What kind of software business can you build today?

I took a couple of months “off” before joining Honeycomb — spent mostly doing go to market consulting work for pre-launch startups and talking to people about what’s interesting, clocking 2–5 meetings a day.

Exhausting. Interesting.

TL;DR

You can either build a marketplace or be vertically integrated.

What you cannot do is build a platform, unless it’s for some completely un[der]served market.

Platform plays are hard

This should be a truism. How do you compete with Amazon, Google, or even Twilio? If we take them on head on, we lose. There’s nothing you’re going to build that they can’t copy. Witness the snap-ification of all Facebook properties.

Users who come to you first, an entirely new generation, may stay with you. But the vast population using an existing platform will prefer to use that platform’s copy of your feature because the value to them generated by the network effects (and their own personal investment) of the incumbent platform is not worth abandoning to start from scratch on your thing.

Platforms tend to be subject to winner-take-most-if-not-all dynamics and you have to find somewhere where a winner has not already taken the most.

Thus un[der]served markets. It seems there’s plenty of space to build non-generic platforms for specific markets with their own needs, language, culture, and particularities. Of course that’s TAM limiting — and unless there are premiums to be charged (high relative margins) — maybe not fit for venture capital.

Be vertically integrated

Instead of building wide, build deep. Although I think this applies more to existing software businesses rather than someone building something new. Unless it’s in an unserved niche, in which case maybe you can build deep before attracting too much attention from outside the market you choose to operate in.

If you look at Salesforce’s acquisitions, ignoring the usual failed forays, what stands out is that they are going deep in go to market. They’re buying up bits of the funnel, including customer success/support for the world of MRR/ARR driven GTM machines.

Build (or modernize) marketplaces

Connect supply and demand that haven’t been connected before, or electro-internet-connectify a marketplace that’s still run off paper-faxes-and-phone-calls. Usually in the process you’ll either become a new (hopefully) value-adding intermediary or disintermediate incumbent rent-seekers.

See Haven and Grand Rounds.

What is the critical differentiator for incumbents, and can some aspect of that differentiator be digitized? If that differentiator is digitized, competition shifts to the user experience, which gives a significant advantage to new entrants built around the proper incentives Companies that win the user experience can generate a virtuous cycle where their ownership of consumers/users attracts suppliers which improves the user experience— Aggregation Theory by Ben Thompson

fantasy vc - virtustream

This fantasy vc post comes from something I wrote about in “what we don’t know about private cloud” and “the three cloud questions you have to answer”: 

The line between what we do in the public cloud vs what we do in the private cloud vs what never goes to a cloud model will be moved—both in time and in scope—by the cloudification of legacy applications.

In the space between public cloud for cloud-native applications and on-prem virtualization plus automation for non-cloud-native applications lies a big space for remote hosting of non-cloud-native applications. 

Some of this is satisfied by what can best be called managed hosting for virtualization, which is what most VMware-oriented service providers (even those that use the word “cloud”) do. And some of it is satisfied by VMware-oriented service providers that actually have managed to build a self-service, usage-based service model (like the very successful Tier3, recently acquired by CenturyLink).  

Yet despite the promise of being able to forklift a legacy app to a cloud provider and switch from a perpetual license model to a usage-based model to pay for a particular bit of software as a service—that is something that is rare. Enter Virtustream.

Put these things together:

• Many enterprise apps cannot be re-architected to be “cloud-native”
• There is demand to forklift enterprise apps to hosted infrastructure
• There is demand to pay for those apps on a resource-consumption model
• Many of those apps are only supported virtualized on VMware
• Many enterprises don’t have the expertise to do the forklifting
• Many service providers don’t have the expertise to do the forklifting
• Many (most?) VMware-oriented service providers can’t figure out how to get the automation and resource-consumption parts done in a way that generates a sufficiently cloud-like experience for their customers
• VIrtustream solves for this

The interesting thing about Virtustream to me is the apparent focus they’ve had from the beginning: these exact customers, this exact problem space, those exact applications. And nothing else. Period. 

The technology they built is fundamentally an enabling mechanism to make the resource-consumption model granular enough on VMware to achieve the cloud-like experience. The model they built is predicated on doing the hard work of the full life-cycle of an enterprise pre-sales/sales/post-sales consultative service. And they do the hard work.

That's not to say that they're guaranteed success. Or won't get crushed by an incumbent or other party. Or even scooped up before they become too successful. Just that I would've placed that bet.

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Disclosure: Virtustream, as a whole, was adjacent to my coverage area at Gartner—but their xStream cloud management platform was squarely in my coverage area once it was commercialized.

fantasy vc - apprenda

Considering the press and recent funding round for my friends at Apprenda, it seems a bit disingenuous to fantasy vc them. But no matter.

I’ve been convinced of their success since the first explanation of the product and target. There were plenty of PaaSes at the time, but they were mostly targeted at developers and mostly public. Press releases from analysts firms like this notwithstanding, the market wasn’t taking off and didn’t look like it was going to take off any time soon.

