Professional Documents
Culture Documents
By Michael Yamnitsky
#2017Almanac
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PREAMBLE
For the past four years at Work-Bench, weve been investing in a total reimagining of the enterprise technology stack.
Were in the midst of a once in a decade tectonic shift of infrastructure that powers the Fortune 1000 and is unlike
anything weve seen before. Whereas consumer tech has the Mary Meeker Internet Trends report for an aggregate
view of industry trends, enterprise technology was missing a comprehensive overview of the key trends - so were
launching the Enterprise Almanac to share our thinking on the trends reshaping enterprise technology.
Our primary aim is to help founders see the forest from the trees. For Fortune 1000 executives and other players in
the ecosystem, it will help cut through the noise and marketing hype to see what really matters. Its wishful thinking,
but we also hope new talent gets excited about enterprise after reading this report. By no means will most of the
predictions be correct, but our purpose is to start the discussion by putting this stake in the ground.
Please share any and all feedback via email at michael@work-bench.com or on Twitter at @ItsYamnitsky.
MI CH AE L YAMN IT S KY
Venture Partner, Work-Bench
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PREAMBLE
About Us
Work-Bench is an enterprise technology focused venture fund.
Our Thesis
Customer-centricity. We make it our focus to deeply understand the business and IT needs of the
Fortune 1000 in order to make more informed decisions in our search for the next enterprise giants.
This is highly informed by our backgrounds in corporate IT at leading Wall Street banks and as Industry
Analysts which is unique in the venture business.
Our Model
Our model flows directly from our thesis. We leverage our deep corporate network in New York City and
beyond as a way to identify trends, pick the winners, and secure customers for our portfolio companies.
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PREAMBLE
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PREAMBLE
Special thanks to
Team Work-Bench
Jonathan Lehr, Jessica Lin, Vipin Chamakkala, Kelley Mak, Mickey Graham, and Dash Adam who added significant
contributions and healthy debate for the content of this presentation.
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PREAMBLE
SMALL DISCLAIMER
Our views are shaped by anecdotal evidence based on our interactions with entrepreneurs, corporate
customers, and big tech leaders. Take that for what its worth. Weve done our best to separate fact from
opinion by highlighting opinionated perspectives in blue.
Youll notice many qualitative details, but a dearth of data in this report. The trends we discuss are indeed
early they cant be rigorously quantified in customer surveys ran by Forrester and Gartner, nor can they be
segmented out of spending figures by IDC. CBInsights and Pitchbook provide valuable fundraising data,
but since history has shown theres a disequilibrium between market potential and fundraising in early
market crests, weve decided to keep funding figures to a minimum. Our intent was to avoid cherry picking
funding data to serve our purpose and make unfair claims of causality.
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2017 Macro Perspective
The Next Generational Shift In Enterprise Technology Has Arrived
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MACRO PERSP ECTIVE
SPEED, SCALE, CX DEFI NES VALUE IN TODAYS POST-INTERNET ECONOMY
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MACRO PERSP ECTIVE
STARK EVID EN CE OF THIS AS 3 OF T HE M T R ANSFORM ENTERPRISE TECH
The core tenants of these powerful companies (speed, scale, standards) led them to expose their internal capabilities to global
companies around the world and evolve into megaclouds dominating growth in the enterprise IT market
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MACRO PERSP ECTIVE
MEGACLOUDS ARE F IG HTING TO BE #1 PLUMBING FOR DIGITAL BUSINESS
Besides a few serious regional players like Alibaba, global enterprises have 3 main
marketplace bazaars to choose from to power their digital transformation
PLAYER #1 (CATEGORY LEA DER) : PLAYER #2 (FOR NOW): PLAYER #3 (KILL ER PRODUCTS):
MOMENT UM AND BRAND NAME ENT ERPRISE HE RITAGE BUT WHERES TH E ENTERPRISE LOVE?
$17.1 Billion (2017 Revenue Est.) $6.1 Billion (2017 Revenue Est.) $950 Million (2017 Revenue Est.)
40% YoY Growth 81% YoY Growth 75% YoY Growth
Source: Estimates from Bank of America Merrill Lynchs Server & Enterprise Software: Cloud Wars 9: AI : From faster to smarter powered by ABC. May 8, 2017. Revenue includes PaaS & IaaS.
