower in early 2002 when the company had 6 employees and was based in a mouse infested former auto-body shop located between two housing projects.  Datapower was founded by Eugene Kuznetsov, a brilliant MIT engineer, who saw the promise and the challenges of XML messaging early on.

Like all venture deals, I learned a lot from my Datapower experience, but here are a few of the most important things I learned:

  1. Local presence matters.  I live and work on the west coast.   Datapower is in Boston.  When I first wanted to invest in Datapower my partners’ first reaction was “it’s too far away, you need a local partner”.  They were right.  I spent the next few months trying to find just the right partner.  Luckily Jeff Fagnan, who was then at Seed Capital (a fund I knew well) had already been looking at the space and quickly decided that he would like to join us in the investment.  Jeff proved to be an invaluable co-investor and ultimately got stuck with much of the day to day investment management chores that I could not effectively do.   It was an important lesson for me on the critical importance of having high quality local co-investors if you do a deal “out of market”.  Incidentally, Jeff left Seed early this year to become a partner at Altas and his first investment at Altas just happened to be in Datapower.  I suspect everyone at Atlas is happy with the IRR on that investment!
  2. Sometimes VCs should keep their mouths shut.  Just after Datapower had launched its first product, a performance oriented appliance, Eugene lobbied for the company to accelerate the launch a second security oriented product that had been planned for a quarter or two in the future.  At the time, I remember cautioning Eugene on the potential distractions and costs of having two immature products in the market at the same time.  Eugene lobbied hard to take the risk and thankfully he won the day.  I say thankfully because not only did the company land a $300K order that quarter for the security product, but it was able to establish significant mindshare in the security space well ahead of its competitors.  To this day the security space continues to have the most robust market demand and competitors that failed to quickly launch a security product suffered in the market.  The lesson for me in this was that VCs have to be careful not to micro-manage product development in a rapidly emerging market because demand can move very quickly and in unexpected ways.
  3. Shotgun Weddings Don’t Work.  Early on in the company’s life we were trying to recruit another local investor into the deal.  That investor had an entrepreneur-in-residence (EIR) that helped them with due diligence and really liked the deal.  The new investor made recruiting an interim Chairman/CEO a condition of their investment and there was an implicit understanding that they would feel most comfortable with their own EIR taking that role.  The existing team was not 100% comfortable with the EIR but felt pressured to take him on in order to secure the funding.  As it turned out, the EIR was the wrong person for the job and tension started to develop between the existing team and the EIR to the point where it became a major distraction for the company.  Ultimately, the board ended up hiring a new CEO who turned out to be a much better fit, but we almost blew it by not taking action earlier.  The lesson for me as an investor is that you should never insist on making a company hire a specific person a condition of investing as that dramatically raises the potential for conflict.  You are much better off investing in advance and helping the company recruit someone great that everyone is 100% confident in.
  4. VCs can indeed be very unethical.   Prior to raising his first significant round of venture financing, Eugene had raised a seed round from a few individuals and a couple of investment funds, one of whom was a reasonably well known VC fund.  The partner at this fund had a strategy of sprinkling small seed investments around the Boston-area and then trying to lead the first institutional rounds of any company that looked particularly promising.  In Datapower’s case, this partner invested a few hundred thousand dollars.  He also introduced Eugene to a technology executive affiliated with the fund that was currently in-between jobs and encouraged Eugene to involve the executive closely in the formulation of Datapower’s technology and market strategy.    Everything was ok until Eugene decided to raise his Series A financing.  At that point the VC fund submitted what was clearly a low-ball term sheet and pushed very hard to close it.   When Eugene objected to the terms and announced that he would try to generate some alternative offers to see if this was in fact “market” he found that he couldn’t get any traction with other Boston based VCs most of whom would either not meet with Eugene at all or who told him that they would not do the deal without also including the original VC (at the terms they had proposed).   Now I don’t know if the original VC had an active campaign to try and discourage other investors from doing the deal, but they obviously knew that new investors would not want to do the deal without them (if the original investors don’t invest that is typically a big warning flag that something is wrong) and used that leverage to try and get a better deal.   While to this day I use this situation as a classic example of why entrepreneurs shouldn’t have a VC in their seed round, if that was all there was too it there wouldn’t be much to write about.  However after Eugene rejected their term sheet and instead ultimately accepted mine, the VC in question went ahead and not only invested in a competitor, but installed the same executive that they had installed at Datapower at their new investment.  Within months, this competitor began spouting very similar marketing messages and appeared to be executing against a carbon copy of Datapower’s product and market roadmap.  This brazenly unethical behavior by the VC fund was absolutely stunning and so egregious that it almost was a caricature of what you expect an “evil VC” to do.  To add insult to injury, when the Series A investors in Datapower approached this fund, politely pointed out the rather obvious conflicts, and requested that the fund sell its shares back to the company or to other investors, the fund refused.  Luckily Eugene got the last laugh though.  The competitor the original VC fund invested in was recently sold in a transaction that reportedly didn’t even return capital handing many of its investors a substantial loss on their investment.  In contrast, Eugene is now a very deservedly wealthy man and all of his investors made a handsome return on their investments.  I guess good guys do sometimes win.

