The Boulder BI Brain Trust


January 2013 Archives

CES 2013 Report

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The Consumer Electronics Show (CES) this year attracted about 153K attendees (flat compared to last year) and had 3000 exhibitors (about a 15% increase over last year).  Building from last year’s trend, this year CES was dominated by mobility and wireless Internet connectivity solutions.  My focus continues to be on the implications of these themes on the consumerization of the enterprise and the monetization of the Internet.


  • Mobility.  Walking the floor I was struck by how much PCs had been displaced by tablets and smartphones.  The tablets and smartphones introduced far outstripped the PC variants that were introduced.  Eventhough manufacturers introduced a spate of Windows 8 PCs, mobile devices took the center stage in manufacturers’ booths while PCs (laptops, ultrabooks) were given less prominent positions.  Microsoft was absent from CES for the first time but I don’t think that this was the reason for the lack of PC display prominence.  It's just that the world is moving irreversibly towards tablets and smartphones of various sizes.  CES didn’t include any “big” mobile device introduction.  We saw a continuing evolution in terms of what the mobile devices can do.  The mobile device market is maturing, particularly in the US and parts of Asia, so the manufacturers don’t expect to see revenue growth just through additional device shipments.  Instead the growth will come from the increasing value of the applications and content found in each smart device. From the discussions I had with IT executives I expect a continued trend for BYOD and CYOD (Choose Your Own Device, from choices offered by corporate IT).  The content offered in the various devices being demonstrated is not yet driving replacement or upgrade cycles. I saw an improving trend on the use of mobile devices to monitor health and fitness.  It was reported that 50% of US online consumers are now using a single- or multi-sensor devices to monitor their health and fitness.  This represents a continued opportunity to collect and correlate data and combine with other health-related data; though this is not happening yet mostly because of closed interfaces rather than privacy concerns.
  • Connected TV.  TV manufacturers introduced the first models of Ultra HD TV sets (or 4K as is also called).  While the resolution is significantly better than HDTV, everybody I spoke to admitted that the US consumers and corporations are not ready for a TV upgrade cycle and mentioned the failure of 3D TV as an example.  Many believe that Ultra HD will have the same fate, at least in the short term.  In addition, there is a lack of content for these new TVs.  However, the improved Internet connectivity offered by new TVs (not only the high end ones) is of greater interest, particularly to advertisers.  The improved connectivity enables these sets to offer richer interactions with mobile devices such as tablets and smartphones which, particularly younger consumers appreciate, and provide Internet style ad targeting of the consumer.  Remember that during 2012 mobile advertising proved particularly successful.  It will be interesting to determine how older TV sets can be retrofitted to offer this improved connectivity.  I imagine that TV manufacturers will need to start componentizing their systems and offer a connectivity box that is separate from the monitor, rather than cramming everything on the same chassis, as it is done today.  CE manufacturers will also need to develop publicly available APIs and more open systems.  This again runs counter to the current trend of creating closed ecosystems.
  • Ad agencies and brands. In all the years I’ve been coming to CES I’ve never seen as many representatives from ad agencies and brands in attendance.  In addition to being a rather unique opportunity for meetings because of its size and diversity of attendees, ad agency executives and brand representatives attended the show in order to better understand consumer technology trends particularly around the wireless and multi-screen world and its implications to multi-channel marketing and targeting.  I saw many agencies giving tours of the show floor to their clients and I’m sure they used the opportunity for meetings with their clients.  I certainly took the opportunity to meet with several ad agency and brand executives.

Investment Implications

  1. While manufactureres introduced several mobile devices running Windows 8, CES 2013 showed once again that Android and iOS remain the two dominant mobile platforms.  However, the variability among the versions of Android available in the market, the proprietary extensions created by each manufacturer and the lack of well-defined and robust APIs will continue to present problems for application development, integration and security.  HTML5 is not having yet the type of impact I was expecting.  The mobilization of enterprise applications, i.e., connecting enterprise applications to mobile front-ends, will remain a problem for the next couple of years and present investment opportunities.
  2. The incorporation of tablets, and smartphones into business processes will further accelerate the enterprise’s cloud adoption for the provision of content and services, e.g., applications, storage, training, etc.  We expect to see major enterprise initiatives particularly around mobile commerce and multi-channel marketing and will continue to look for opportunities.
  3. Connected TVs and the deeper integration between TV sets, tablets and smartphones, will lead to online advertising emerging as the primary way for monetizing content and applications. 
  4. The human-to-machine and machine-to-machine interactions that result from the increasing device connectivity will result in larger, more complex, and shorter “half-life” data sets (big data) that will need require increasingly sophisticated analytics.

Reviewing 2012 and Preparing for a Successful 2013

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Happy New Year!  After a longer than normal holiday break, I’m taking this opportunity to reflect on 2012 and provide my early thoughts regarding investment activities in 2013. 

During 2012 50 companies went public, the most of any year since 2007, but only 8 venture-backed companies during 4Q12, the lowest number in any quarter since 2009.  The $11.2B raised through these IPOs was the most since 2000, though most of it came through Facebook’s IPO.  M&A proved a little more disappointing than in 2011 with 433 deals valued at $40.3B completed, compared to 548 deals valued at $49.8B that were completed during 2011.  Because of the uncertainty surrounding the US economy, due to the “fiscal cliff” and the associated tax issues, corporations appeared to be holding back on acquisitions, especially during 2H12, despite their healthy balance sheets.  I don’t see the liquidity environment changing materially during 2013. 