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The opportunity is massive, so
megaclouds have gotten a little bit
territorial
Software division spin out in 2016 20 straight quarters of YoY revenue decline
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MACRO PERSP ECTIVE
ENTREPR EN EURS IN SIL ICON VALLEY ARENT IMMUNE EITHER
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But the rules are about to change again
with the resurgence of Artificial Intelligence
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MACRO PERSP ECTIVE
AI STARTU P FUNDRAIS ING AT RECORD HIGH S
Source: CBInsights The 2016 AI Recap: Startups See Record High In Deals And Funding
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MACRO PERSP ECTIVE
TE CH POWERHOUSES ARE PLAYING DEFENSE WITH ACQUI-HIRES
Source: CBInsights The Race For AI: Google, Twitter, Intel, Apple In A Rush To Grab Artificial Intelligence Startups
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MACRO PERSP ECTIVE
STRATEGY I S TO KEEP AI ON A LE ASH BY D EMOCRATIZING IT
Source: https://www.wired.com/2017/05/sundar-pichai-sees-googles-future-smartest-cloud/
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MACRO PERSP ECTIVE
JEFF BEZOS ADMITS AI VALUE IS IN REAL WORLD APPLICATION IN OPERATIONS
Source: http://www.businessinsider.com/jeff-bezos-shareholder-letter-on-ai-and-machine-learning-2017-4
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MACRO PERSP ECTIVE
WE BELIEVE A MINI AI CRASH IS IMMINENT
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MACRO PERSP ECTIVE
LIKE THE INTERNET ECONOMY, AI VALUE WILL BE CREATED AFTER THE CRASH
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MACRO PERSP ECTIVE
AI COMPAN IES WILL CREATE VALUE THROUGH SYSTEMS OF INTELLIGENCE
Systems of Intelligence are highly focused analytical systems intended to solve business challenges and
objectives (i.e. increase revenue and customer experience, improve operations, reduce risk)
Value created by:
Designing products from data
capabilities up to user experience
and not the other way around
Software UI as invisible as possible >
fancy GUIs. Name of the game is
making the workflow as seamless as
possible.
Value created by:
Embedding domain experts into the
debugging and hyper-parameter
tuning process
Incorporating feedback from human
experts into the system of record (SOR)
Original Framework Source: Jerry Chens The New Moats - Why Systems of Intelligence are the Next Defensible BusinessModel
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MACRO PERSP ECTIVE
EXAMPLE S OF SYSTEMS OF INTELLIGENCE
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Systems of Intelligence are like Ford Assembly Lines and
Toyota Production Systems powerful weapons for
competitive process advantage.
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MACRO PERSP ECTIVE
SYSTEMS OF INTELLI GE N C E BARRI E R TO E NTRY LIES IN TIGHT INTEGRATION
Cloud moat =
Data-driven
Data
unbundling capabilities into product design
individually deployed microservices
for scale advantage
Turning the
Processes to intelligence into
maintain and action anchors
enhance data product design
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MACRO PERSP ECTIVE
BUILDING A SYSTEM OF INTELLIGENCE REQUIRES GETTING INTO THE DETAILS
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Achilles heel of megaclouds = lack of
focus on the details of real-world
applications
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Next-generation of successful entrepreneurs
will build systems of intelligence
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Still scared of this guy?
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Vertical Theme #1
Machine Intelligence
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TL;DR
Vertical AI continues to be a disruptive force in the enterprise, with niche markets presenting massive
1
opportunities.
2 One caveat: complex vertical AI operating models = protracted path to product/market fit.
Technology advances enable AI applications to expand beyond the limitations of large, well-labeled data
4
sets.
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Misalignments
Cloud Native disruption
cant be stopped
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MACH INE IN TE LLIGENCE
BETWEEN TALENT AND OPPORTUNITY
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MACH INE IN TE LLIGENCE
HYPE AND POTENT IAL
Source: Michael Porter, How Information Gives You Competitive Advantage HBR
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MACH INE IN TE LLIGENCE
EXPECTATIONS AND RE AL I TY
What the press thinks of AI entrepreneurs How entrepreneurs really feel right
now
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Bridging the gap
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MACH INE IN TE LLIGENCE
THE OPPORTUNITY IS GETTING MORE OBVIOUS
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MACH INE IN TE LLIGENCE
REF LECTI NG ON LESSONS LEARNED FROM THE RECENT PAST
AI Masquerade Ball
14 months, 150 consultant
ERP projects
?
Is it Ava? Or Jake from
State Farm?
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MACH INE IN TE LLIGENCE
AND DIG GING INTO THE ARCHIVES TO SEE WHAT WORKED IN THE PAST
Artificial intelligence
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MACH INE IN TE LLIGENCE
TO WRITE THE FUTU RE PL AYB OOK FOR BUSINESS PROCESS AUTOMATION
ID the killer app, ride on top of Implement with pilot customer, facilitate niche search
Strategy and user exploration in app to train the AI, ID MVP
Strategy established data set, create a data that can scale with respect to customer
label moat to protect against new
entrants implementation and sell that before expanding scope
Buyer persona
Buyer persona
Employee BU leader/CxO
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MACH INE IN TE LLIGENCE
INVISIBL E APPS HAVE A MORE OBVIOUS TRAJECTORY
Employee
Impact: Dominant force disrupting the workforce over the
next five years because of deadly combination of task
automation + wide reach, ease of deployment of
consumerized SaaS Invisible apps
Key distinction: end-to-end automation of a business task
so the value proposition is cost reduction. Otherwise
merits of AI = more efficient UX and its just a productivity
play like any other SaaS app.