One last piece of trivia: I closed two investments on January 14, 2002.  (It’s highly unusual for a VC to close two investments the same day.)   The first was in a company called Cyanea and the second was in Datapower.  Both companies ended up being bought by IBM; Cyanea last summer and Datapower today.  While Cyanea generated a higher IRR, the difference in cash-on-cash return multiples between the two deals was less than 10%.  I have got to close two deals on the same day more often!

October 17, 2005 in Middleware, Software, Venture Capital | Permalink | Comments (7)

IBM Acquires Datapower, Software Will Never Be The Same

IBM announced today that it was acquiring Datapower, the pioneer of message aware networking.  As some may know, I invested in Datapower and given that I’ve written another post on some of the venture capital aspects of the deal, but I thought I would also write this post about the higher level significance of deal from an industry perspective as I think it is pretty interesting for anyone involved in software.

From an industry perspective, IBM’s announcement is significant for a few reasons:

  1. It represents very a powerful endorsement of the long term promise of message aware networking.
    Message aware networking involves shifting the processing of software messages away from applications (and their associated middleware) into specialized hardware devices.   These devices dramatically improve the security, performance, and manageability of software messages.  As I have written before, message aware networking is one of the top trends in the software industry, but up until recently most of the major technology companies had yet to make a commitment to the space.  However in just the past few months a number of tech heavyweights have weighed in on the space.   First, Cisco announced its AON line of message aware network equipment and then Intel surprisingly announced that it was getting back into the space when it acquired one of Datapower’s smaller competitors, Sarvega.  IBM’s move now marks the first major enterprise software vendor (and arguably the most influential one) to embrace the trend.  So in the space of just a few months, message aware networking has gone from the province of just of few enterprising start-ups to a major battle-zone between some of the tech industry’s biggest titans.  Much of this has to do with the growing realization that as software is broken into smaller and smaller pieces that are distributed further and further apart, that the messages between these software pieces are becoming an incredibly important.  In this environment “the message is becoming the software” to such an extent that the processing and handling of the messages is becoming as important if not more important than the application itself.  IBM’s entry into the space, with its vast stable of enterprise customers and huge enterprise “stack” will likely accelerate the adoption of message aware networking (and the Service Oriented Architectures that sit on top of it) and will put pressure on other software vendors to follow suit.
  2. It underscores the inevitable collision between enterprise software and enterprise networking vendors.
    Message aware networking sits in a supposed “no man’s land” in between enterprise software and networking. It looks a lot like networking because it requires high speed dedicated devices to process large numbers of standards-based messages, but it also looks a lot like software because it requires intelligent middleware to make content and context sensitive decisions.  Because message aware networking did not naturally fit into the networking space or the enterprise software space, the big guns in each space weren’t really sure what to do.  However with a potentially huge market at stake, neither side was prepared to concede the market to the other.  Ultimately, Cisco broke an uneasy truce and moved into the market with its AON products.  In this light IBM’s purchase of Datapower can be seen as a direct response to Cisco’s moves.  These moves and countermoves come despite the fact that Cisco and IBM are supposed to be the best of friends.  However, as I outlined in an earlier post, Cisco and IBM are destined to find themselves competing head-on much more frequently thanks in large part to the inexorable melding of the traditional networking world with the traditional middleware world.   Who knows, they might have even competed over Datapower.  This “battle of the stack” will likely be one of the most important enterprise computing stories of the next decade.
  3. It marks what is likely the beginning of a very aggressive push by IBM to develop a fully featured SOA “stack”.
    As a wise man once said “He who says A, must say B”.  In buying Datapower, IBM is making it clear that they intend to build to a robust stack of message oriented products.   As relatively “dumb” yet critically important message processors, Datapower’s products will likely serve as the foundation for a wide array of message oriented products, which will mostly be grouped under the Service Oriented Architecture (SOA) label.  With the foundation in place, IBM will likely add products with other features such as SOA management, BPEL-based business process management.  Datapower’s acquisition is critical because it secures IBM’s rear flank from attack by the networking vendors and allows them concentrate their full force on enterprise software related issues.