Late last year I wrote about the overall VC investments during 2012, and the financing terms (including valuations) that private companies with certain characteristics were able to negotiate putting entrepreneurs and management teams in the driver’s seat.  However, by the end of the year it also started becoming apparent that during 2013 seed-stage startups will face a financing crisis and most won’t be able to raise new capital.  Over the past 3-4 years angel investors (casual and experienced) funded too many companies that have weak teams, undifferentiated IP and debatable business models.  Therefore, in my opinion, the expected “pruning” of early stage startups will be welcome.

Many venture and private equity firms will attempt to raise new funds during 2013.  The LPs remain skeptical of the ability of venture and private equity to provide them with yield. Because many investment firms will be in fundraising and even more firms have reached the end of their funds with no hope of raising new pools of capital, I expect that during 2013 we will see an investment slowdown with fewer new financings overall compared to what we saw in 2012.  Investors will focus their investments on existing portfolio companies.

Our SaaS portfolio consists of enterprise applications, including social and mobile enterprise applications, and adtech platforms.  In most of these solutions big data management and analytics play a central role.  During 2012 we saw the emergence of a few important trends, which I expect will continue in 2013.

  1. Accelerating adoption of cloud in general and SaaS applications in particular by the global enterprise.  The SaaS market is projected to grow by 25 percent in 2013 to $59B and could reach $75B in 2014. 
  2. Strong adoption by brands and their advertising agencies of cloud-based adtech platforms and of programmatic buying for online advertising.  Of particular interest has been the exploding usage of online video whose monetization is now primarily coming through online advertising.
  3. Enterprise mobility initiatives started moving from experimentation to production.  The incorporation of tablets in many business processes, e.g., sales, quality control, collaboration, the BYOD policy that many corporations have already adopted, the broader adoption of smartphones and tablets by consumers who want to use these devices to interact with enterprise applications, e.g., banking transactions, purchase transactions, are the reasons for this move.
  4. Continued adoption of social applications by the enterprise but more scrutiny on the ROI these applications provide.
  5. Big data initiatives are slowly moving from experimentation to deployment but remain driven mostly by cost-cutting rather than innovation goals.  I still believe that the adoption of big data management and analysis technologies can be transformational in the enterprise and may even become a bigger opportunity than SaaS and cloud have proven to be.  But for the time being most enterprises don't exploit the opportunities they have for data collection, e.g., few collect data that is generated from machine to machine interactions, or various forms of unstructured and semistructured data, e.g., social graph data, and more importantly for data analysis, insight creation and action.  Of course, a major reason for the the slow creation and adoption of big data analytic solutions, particularly of solutions that utilize predictive and prescriptive analytics rather than just descriptive analytics, is due to the shortage of big data analysis talent (from data scientists to business analysts with good understanding of big data).

As we look into 2013, we also take into account the following observations from 2012: 

  1. SaaS alone is not sufficient to make a private company interesting for venture funding. Maybe with a few industry-specific exceptions, most applications today are developed to run in a cloud environment.  So SaaS has become table-stakes.  Perhaps this is a sign of the model’s maturation process.  To be interesting for an investment that has the potential of “venture returns,” a company developing application software needs to utilize a variety of appropriate technologies, e.g., single instance multi-tenancy, cloud delivery, big data analytics, social, etc., to solve an important problem for which a buyer (corporate or consumer) would be willing to pay significant amounts to have it solved.  We are seeing venture investors transitioning from being SaaS technology-centric, to becoming problem-centric as they consider investment opportunities. 
  2. Enterprise SaaS is emerging as a separate category.  The SaaS model proliferated enough where we can no longer treat it in a monolithic way.  I think that it is time that we start differentiating enterprise SaaS from SaaS applications aimed at smaller companies.  Enterprise SaaS applications are sold by hybrid teams that consist of field and inside sales personnel.  These teams use novel technology-driven demand generation methods and sales models, e.g., freemium, to achieve their goal.  Enterprise SaaS is characterized by sales cycles that are similar to other forms of enterprise software.  Such applications are often available in private, public and hybrid cloud configurations, and are licensed in multi-year contracts. 
  3. Security is the biggest impediment to the broad adoption of enterprise SaaS and big data solutions.  All CIOs I have spoken with list enterprise data security as their top issue in moving more of the applications and IT workloads to the cloud, as well as in adopting new applications, including social, mobile and cloud-based big data applications.  This issue is even more central in regulated industries such as financial services, insurance, utilities where customer data needs to be moved to the cloud.  We expect that this concern will continue to drive CIOs to adopt hybrid and private clouds.  Interestingly enough, uptime is no longer as big of an issue as it was as late as last year.  CIOs have come to accept that like every system, cloud computing systems will also have issues and breakdowns. 
  4. With the increasing use of mobile devices, mobile application development may become a big issue during 2013.  The magnitude of the issue will depend on how many mobile applications corporations will need to develop on their own, and how many of their existing enterprise applications will need to be accessed via mobile devices.
  5. Based on the number of big data startups that have been established and funded in this area we expect 2013 to be the year when the big data bubble will burst but also the year that we could see a small number of acquisitions of big data infrastructure companies by large data management incumbents such as IBM, Oracle and Microsoft.

Because of these trends and observations I expect that during 2013 we will continue to focus on investments in companies that develop:

  1. Solutions for customer understanding, mcommerce particularly as it impacts industries such as retailing, travel and financial services, sales enablement and Internet monetization using cloud computing, mobile, social and big data analytics technologies.  All these solutions emphasize the increasing role of the CMO in setting a big part of the corporate application strategy.
  2. Data security solutions for cloud and mobile environments that will add to our already extensive security portfolio


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