GTM differentiation: Shorter AI training periods leveraging
structure and rich semantics of biz app data. Busy execs,
consultants and sales peoplewill purchase and expense
access to invisible apps in true consumerized fashion.
Examples of invisible apps:
*
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MACH INE IN TE LLIGENCE
VERTICAL AI IS TRICKIER GIVEN THE MORE COMPLEX OPERATING MODEL
Vertical AI
Invisible apps
Lock-in dynamic with integration services and
Defensibility driven by the data moat customer side annotation
Feedback loop
Vendor
Annotation Annotation
Note: there is some human-in-the-loop in that the users interactivity Deals with routine discrepancies
with the software drives model refinement, but the onus is not on the
customer to explicitly train the AI like in many cases of vertical AI
Customer
Annotation
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MACH INE IN TE LLIGENCE
AND HARD ER TO GE T TO DATA SETS
Unstructured
data
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MACH INE IN TE LLIGENCE
SO THEYRE SUBJECT TO TOUGHER REQTS FOR PRODUCT/MARKET FIT
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MACH INE IN TE LLIGENCE
VERTICAL OPPS ARE MASSIVE: EX. FINANCIAL SERVICES
BU leader/CxO
Vertical AI can help firms reduce
Theres a multi-billion dollar differential Regulation is such a powerful force on Wall
compliance headcount by
in investment bank cost structure, and Street that compliance officers seem to be
automating the mind numbingly
compliance is dominating expenditure running the business and driving divisional
repetitive tasks within compliance:
post 2008 financial regulation. efficiency initiatives.
*
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MACH INE IN TE LLIGENCE
VERTICAL OPPS ARE MASSIVE: EX. PHARMA
Source: Joseph A. DiMasi, Henry G. Grabowski, Ronald W. Hansen Innovation In The Pharmaceutical Industry: New Estimates of R&D Costs; Harvard Business School The Medicines Case
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MACH INE IN TE LLIGENCE
VERTICAL OPPS ARE MASSIVE FOR A REASON
Higher margins =
larger margin differential across firms =
wider gap for AI to be used as a
competitive advantage
Source: Factset
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New forces extend the possibilities in
enterprise AI
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MACH INE IN TE LLIGENCE
UNSTRUCTURED DATA PREP = MORE USE CASES, FASTER TO MARKET
70% of time in AI development spent on data prep
Automated data prep has historically only worked
for the 10% of structured data
*
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MACH INE IN TE LLIGENCE
INDUSTRI ALIZED DATA ANNOTATION = MORE ACCURATE AI
Deep learning common among AI elite; special sauce turning to data annotation in ebb/flow pattern between data and algos
Deep Learning and more exotic forms of AI are great in theory, but difficult to implement in practice due to the intensive parameter tuning and amount
of data required to train an algorithm
New trend: make AI methods that require less data more accessible by adding representation schemes from traditional ML.
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MACH INE IN TE LLIGENCE
BAYESIAN LEARNING = PARTICULARLY PROMIS ING AS COMPLEXITY RISES
As the industry continues to explore more complex The need for easier to use substitutes for deep
machine learning challenges learning like bayesian learning will rise
Deep learning
Problem difficulty
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MACH INE IN TE LLIGENCE
COMP ETIT IVE FOR C ES IN AI- POWE RE D SOFTWARE ARE CHANGING
Competitive forces will be in flux as the AI landscape continues to develop at rapid speed.
Here is where things currently stand and directionally where they are going:
Weaker: still a significant barrier, but Weaker: tough to sustain with open Stronger: The key value driver
its faster to develop and thus harder source, but there is some value in moving forward is developing
to sustain a data moat. novel training, profiling, debugging, products bottoms up, from data
and testing processes. and analytical capabilities to
features and user experience, and
creating a virtuous loop between
the two.
Locus of focus shifting from the
quantity you own to the process Example: Merlon intelligence
you use to sustain these assets* designs its automated compliance
workflow software to BOTH shorten
insights to action and gather
Direction = whether this factor will be more or less significant 12-24 months from now feedback from users as new data
*For more on this topic, see Matt Turcks The Power of Data Network Effects that feeds into the models.
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MACH INE IN TE LLIGENCE
FORGET AI ELITISM, MAINSTREAM NOW BETT ER EQUIPPED/EAGER TO BUILD AI
After missing out on the internet and struggling with mobile, Corporate America wants in early on AI
Source: Quotes from interviews with machine learning executives at top-tier Wall Street banks
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MACH INE IN TE LLIGENCE
WITH A PL ETHORA OPEN SOURCE IT WILL BE EASY, RIGHT?