I admit, it’s a bit of a stretch to say that software will never be the same after IBM’s acquisition of Datapower, but I do think that the acquisition underscores the fact that some of the biggest names in technology now endorse the fundamentals tenants of message oriented networking and that this promises to help spur long term changes in not just the architecture of software programs but in the competitive positioning of the technology industry.

October 17, 2005 in Middleware, Software, Venture Capital, Web Services | Permalink | Comments (3)

08/10/2005

SOA Under The Radar: Recap

Last night I served on a panel of VCs at IBD's "Under the Radar: SOA Death Match".  The event featured 4 companies with products that were either directly or indirectly focused on enabling Service Oriented Architectures (SOA).  Each company presented for 6 minutes, then the panel of VCs asked 6 minutes of questions.  At the end of the event, the VC panel picked a "best in show" and the audience picked their own "people's choice".

Perhaps what I found most interesting about the conference was that you could actually get 75 people into a room on a Tuesday evening to discuss Service Oriented Architectures.   Sure this is Silicon Valley and there are lots of tech geeks that are always up to discuss the latest and greatest technology trends, but I remember in 2001/2002 when the mere mention of XML, SOAP, etc. brought puzzled stares from many in Silicon Valley.   I think it just shows that the whole concept of XML and SOA has reached mainstream acceptance, at least within technology circles, and really is destined to become an important and long term part the technology fabric.

In case you are interested, here's an overview of the 4 companies that presented:

Appistry:  Appistry was a bit of mis-match for the conference in that they are more of a application virtualization play than an SOA play.  I actually like the application virtualization space quite a bit, although many of the big players have already made acquisitions in the space so the amount of opportunity remaining for start-ups is limited.   That said, Appistry seemed to have a very solid product and several good reference customers.  They were a bit of a sentimental favorite for me given that the CEO was a former Wash U grad and they are located in Wash U's hometown of St. Louis (not exactly the tech start-up capital), but they clearly were at a disadvantage in the competition because SOA wasn't really their sweet spot.  I suspect they knew this and were really just looking to get some valley exposure for their business/fund-raising efforts, so they should have gotten an award for entrepreneurial pluck.

