News Article
Off The Beach- Back To The Business Model
September 3, 2013
In short, technology is nice – but assuming that you have a “better way” to do something that can already be done some “less better” way by spending money with some incumbent vendor – your road to success will be brutal and statistically rare. I’m glad you have a better mousetrap, but history is littered with the carnage (or lack thereof in this metaphor) of better mousetraps.
But, if you have a better mousetrap – or (gasp!) sometimes a technically INFERIOR mousetrap – combined with a disruptive business model you have a far better chance of upsetting the status quo – or, better yet, the money flowing from the customer to the incumbent.
Summer is over. It always ends too fast and launches me back into reality with a tad bit of melancholy. I’m sure you feel for me.
Having said that, the end of summer also rekindles a Renaissance of thinking sometimes. After some reflection, and a million homemade diet mojitos (yes, I’ve mastered the zero extra calorie ((except the Cuban rum part)) mojito), I’m back to harping on leveraging business models as a competitive weapon.
In short, technology is nice – but assuming that you have a “better way” to do something that can already be done some “less better” way by spending money with some incumbent vendor – your road to success will be brutal and statistically rare. I’m glad you have a better mousetrap, but history is littered with the carnage (or lack thereof in this metaphor) of better mousetraps.
But, if you have a better mousetrap – or (gasp!) sometimes a technically INFERIOR mousetrap – combined with a disruptive business model you have a far better chance of upsetting the status quo – or, better yet, the money flowing from the customer to the incumbent.
Two examples of this that I’m keeping a keen eye on right now happen to both be in the data protection area – Actifio and Asigra.
Both very different technologies, solving different problems to a large degree, but both seeing early success by attacking hyper-established markets with business model disrupters.
Asigra is the arms dealer to the who’s who of cloud backup MSPs. Privately held, 1000 years old, always profitable, and zero outside money (they are my heroes, truth be told – I love everything about what they do and have done) – and are arguably the inventors of the first legit cloud service (backup) – over dial-up lines (let alone, dedupe, compression and a million other things that are all in vogue now). Anyhow, in the beginning of the summer, they launched their bombshell – if you think the value of backup is really the ability to restore, you can pay for that. Meaning, why do you keep paying to back up 100% of your data (i.e.. buy all the licenses you MIGHT need in order to ever restore up front) whether you restore all of it or not? Why not pay for what you actually restore? And even better – if you DON’T restore everything all the time, your cost decreases!
It will take a while for the market to get their brains around this (common sense is often the last thing to come to the forefront in IT, in case you haven’t been paying attention for the last 40 years or so) – but thus far MSPs – from small to ABSURDLY large – are buying in, hook, line, and sinker. The company guarantees you will not pay MORE – only less, and it could be much less – so why not?
Why not is the interesting question – and the only answer that will come up is “because that’s not how we do it.” The status quo. People are used to buying licenses, whether they use them or not. Whether they recover one file or a billion. Add more servers, add more licenses. It’s what we do.
Why is this so interesting to me? Because backup is a $5B annual spend – and IF the likes of Asigra can alter the flow of that dough 10%, that means $500M will NOT go to the incumbent dominant players, and that will cause BILLIONS in market capitalization shifts – which in turn, will cause total mayhem. I dare say, this WILL happen. It doesn’t mean Asigra gets $500M, it means they enable a $500M shift in spending patterns. The way that Amazon shifted BILLIONS in retail spend, or iTunes did in music spend. The whole market may not have increased, but market caps of public companies went absolutely loco.
The disrupter always gets its rewards, so let’s not worry about Asigra. Someone will buy them for a huge pile of money as this takes shape. What do you look for to see if it’s working? Watch news from big backup MSPs. When ABC Company is announced by Verizon or some big cloud provider as a new backup customer, that means whoever ABC was buying before just lost $2M a year in revenue. It won’t take long to feel the impact of this kind of thing.
Which gets me to Actifio. Actifio figured out that 90%+ of all the data in an enterprise is a COPY of production data, used in different areas of the company, and ultimately copied over and over. Thus, they manage all of those copies from one place – virtualized and optimized. Doing so means ABC company can manage their corporate data assets with way less people, infrastructure, and process. That represents a PROCESS change disrupter for the market – which all by itself is way cool. It’s so cool that Actifio’s last VC round gave them a $500M valuation. They are selling lots of stuff fast, because what they do makes sense BUT – it’s not the coolest thing they have going on.
They started doing what every systems company does – selling capital equipment/software (licenses). Six months ago, they started dabbling with the idea of selling their stuff as a service – OPEX only. Two interesting things happend – first, the market caught fire for them, as customers LOVE to buy stuff as an OPEX service – so much so that I bet more than half of Actifio’s deals are running this way, and it wouldn’t surprise me if the other half isn’t far behind. Second, the size of the Actifio deals exploded. 5X or more – almost overnight. The biggest problem Actifio faces with their own success is not that big a problem – it’s cash. They have to buy stuff upfront and amortize it over 3+ years, but with the right margin profile, this is not a hard one to fix.
Actifio screws with the CAPEX of really big storage players, system players, database players, dedupe players, backup software players, ETL companies, etc. Anyone that takes/uses/moves/accesses a copy of production data for any reason. If 90% of all data is a COPY -then arguably 90% of all infrastructure spend is in support of those copies, which, arguably, means 90% of all the dough that data center spends is AT RISK!
What both Actifio and Asigra have done is to screw up the incumbent market players–more than just beating them in the field is HOW they screw with those competitors’ ability to react. IF (i have to say If, because let’s face it, markets still will buy things the old fashioined way no matter how dumb it is sometimes) they are successful, how will the established competitors react? They CAN’T just stop their own way of recognizing revenue – because they have a model built for Wall St. The only way they can really react is to DISCOUNT (assuming the other guys are winning) – which is a terrible position to be in. In other words, they just can’t start saying “we’ll take revenue as a monthly number instead of up front” without getting slaughtered on the street – which means endless lawsuits, etc. Very distracting stuff.
In order to make this possible, both entities had to be private, and have access to cash. In Asigra’s case it’s easy, because they don’t ship hardware. For Actifio it means they need a funding source for cash flow, but with big margins, that’s easy. For 5% people will finance crazy stuff. For 10% people will finance anything. Literally anything.
So let’s watch the biz model impact potential of what these two are up too. No matter what, it can be far more reaching than anything their tech could do – and that’s saying something.