Out-of-the-box deep learning Good for recursive neural nets Good for convolutional neural Higher-level APIs
with differentiated AI training nets, speedy/flexible but no
support for Keras
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MACH INE IN TE LLIGENCE
WELL THERES A STEE P LEARNING CURVE
Root-cause analysis in AI is vastly more complex than regular + longer time cycle testing the fix
software
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MACH INE IN TE LLIGENCE
AND BR ICK WALLS SI LOING INTERNAL EFFORTS = LACK OF LEVERAGE
Enterprise data science functions are decentralizing to get more funding/buy-in from across the enterprise.
Most organizations lack culture of collaborative data exchange, and data governance teams slow projects down.
APIs
Central intelligence This role is the newest addition to the
enterprise data science function highly
underserved from a SW perspective
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MACH INE IN TE LLIGENCE
ML PIPELIN ES EVOLV IN G INTO A PLATFORM TO BUILD & DEPLOY ML
ML platforms help enterprises centralize, reuse, and deploy their models at scale.
Value will be in tight integration of ML workflows spanning the entire pipeline.
Collaboration
Historical lineage of ML models ready *
to be leveraged across the org
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MACH INE IN TE LLIGENCE
WHAT IT M EANS: FUT URE = GITHUB + HEROKU FOR AI, FUTURE TWILIO FOR AI
YES NO
Collaboration With deflationary pressure from open source, we expect
*
MLaaS or Twilio for AI vendors with differentiated IP and
talented teams will try to pivot towards Github for AI, but
Modeling tools and platforms will most likely get acqui-hired or resort to selling their data
sets to sustain their business.
acquired by Cisco
Algos Data
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Vertical Theme #2
Cloud Native
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TL;DR
1 2017 is shaping up to be a pivotal year for Fortune 1000 deployments of cloud native infrastructure.
Container orchestration is the VMware anchoring the cloud native ecosystem. Exactly who will play
2 this critical role will become clearer this year.
3 Cloud native is reshaping databases, middleware, big data, developer tools, and business models.
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CLO UD NAT IV E
APPLICATI ON INFRAST RUCTURE TRANSFORMATION = WELL UNDER WAY
The container disruption = slowly shifting enterprise infrastructure away from virtual machines (VMs)
Containers
Apps Containers
orchestrated on
on VMs on VMs
bare metal
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CLO UD NAT IV E
WHY CON TAINERS OVE R VMS?
Container are simply a better unit of deployment for the cloud than VMs
Containers are lighter 10s-100s of MBs vs. multiple GBs, just the right size for component based microservices
Containers are faster they can be spun up and down in seconds vs. minutes to realize the true agility, resilience,
and portability of cloud computing
Containers are more efficient you can fit 4-8 times as many app components (or microservices) on a bare metal
container server than you can on a VM because of the way containers share OS resources to free up space
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CLO UD NAT IV E
A NEW CLO U D N ATI VE STAC K IS BE ING DE VELOPED AROUND CONTAINERS
Developer crave for speed and simplicity combined with 4-8X potential server efficiency gains across $726B in global IT
infrastructure spend more than justifies the new economy of container-centric IT infrastructure dubbed cloud native
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CLO UD NAT IV E
WHY THIS MATTERS FOR THE FORTUNE 100 0
Worlds largest custodian of Major media company goes no-ops Major education company goes cloud
assets to be largest non web- with self-service cloud native PaaS native to efficiently scale its growing
scale to go cloud native Use case: rapid-application customer base
Use case: mission critical development platform to meet Use case: core digital learning platform
internal workloads and demands of its deadline-driven Business case: rapid scalability
partner facing developer business Tool & vendors: Kubernetes, Docker
platform called NEXEN Business case: developer productivity
Business case: transactional Tool & vendors: Kubernetes, Docker
velocity, cost cutting
Tool & vendors: Apache
Mesos, Kubernetes,
OpenStack, Docker
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CLO UD NAT IV E
FORTUN E 1 000S WANT DEVELOPMENT AGILITY LIKE THE WEB-SCALES
Microservices fulfills on the promises of service-oriented architecture by decoupling apps into single-purpose services that
communicate with other microservices via APIs or messages
Sources: PWC Agile coding in enterprise IT: Code small and local
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CLO UD NAT IV E
AND TO SCALE AS E FFICIENTLY AS THE WEB-SCALES TOO
?
50-70%
Cloud-native
10-15%
Hallmark vendor
5-10%
Virtualized
Infrastructure type Non-virtualized
Example users
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CLO UD NAT IV E
DESPITE ORGANIZATIONAL HURDLES ENTERPRISES NEED TO OVERCOME
The cloud native organizational disconnect = ops getting the short end of the stick
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CLO UD NAT IV E
2017 IS SHAPING UP TO BE A PIVOTAL YEAR FOR CLOUD NATIVE ADOPTION
Container adoption is crossing the chasm: 11% of global developers reported using Docker containers for
deployments in late 2016.