Blue Titan
:  Blue Titan's main product is a web services management platform that enables companies to provision, secure and manage lots of different web services.  Their main competitors are Amber Point and SOA Software (which was supposed to present at this conference but canceled at the last moment).   Blue's Titan's founder and CTO presented and he was probably the most engaging presenter of the evening.  Conceptually I like the web services management space a lot.  I actually funded a company in early 2001 to go after this space (Maaya), but I was *way* too early and I was lucky just to get my money back.  These days it looks as though the space is finally getting some traction, but the sales process is complicated by the fundamental architecture issues that come along with embracing SOA which means it's a technical sale that requires multiple sign-offs.  In one of the more humorous outcomes of the evening, Blue Titan actually won the "people's choice" award but finished last in the VC panel's voting.  I think we VCs were concerned with the difficult sales cycle that Blue Titan faces while the audience was more focused on the visionary nature of the product.  Blue Titan's CTO took the difference in stride and said that the vote just proved his belief that potential customers appreciated his business much better than potential VC investors.

Ipedo:   Ipedo is focused on Enterprise Information Integration (EII) which I like to call data abstraction.  They aren't really focused on SOA per se, but their technology is arguably critical to the enablement of SOAs.  Ipedo competes primarily with other start-ups, most notably Composite Software and MetaMatrix.   I like this space a lot and actually came very close to investing in the first round of Composite Software (which I still believe is the best company in the space) but wasn't able to get my partners over the goal line.  I believe Ipedo started out as more of an XML-database play, but they quickly (and correctly) realized that a more generalized EII platform had more long term promise.  One of the most interesting things the CEO mentioned in his presentation was that Ipedo had an office in Shanghai, that their Chinese operations were profitable on a stand-alone basis, and that they were seeing strong demand for their EII solutions in China.  Given that EII solutions are just now being adopted by many US corporations I would not have suspected that there was demand in China, but I think it just goes to show how quickly the software market is developing over there.  As it turns out, Ipedo ended up winning the VC panel award.  I think this had to do with the fact that Ipedo seemed to be addressing a more pragmatic and immediate business need (data integration) than SOAs, so in some senses it really isn't fair as that's really comparing apples and oranges.

Reactivity:  Reactivity is a Message Aware Networking company that sells a "software appliance" focused primarily on securing XML messages as they transit a company's network.   I funded one of their direct competitors, Datapower, so I am very familiar with the space.  XML appliances aren't theoretically required to build an SOA, but they provide a much more secure, reliable and manageable foundation for SOAs.  Reactivity has traditionally been focused almost exclusively on the security side of equation (many refer to their product as an XML firewall).  To their credit this has really turned out to be the near term sweet spot of the market, however I think Reactivity's early focus has allowed some of their competitors to pigeon hole them as only security focused which may hurt Reactivity as customers begin to look for broader XML message platforms.   The big news in this space has been Cisco's recent announcement of its AON initiative which I think will likely force other big networking and software players to seriously consider buying some of the start-ups in the space.  I asked the CEO about Cisco and he gave a very honest, straightforward and mature response about  Cisco's efforts which was very refreshing to hear from a start-up CEO.  Ultimately I think both Datapower and Reactivity will do well, as the space is growing quickly and strategically important to a number of companies.

August 10, 2005 in EAI, Middleware, Web Services | Permalink | Comments (0)

07/06/2005

AON: Why the IBM and Cisco Relationship Is Headed For A Break-Up

Cisco’s long awaited announcement of its Applications Oriented Networking (AON) products a couple weeks ago foreshadows a coming battle that may rip apart the cozy and long standing strategic alliance between IBM and Cisco.  Cisco and IBM have somehow defied the odds over the last few years to maintain a high-profile strategic alliance, one which many people felt would be over faster than Britney Spears' 1st marriage.  The two companies have partnered together on a myriad of initiatives from data center management, to security, to storage networking, seemingly secure in the knowledge that neither firm had any intentions of getting into the other’s core business.  However with the launch of AON it is now crystal clear that Cisco has designs on at least a portion of IBM’s core business and that IBM must respond before one of its crown jewels, its infrastructure software portfolio, is rapidly commoditized.