Put these things together:

• There is a lot of in house development in the enterprise—though no one knows how much exactly, it’s at least enough to support a couple of private PaaS players
• That development is mostly Java or .NET on Linux or Windows
• And it runs on fleets of servers, storage, networking, and data centers that are not at end of life
• What’s developed is custom apps for core business/ops, paperwork apps, extensions to COTS with SDKs, glue to connect together these things and/or legacy apps and/or cloud apps and/or cloud services and/or…
• There was and is very little “private” PaaS competition
• There was no private PaaS for .NET applications at the time that I knew of and there are only a few today 
• There was little that provided the experience of a distributed runtime on prem out of the box
• Virtualization is not required
• Apprenda was (and is still the only?) private PaaS supporting .NET that doesn’t predicate itself on some hypervisor

You offer a runtime, so you may or may not have VMs--but who cares since what you need to expose is the runtime, a management console for that runtime, and (hopefully) APIs to connect to and operate it

- me, provided vs exposed

To me, that last point was the killer. Before the renewed popularity in [the old technology of] containers, Apprenda leveraged Linux container tech and figured out how to get a workalike on Windows to underpin their PaaS. Thus totally foregoing the overhead of hypervisors and the overhead of VMware’s margin.

That's not to say that they're guaranteed success. Or won't get crushed by an incumbent or other party. Or even scooped up before they become too successful. Just that I would've placed that bet.

Disclosure: Apprenda is not in my former coverage area and I have no financial interest in them. But Sinclair and I do share an alma mater.

fantasy vc - cumulus

Continuing a series on startups I'd put a bet on if I could. 

Pundits and analysts like to cite SDN, NFV, Open Compute Networking, and the ever greater capability (thus usage) of merchant silicon as harbingers of commoditization. I think "commoditization" is the wrong word, used loosely without any regard for what it actually means. Rather, what we're seeing is [maybe] the onset of a kind of x86-ification or open-systems-ification of networking. Given networking (telegraph, 1844) is historically behind compute (Babbage, 1830) systems, this is not without precedent. ;-)

So my second Fantasy VC bet is Cumulus. My introduction to Cumulus was JR pulling up the OS on his laptop and handing me a bash prompt.  

Either you disrupt by doing something new. Or you disrupt by changing the supply chain, removing middlemen, disintermediation (or consolidation of intermediaries unto yourself?). When was the last time any significant disruption happened in networking? Arista looked like it was going to stir some things up, but has more or less ended up as a niche version of the typical vendor. But it did take a step in the direction Cumulus continues down by abandoning spinning it's own silicon and focusing on Linux-based OS and hardware packages. 

[This is where people with history in networking start berating me for glossing over all the other attempts and examples and acquisitions and research and….] 

Put these things together:

• Network management is a mess, has been a mess, and continues to be a mess
• Config automation is ascendant
• Application-centrism is ascendant
• Network gear is made up of specialized computation machines; why should it be isolated from the same historical progression as has happened with other kinds of computation machines?
• There's precedent for OS/hardware independence
• Has anyone ever cut out OEM's before and made distributers/VARs into the only packagers for product? What happens when Channel gets to command the margin?
• There is a market [small but potent] for mix and match network hardware and operating systems
• Every network incumbents' margin structure is someone's opportunity and those margins are fat
• Mainframes, Power Systems, Superdomes, etc., are niches while most servers sold are a variety of x86 hardware + standard OS packaging exercise

That's not to say that they're guaranteed success. Or won't get crushed by an incumbent or other party. Or even scooped up before they become too successful. Just that I would've placed that bet.

Disclosure: Cumulus is not in my former coverage area and I have no financial interest in them.

fantasy vc - metacloud

Kicking off a series about bets I would've placed if I had the money. This is something I very much wanted to do--very much could not do--when I was at Gartner.

I don't know the numbers on "real" (read: revenue generating) OpenStack adoption, growth, etc. . 

I do know there's real traction. 

Suspicion: it's with very very few vendors. Money is being made but success is concentrated.

There are only two startups in the space I would bet on. One, I have a conflict of interest regarding. The other is Metacloud. Both aren't really OpenStack companies. OpenStack is just a vehicle for the thing they actually do.. In Metacloud's case, what they do is remote ops (as a service!)

Put these things together:

• There is a market for private cloud (whatever that is)
• There is a market for AWSish public cloud
• There is a market for AWSish private cloud (Eucalyptus are still in business, aren't they?)
• There is an existing use case for AWSish private cloud in most enterprises (web, mobile, dev)
• There is a fundamental our-bottom-line-at-stake use case for AWSish private cloud in some subset of enterprises (a few hundred?) today
• There is a general lack of operational skill for AWSish private cloud
• One of the core things public cloud provides is a managed service
• There is a market for on-prem remote-managed AWS (the three letter agency thing is a public example)
• The Metacloud guys are ops guys who understand enterprise, scale, web, mobile, open source, AWSish cloud
• There just aren't a lot of hats (big or small) in this particular ring right now 

That's not to say that they're guaranteed success. Or won't get crushed by an incumbent or other party. Or even scooped up before they become too successful. Just that I would've placed that bet.

Disclosure: They're in my former coverage area. But I believe with some certainty that I'd come to the same conclusion without that background. I have no financial interest in Metacloud. I really like them. Would have a beer with that crew any day.