Megaclouds are increasing their integration and support for container orchestration: Amazon natively integrates
with Mesos, Microsoft Azure container services supports Kubernetes, Docker Swarm, and Mesos, Google naturally
integrates with Kubernetes, and even Oracle now supports Kubernetes!
Developers are embracing new programming models like functional pipelines (i.e. serverless) and the agent
model to ease their migration to microservices.
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I want in, where do I invest?
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CLO UD NAT IV E
ORCHESTRATION = CE NTRAL NERVOUS SYSTEM OF CLOUD NATIVE = $$$
Container orchestration tools are the data center operating systems of the future. They automate container deployments by
spinning up and managing deployment of containers in production applications to fully realize the agility, resiliency, and
portability benefits of containers.
la carte option for running micro Most mature solution for scale out apps Best bet for greenfield apps
services on existing infrastructure More mature project than Kubernetes and Nomad Largest open source initiative by Google
Individual open source projects for service scheduling, Integrates well with existing Hadoop stack Fully featured orchestrator for enterprise apps
discovery, and secrets management that together are Not so self-service: bring your own service discovery, Several commercial vendors in ecosystem as with
competitive to Kubernetes highly skilled operators, and maintenance staff Hadoop
Existing companies with legacy inertia use Nomad for Major Partners: Microsoft, HP Major Partners: Google, Rackspace, RedHat, Intel,
service discover and secrets management CoreOS, Oracle
Managed by Hashicorp
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CLO UD NAT IV E
CONTAINER OR CHE STRAT ION V E NDORS ARE THE NEXT BIG IT VENDORS
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Kubernetes is a disruptive pirate ship
built by Google, with sails set straight for Amazon
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CLO UD NAT IV E
A FEW REAS ON S W HY KUBE RN E T E S WILL WIN THE RACE FOR DATA CENTER OS
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Cloud Native disruption
cant be stopped
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CLO UD NAT IV E
DATAB AS ES FINALLY CATC HI NG U P WI T H D EMANDS OF CLOUD NATIVE
Cloud native needs databases that can keep up. Problem = databases are sluggish beasts that never quite benefitted from the
pace of innovation the rest of the industry enjoyed.
Former Google VP of Infrastructure Eric Brewer summarized the engineering challenges of developing database infrastructure
with the CAP Theorem: you can only achieve two of the following guarantees for your database: 1) transactional integrity,
2) availability, 3) and scalability.
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CLO UD NAT IV E
APPLICATI ON MONITORING CATCHING UP AS WELL
Buoyant
Interbred app-service dependencies
* Powerful stream processing
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CLO UD NAT IV E
CLOUD NATIVE MON ITORING VIA MULTI-V ENDOR TOOL CHAIN
+ +
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CLO UD NAT IV E
POINT TO ANOTHER ROU N D OF APM CON S OLIDATION?
Will new monitoring entrants evolve standalone or will APM leaders AppDynamics/New Relic lead the charge?
Buoyant
?
Either way, both categories expand with shift to cloud native
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CLO UD NAT IV E
WITH CLOUD NATIVE , SOFTWARE EATS MIDD LEWARE
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CLO UD NAT IV E
NEW P ROGRAMMING MODELS ABSTRACT MID DLEWARE FUNCTIONS INTO CODE
Middleware, once a core layer of the IT stack, is shedding significant weight as middleware
functions now reside in distributed code.
Google Amazon
IBM Bluemix Microsoft Azure
Cloud AWS
OpenWhisk Service Fabric
Functions Lambda
Iron.io Serverless
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CLO UD NAT IV E
SERVICE MESHES ABST RACT NETWORK FUNCTIONS VIA LIGHTWEIGHT PROXIES
Service meshes are lightweight network proxies governing service-to-service communications for tasks such as service
discovery, load balancing, and monitoring in highly complex distributed systems
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CLO UD NAT IV E
MIDDLEWAR E MARKE T ISNT DEAD, ITS JUST EVOLVING
Replacing middleware pipes is a new software-human middleware layer tackling the more specialized functions of
complex modern apps:
Systems of engagement
Next-generation middleware
Helping data
Streaming platform Ingesting and
scientists add ML pipeline
interpreting real-time
intelligence and
information from
automation to
around the world
software
Infrastructure
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CLO UD NAT IV E
STREAMING I S TH E NE W COMPLE X E V E NT P ROCESSING SERVER & ESB
Business logic as
distributed code
Code Container orchestration
Code
Container engine
Data lake/distributed database
Container OS
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CLO UD NAT IV E
THE RACE I S ON FO R STREAM PROCESSING
Its a story of multi-purpose convenience vs. purpose-built performance, with support for
cloud-native schedulers becoming a must
Already considered New streaming New streaming One stop shop for Streaming and Tied closely with
legacy in Silicon library on popular library developed at batch, streaming, batch in one YARN architecture
Valley with Spark distributed log with Twitter with promise and ML that plays system incurs Latency issues as
demonstrating mid-2016 release of better scalability well with Hadoop latency a multi-purpose
considerably more Unproven scalability/ and manageability Near real-time Limited system
more horsepower stability, support for than Storm streaming is good production use
Doesnt work out of cloud-native Architecture enough but not great cases and
the box at scale and schedulers supports cloud- with respect to scale, unclear
frustrating to set up native schedulers throughput, and development
and manage and Storm migration latency path
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Cloud native stack Big data stack
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CLO UD NAT IV E
STREAMING I NTEG RATIONS = DATA AND APPS WILL LIVE IN ONE STACK
Data and app stacks have been separate until now Container orchestrators like Kubernetes and
Mesos distribute data workloads better than Hadoops Yarn. Spark, Kafka, Herron and other new
school stream processing engines all integrate directly with container orchestrators.