E Tu, Taf?
The primary architect of Cisco’s new AON strategy, Taf Anthias, is none other than the former head of IBM’s MQ Series middleware messaging platform.  What Taf has done at Cisco is to try and create networking devices that are not packet aware, but message aware.  As I have outlined before, message aware networking is one of the most important trends in software today.  The focus of message aware networking is to migrate basic tasks such as security, transformation, and message routing away from application servers and message brokers and into network devices.  This migration should not only theoretically increase performance and enhance flexibility but it should also create the foundation necessary to properly run complex, highly scaled, Service Oriented Architectures.

Same Problem, Different Perspective
The problem for networking companies, such as Cisco, has been that message aware networking is not a natural fit.  While it looks a lot like networking in that it needs dedicated devices to process a large volume of standards based information quickly, it also looks a lot like application software in that it is message, not packet, based, and you therefore need to understand the context and content of the message in order to be able to process it.  Cisco recognized this conundrum some time ago and instead of trying to turn some of its “packet heads” into application engineers, it hired Taf.

Infrastructure software vendors, such as IBM, face the reverse problem: message aware networking looks a lot like middleware message processing, but it requires a level of performance, security, flexibility and even dedicated hardware that makes it look a lot more like networking.

An Uneasy Truce Leads To A Long War
For the last couple years, both the networking companies and the infrastructure software companies have recognized message aware networking as a dangerous, but potentially lucrative “demilitarized zone” that separated their two industries.  Up until now, both sides have been content to let a small cadre of start-ups fight it out as none of the big boys wanted to risk upsetting the global order by making a major move into the space.

However with the explosion of interest in Service Oriented Architectures and the rapid adoption of XML-based messaging, it was only a matter of time before one of the big players made a move.   Now that Cisco has taken the first shot with AON,  IBM, and other infrastructure software players such as BEA, HP, CA, and Microsoft, must respond or they risk ceding a significant portion of their “value add” to Cisco and other networking vendors.

While there are many battles left to fight in the war for control over message aware networking, the first casualty will likely be the previously cozy relationship between IBM and Cisco as it's hard to partner with someone that has clearly made a strategic decision to try to destroy part of your core business.

July 6, 2005 in Middleware, Security | Permalink | Comments (5)

04/10/2005

Super Services, Process Portals and the Road to Composite Applications

Publicly accessible web services seem to be proliferating like rabbits days.   Not only are high profile early adopters such as Amazon.com, Ebay, Google and FedEx launching a plethora of new services, but an increasing number of more obscure firms are throwing their hats into the ring, offering everything from commodity futures prices to bible quotes.

Super Services
Theoretically, this large pool of publicly accessible web services should foster the creation of a new class of “super services”.  Super services simply combine several different web services into one master service.  They can be custom-designed to serve the needs of a specific company or be repackaged and offered to the public as yet another service.  In fact, there are already some interesting examples of enterprising developers stringing together a few web services to create a rudimentary websites which themselves could be exposed as super services such as this "mashup" of Amazon/Google/Yahoo, this mixing of Flickr and the US Government's zip code database, and this combination of Google Maps and Craigslist.

Unfortunately, creating a true super service is much harder than these early examples might suggest.  To create super services developers must not only link web services at a semantic and programmatic level but they must also find a way to successfully orchestrate a business process across these services in an orderly enough fashion that a basic level of performance and transactional integrity is maintained.   Luckily, emerging business process orchestration technologies, most prominently BPEL, provide a standardized mechanism for creating the process logic underpinning super services.   However, while adding BPEL to the mix has tremendous benefits it also makes the act of building super services even more complex and less accessible.

Process Portals
In recognition of both the increasing number of web services and the increasing complexity of linking them together, a new crop of start-ups has emerged including such companies as eSigmaBindingpoint, Xmethods, and Strike Iron.  Initially these start-ups appear to have the rather mundane goal of creating directories of publicly available web services or even libraries of proprietary web services (such as Strike Iron and Xignite have done), but dig a bit deeper and you realize that their ambitions may extend much further.

