The $18 Billion Disruption
A few years back I was VP of engineering of a systems management startup called SilverBack Technologies. Competing in the systems management market in the last decade was much like being a mammal in the age of the dinosaurs: it was best to be small and unnoticed by the giants stomping around you. The giants of course were BMC, CA, HP and IBM, which collectively have owned about 54% of this market. No matter which product category you turned - network management, application management, or configuration management - there was always entrenched market leaders.
Something has changed in the last few years though, driven by the white hot growth of public cloud computing. The early adopters of public cloud computing - e.g. SaaS vendors, software companies, content providers, and web hosting providers - almost universally share one trait in common: they do not use systems management solutions from the traditional providers. This trend has the potential to cause a seismic disruption in an entrenched and previously slow moving industry that is projected to account for $18B in 2012 revenue.
Tale of Two Markets
The market for systems management has been growing from $14.2B in 2009 to $22.4B in 2014, with an estimated CAGR of 8.1%. If you were to compare this to the much more glamorous market for servers and storage, you would find that for every $1.00 we have spent on servers and storage, we have spent approximately $0.35 on systems management. The top three categories - configuration management, availability and performance, and database management - accounted for over $8B alone in 2011. The dominant players in this market have been IBM, HP, CA, BMC, Microsoft, Oracle and Symantec.
The market for public cloud computing has gone from a nascent industry in 2007 to a white hot growth market, estimated by Gartner to be $6.5B in 2012 and with a 43% CAGR. Amazon itself is rumored to be driving almost $3B in revenue from AWS in 2012 (although a reputable analyst told me last night he is convinced they are between $1B-$2B). This market has spawned rapid innovation, creating new companies and products such as Dropbox, Pinterest and Netflix Streaming Video. While Amazon is the 800 pound gorilla of the market, a number of secondary players have substantially contributed to its growth.
The Cloud Disruption
But when you talk to the users of the public cloud - users who for all intents and purposes are managing servers and storage in the cloud - you will never hear them mention the use of systems management products from the Big Four. There are four reasons I have identified for the lack of penetration of traditional systems management vendors in cloud computing.
#1 Geeks Rule
The first wave of early adopters in the cloud are more technical and more likely to Do It Yourself than the typical company. Their forward-thinking technical teams have the ability and inclination to piece together complex cloud services into integrated solutions for their organizations. They are more likely to be using tools like Nagios, Puppet, Chef, and Graphite to meet their systems management needs than Tivoli, HPOV and Unicenter.
#2 It’s About the SMB, Stupid
The market leaders in systems management have tuned their product over decades for a single market: the Enterprise. Why? Enterprise IT has historically been the biggest driver of systems management spend. Unfortunately, the early waves adopting the cloud are heavily dominated by Small and Medium Businesses (SMBs), for whom products like Tivoli, HPOV, Unicenter have never been an option.
While the cloud has not fundamentally altered the basic tenets of systems management, it has shifted the ownership within the product categories. The product categories for the lower level components of an application architecture - e.g. network, security, database - are now increasingly owned by cloud providers. Cloud consumers focus less on the lower level infrastructure, and more on managing their systems and applications. In other words, approximately $0.10 - $0.12 of the $0.35 spent per dollar of server and storage is now owned by cloud providers, instead of companies using the cloud.
#4 This Ain’t Your Father’s Infrastructure
Historically SMBs have turned to open source or niche players like Solar Winds or Ipswitch to meet their systems management needs. Now they have been increasingly turning to emerging companies like Splunk, New Relic, Loggly, and Airbrake. Why? The cloud infrastructure is fundamentally different than their previous SMB physical infrastructure: it is more dynamic, more complex, and continuously innovating.
The systems management world took note when Splunk did its successful IPO this spring. The company, which started in 2003, has displaced traditional market leaders in the underserved category for log management. New Relic is likely not far behind in application performance. Meanwhile, systems management vendors are still struggling to adapt to the disruption of SaaS, much less showing any capacity to adapt to the cloud.
The age of dinosaurs may be finally coming to an end, and the age of mammals may be starting. No longer do the next-generation systems management companies need to remain small and unnoticed by the giants of their industry. It’s possible that one or two of the existing market leaders will make the transition to the new world of the public cloud. But it is just as likely - maybe even more likely - there will be new logos at the top of the systems management heap a decade from now.