Container engine
Data lake/distributed database
Container OS
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CLO UD NAT IV E
MORE BR OADLY, HADOOP IS LOSING ITS DOMINANCE
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CLO UD NAT IV E
SERVERLESS COMPUT ING MAKES FINANCIAL SENSE OF MICROSERVICES
App components
Serverless lowers operating costs for software vendors.
Still TBD whether vendors decide to pass these savings down to customers.
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CLO UD NAT IV E
WILL IT FORTI FY ME GACLOUD LOCK-IN OR D IS S OLVE IT ?
Amazon sees Lambda as another form of lock-in. Google wants to make functions more
It wouldnt be trivial for Amazon to change their posture extensible to promote multi-clouds and
because architecturally, functions are tied to AWS public combat Amazons lock-in grip. They
cloud and it would take extensive work with partner hope to commoditize AWS by lowering
VMware to extend functions into private cloud. switching costs with serverless.
Google Functions
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CLO UD NAT IV E
ML W ILL S OON PLAY AN INTEGRAL ROLE FOR INFRA OPS AND APPDEV
IT is by nature a data-driven organization, making it the perfect function to infuse with the power of AI
Electric.ai
Hyperpilot
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Vertical Theme #3
Cybersecurity
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TL;DR
The security ecosystem is re-organizing itself into Systems of Intelligence (SOI). Systems of record (SORs)
1
must become SOIs or risk being relegated to plumbing.
SecDevOps blurs the lines between networking and application security as the race for cloud-native
2
security products intensifies.
Beyond the 1%: SOIs as consumable microservices will bring advanced security technology to the 99% of
3
companies who previously couldnt afford.
In the sweeping wave of industry consolidation, legacy security companies will buy up security analytics
4
and Security Operations, Analytics, and Reporting (SOAR) companies in yet another bout to stay relevant.
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A birds eye view
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CYBERS ECU R ITY
LAST 5 YEARS = EVOLUTION FROM SECURITY PRODUCTS TO SOR PLATFORMS
AN T I VI R U S SI EM F IREWALL D LP IA M MA LWA RE
Now the center of attention is around a new breed of monopolistic Systems of Record
platforms assembling themselves around layers of the IT stack
E N DP OI N T
N E TWORK // H OST
*
A P P LICATIO N / / CO D E
?
* Work-Bench portfolio company
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CYBERS EC UR ITY
SECURITY ECOSYSTEM EVOLVING INTO A SY STEM OF INTELLIGENCE
SORs have a natural first mover advantage to put all the pieces together
How do you make sense of and take action based on the wealth of new
Domain
information generated by modern security systems? AI
expertise
SORs are getting here
**Note: each value driver is sized based on its ability to create sustainable competitive advantage.
Original framework source: Jerry Chen (Greylock Partners) The New Moats * Work-Bench portfolio company
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CYBERS ECU R ITY
SYSTEMS OF INTELLI GE N C E PRI N C I PL E S B EH IND BREAKTHROUGH SORS
How do you seamlessly instrument into IT systems? How do you build great data-driven products with
attributes CISOs really care about?
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CYBERS ECU R ITY
AS THE BASIS FOR BEATING LEGACY CO'S AT PRODUCT OLIGOPOLY GAME
You expand beyond the thin edge of the wedge by leveraging data/instrumentation advantages to extend product scope
and displace product-centric companies in adjacent categories.
Land
Expand Expand * Work-Bench portfolio company
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CYBERS ECU R ITY
REASONS WHY A PLAT FORM STRATEGY IS SO CRITICAL TO SUCCESS
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CYBERS ECU R ITY
SOR LANDSCAPE = MORE COMPLICATED AS NETWORK/APP LINES BLUR
A P P LICATIO N / / CO D E
N E TWORK // H OST
TL;DR: Network and app layer are looking to achieve the same goal of bringing X-Ray vision of apps to
security. Culture + technology factor into this shift. In startup race, network/host layer leaders have first
mover advantage over new entrants to gain X-ray vision up the stack.
