Michael Brown of Bowery Capital and Kelli Fontaine of Cendana Capital discuss trends and themes using Cendana Capital manager data.
Enormous changes are afoot in the C-suite at companies at every level of scale and growth. We built Bowery Capital on the thesis that roughly $357 billion would change hands over the next ten years through the swapping out of old technology for new. This perspective comes from years of seeing Internet natives becoming IT decision-makers, a concept on the rise, but this is something we are just at the beginning of.
Greylock’s David Sze recently talked about finding companies to invest in that access the “140 billion of IT spend up for grabs” and we not only agree, but see the number as far higher. More specifically in pulling spend shift data every quarter (see above), we think we are only in the 1st or 2nd inning of this shift.
In our view, the absence of a few key discussions is further proof that we’re in the very early stages:
Risk & Safety versus Growth & Leverage
Many CMOs, CTOs, and CIO in medium to large companies still think in terms of risk and safety rather than growth and leverage. They all are thinking about “enterprise 2.0,” but we have just not seen a radical shift in thinking towards growth. Concepts like bring your own device (BYOD), cloud, etc. are going to take a long time to truly impact the medium to large company so long as people continue to think from a place of fear, not opportunity.
Okay, maybe this one is talked about a lot. But I focus on the hosting abstraction over the software paradigm (client-server) because I think it actually is more important. While this concept is not novel to any venture capitalist, we’re only seeing surface level adoption across the mass of medium to large companies. Many of these companies are just starting to understand the scale, cost, and power efficiencies of cloud computing. Just think about the length of time it took to move from standalone applications to client-server applications.
Consumer Battle Testing
For the first time in history we actually have consumers battle-testing software that can then be sold into medium to large companies — think Dropbox, Skype, etc. These companies now have the ability to answer the age old question of, “how do I know your product can scale to my organization?” While there are competitive dynamics at play beyond this concept (i.e., time will tell whether Dropbox can build a major enterprise product) we believe the next 10 years will see winners that provide best-of-breed tools to both consumers and businesses.
Horizontal versus Vertical
The old guard grew up in the world of horizontal software solutions. Oracle (ORCL) and SAP (SAP) are the greatest examples of this and I would even argue that Workday (WDAY) is as well. These organizations have malleable products and solutionss that can win in any category or business type. Very few organizations have really gone vertical however, with solutions that truly dominate and out-compete these players in a specific category. A few examples of companies who’ve grasped this concept are CareCloud for health practices, Fleetmatics (FLTX) for fleet tracking, and Veeva Systems (VEEV) for global life sciences. Industries such as health, manufacturing, retail, media and education all are up for grabs and, in the future, there will be billion dollar specialists in every category.
Look At Revenue + Customer Numbers
Anchoring the $357 billion of spend shifts, are enterprise 2.0 companies really capturing a ton of the market from a revenue standpoint? Sure Buddy Media and ExactTarget sold for a lot, and WorkDay and Palo Alto Networks (PANW) have gone public. But if you look at these and other 2.0 companies’ revenue and customer numbers, they have a long way to go relative to their 1.0 predecessors. In our view there has only been about $38 billion that has changed hands to date out of old and into the $357 billion of new. We’re optimistic with the initial swapping cycle and excited the market is still in its early days.
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