Take eSigma for example.  I had the opportunity to chat with its founder, Troy Haaland, the other day.  As Troy explained, the simple portal-like interface of eSigma actually hides an increasingly complex infrastructure.  Right now, at the core of this infrastructure is a fully functioning UDDI directory.  All of the services you can browse via the portal are actually formally registered in the UDDI directory making them programmatically discoverable.   The goal is to link this directory core to a higher level process management capability via a BPEL-based visual authoring/scripting platform.  Not only would such a platform allow enterprising developers to easily create and, theoretically re-sell, their own super services, but more importantly it would allow enterprises to create composite applications that exist solely in the “cloud”.  Such “cloud based” composite applications could then be used a back-bone of inter-enterprise applications.

In this way, what appear at first to be simple directories may ultimately be transformed into Process Portals, or sites that not only centralize web services meta-data, but host a set of custom-designed super-services and composite applications as well as the visual authoring tools needed to create them.

The Road Ahead
While this is clearly a long term vision, there are indications that elements of this vision may be closer at hand than one might imagine.  Within the enterprise, there are already a number of products, from companies such as Amberpoint, Blue Titan, and Digital Evolution vying to manage the low-level provisioning and performance of intra-enterprise web services.  As the number of web services multiplies within an enterprise, a directory infrastructure is a logical next step (indeed some products have already taken this step) and some kind of orchestration layer will also clearly be necessary if enterprises want to foster re-usability and enable the creation of super services.   In some ways then, the writing is on the wall: Process Portals are an inevitable result of the increasing number of web services.  The key questions outstanding then are: 1. Will these portals first make their presence felt inside the enterprise as packaged applications or outside the firewall as publicly accessible Process Portals?  2.  Will de novo start-ups be best positioned to own this space or will the pre-existing web services management products “grow” into this space? and 3. Just when exactly will this space generate enough revenue to make it interesting from an investment standpoint?

April 10, 2005 in EAI, Middleware, Software, Web Services | Permalink | Comments (0)

03/17/2005

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.

March 17, 2005 in Middleware, Software | Permalink | Comments (0)

03/14/2005

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.

March 14, 2005 in Middleware | Permalink | Comments (1)

03/10/2005

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.

March 10, 2005 in Middleware | Permalink | Comments (3)

03/07/2005

Software's Top 10 2005 Trends: #8 Composite Applications

Software applications are gradually getting pulled apart thanks to greater bandwidth, lower latency, open standards and generic interfaces.  Composite applications represent the logical end of this current evolution.

While the term “composite application” has rapidly become a kind of marketing catch-all term for any kind of next generation EAI or web service technology, the most straight forward definition of composite applications is that they are applications created by loosely coupling several different services and data stores via standardized message layers.  Theoretically, the component parts of a composite application can be mixed and matched, much like lego blocks, allowing developers to create an wide variety of applications with a relatively small set of services.

To some extent, composite applications attempt to finally fulfill the promise of re-useable components, but do so at a much higher “service” layer.  Given all of the failed promises of the component “revolution”, there is a lot of justified skepticism that composite applications will be able to fulfill much of their hype, however web-based composite applications clearly have significant potential.

The key question then is whether composite applications will be limited to a small set of “super services”, ones that simply combine and/or repurpose a set of high level web services, or if composite application architectures will be practical for highly granular enterprise applications that must incorporate a wide variety of highly specialized services.

2005 should see increasing awareness and adoption of the concept and potential of composite applications, however actual implementation should lag as companies have yet to implement many of the web services and messaging infrastructure improvements that must be in place before composite applications can become a reality.

For a complete list of Software's Top 10 2005 trends click here.

March 7, 2005 in Middleware | Permalink | Comments (3)