App Dev is bringing new infrastructure and tools to the table, so security teams must
keep up with the rich insights into applications these tools generate
VP Infrastructure
Making pane of glass more complicated by using new tools with rich
insight into app activity without VP Infrastructure buy-in
App Dev
Old-world app X-ray vision = server = mostly network data in firewall + some data from endpoint
NETWORK
X-ray vision
ENDPOIN T
RUN TIME?
CI/CD toolchain
LAYER 7?
NET WO RKING
With application logic distributed across individual
* microservices callable via APIs on the network, east-west
traffic visibility via deep packet inspection is critical
Thin edge = WAF bandaid Thin edge = vulnerability management
CO NTAINER
CONTAINER ORC HESTRATION Security tools must limit network activity between containers
* running on distributed hosts and observe communication
interdependencies between containers on the same host OS
OS HOST
* Host layer Systems of Record = extending product
capabilities to ensure compatibility with containers and
cloud native architecture
SOAR**
Or these guys?
*
Security analytics
Chicken and egg problem:
Do we acquire one of
how do we partner to get
these guys?
the SOR data?
**SOAR: new term dubbed by Gartner for Security Operations, Analysis and Reporting technologies that support workflow management.
Note: these categories are not mutually exclusive in that several Systems of Record vendors have Systems of Intelligence capabilities and vice versa.
Original framework source: Jerry Chen (Greylock Partners) The New Moats * Work-Bench portfolio company
Security analytics work across Systems of Record (SORs) to make sense of all the data. With SORs
developing security analytics capabilities themselves, they must prove out the value of generating
insights across SORs if they are to endure as independent vendors.
*
Acquired by HP
Acquired by Oracle
Flexibility to pull
Deeply instrumented Best visibility into mission
data from end user
in the data center critical workloads
devices selectively
Security Operations, Analytics, and Reporting (SOAR) tools automatically run playbooks for common security
workflows, freeing up limited analyst bandwidth to handle the more niche cases. Its still to be decided whether
they meaningfully penetrate the enterprise market directly or power the next generation of managed
security service providers as CISOs increasingly outsource analyst work.
Sources: Demisto
SOR landscape getting complicated and competitive. New SOIs are coming in. SORs
must move up the stack and embrace new operating models that commoditize their
very crown jewels.
Step 1: commoditize SORs into
backend data feeds
$140,000
FEYE
$120,000
$80,000
PFPT
CYBR
$60,000
IMPV
Blue Coat
$40,000 PANW
$20,000
CHKP
FTNT SYMC
MIME
$0
0 50000 100000 150000 200000 250000 300000 350000 400000
Customer count
Security incumbents have been busy buying cybersecurity startups is M&A really a silver bullet?
Most likely outcome this year and and next is legacy security companies buy
Security Operations, Analytics, and Reporting (SOAR) startups to put
themselves closer, but not fully embedded in the cloud IT stack.
IoT is potent for competitive advantage amongst industrials like gunpowder was for kingdoms of the
1
1200s.
2 Industrial IoT = earlier than most of us think because distributed infrastructure remains in its infancy.
4 Security for IoT will spawn directly from distributed analytics architectures.
5 The next frontier is systems management software bridging disparate IoT software systems.
Predictive maintenance of equipment can save massive amount of time and cost
Building security systems Oil & gas refinery Natural gas driller
63% reduction $340K-$1.7M loss per day $11M loss per day of
in maintenance time on site due to shutdown unplanned downtime
Closed system software stack with broad protocol support and prepackaged apps for asset
management, alert management, product relationship management, and workflow management
The connected washing machine The autonomous drone in a sensor-laden oil field
Sure dude
Sources: Forrester Research, Winning in IoT: Its All About the Business Processes by BCG
Industrials are building IoT platforms highly specialized PaaS with modules for industrial processes
such as asset productivity, operations scheduling, maintenance, and product delivery for their clients
Industrials have the opportunity to evolve their software platforms into powerfully defensible systems
of intelligence
The Palantir of Industrial IoT Developing portfolio of IoT software Strongest in distributed computing with
Services company helping industrials like Differentiating with distributed analytics capabilities Greengrass and Lambda
John Deere develop their own systems of and blockchain for P2P transactions. Greengrass adds a smart app server to IoT
intelligence for IoT Bought Tririga for facilities management applications gateways to enable distributed computing
Amazons Lambda functions govern business logic
and manage device state across distributed systems
Parlaying Azure portfolio towards IoT Strong player for remote, low-bandwidth scenarios Analytics chops and industrial customer base
Microsoft combined an IoT device relying on cellular connections Streaming analytics capabilities via SAP HANA
management platform with its robust portfolio With Jasper Technologies acquisition, strongest Developing modules for predictive maintenance and
of streaming analytics, and easy-to-use machine network of telcos to better manage cellular data fees asset management
learning services to develop IoT software for in remote locations It has one of the strongest industrial customer bases
predictive maintenance and remote monitoring Acquisition of ParStream is a catalyst for Cisco to in the tech sphere with its ERP heritage, but with a
Recently announced edge analytics for develop edge analytics capabilities needed for very different type of buyer it is not clear this will give
distributing analytics processing across devices, remote area IoT them an advantage in IoT
gateways, and the cloud
Can these guys learn to run technology businesses? Can these guys learn industrial processes?
i.e. developer evangelism, partnerships and integrations Seems doubtful
IoT gateways
Gateway
1010101010101010101010101010 1010101010
Spewing data 1010101010101010101010101010 1010101010
streams >>
1010101010101010101010101010 1010101010
50B devices in 2020 1010101010101010101010101010 1010101010
Centralized cloud
Ciscos Parstream allows for Amazons Greengrass sends functions Vapor.io retrofits cell towers with
efficient, spoke-hub distribution with complex event processing rules mini data centers for local data
of sensor data at IoT gateways for data filtration and synchronization of preprocessing that may be too
digital shadows for managing asset resource intensive for endpoints and
state across low network environments too time sensitive or prohibitively
expensive to send to the cloud
Amazon AWS
Analytics at the edge to make Greengrass
instantaneous decisions. Speed is mission
critical in the case of brake failure detection
on a speeding train, where symptoms show
up in data just minutes before a disaster. Utilize gateways when you
can to save on device
battery power drain.
Try putting heterogeneous industrial data streams into traditional big data pipeline
Data lake
ETL
Learn
Build
Extract value
X Resource intensive
X High latency
X Loss of critical real-time insights
Distributed analytics architectures instrument deeply into endpoints in the gateway, Example startups
and thus will be the providing data to security solutions focused on device anomaly
detection and distributed policy-based prevention.
Traditional security vendors talk a big game about IoT but they are going to struggle
to get into the industrial space because operators arent going to want to instrument
connected assets 10 ways like IT does in the data center.
Industrials connecting asset in their supply chain must do the same for software shipped with these assets.
Much like with the rise of systems management software (Tivoli, BMC) in the 90s to help IT more efficiently manage and get value
out of disparate appliances in the data center, a management layer to integrate disparate IoT software stacks will likely emerge.
Connected asset #1 Connected asset #2 Connected asset #3 Connected asset #4 Connected asset #5
OEM/IoT
platform
vendor
Management layer
TL;DR: IoT software startups should focus on use cases in which the underlying
physical assets are already IoT-enabled.
Vertical AI software is highly specialized, and creating a full stack solution tuned to a
particular use case often means developing proprietary hardware to obtain data from
older, non-IoT enabled physical assets.
Besides the operational challenge for a startup to set up hardware manufacturing, many
startups we meet are incurring heavier losses than typical vertical SaaS companies at the
same stage because they absorb the hardware cost and just sell the software.
These startups intend to convince OEMs to manufacture the devices on their behalf. We
believe this wishful thinking because OEMs will not be able to extract enough value from
hardware purpose-built to serve even the largest of vertical application markets.
1 Systems of Intelligence are the long run combative play against the megaclouds, but there are still ways to
build value in cloud ecosystem.
2 Systems of Intelligence companies will need a thin-edge of the wedge market entry strategy, for which
there are several models emerging.
3 Enterprises still want licenses. Thwart their demand by undercutting SaaS pricing sooner rather than later.
Private/virtual
private cloud
Google, Microsoft, and Amazon want to enforce vendor lock-in But enterprises need flexibility to move ML workloads to
by developing one-click ML deployment services on their where the data is and not vice versa as megaclouds hope.
functional backends
Why? Because machine learning and data need to sit together,
often on the same GPU server, and sensitive customer records
cant just instantaneously be moved to the cloud for a data
science project.
Systems of Intelligence have a chicken and egg problem: Customers want proof the power of automation can
help their business and startups need the data to train the system so it can actually deliver on that promise.
The DVR player: Lightweight version of the product that takes historical data from a customer and delivers
insights in retrospect. This approach provides the necessary training data and proof points to convince the
customer to deploy the solution for real-time analysis.
Vertical AI masquerading as invisible software: Although example in the market are less obvious today, some
enterprise chatbot startups take this approach where they sell automation bots bottoms up to employees with the
intention of using the data the bots integrate with to gathering insights into how businesses operate. This can be
used to build a system of intelligence for optimizing business functions and operations to be sold more formally to
senior management as a next evolution of the company.
Single pane of glass: A prevalent approach is to integrate disparate data and provide unified visibility across
databases. In this respect, the thin edge strategy is data middleware, with applications that enable business
process transformation upsold on top of this core functionality.
150 40%
100 20%
50
0%
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