The Information Technology (IT) industry has become incredibly dynamic and complex and it now draws more curiosity than ever before, from businesses that are scrambling to understand the best approach for the new IT disruptions and investors trying to understand the best startup investment opportunities available that could lead to superior returns. Decades of dropping prices and rising technology literacy among employees in various industry verticals have led to mass awareness and usage of technology. Premium technology meant for large enterprises can now be used small SMBs and even mom-and-pop stores that employees with less than 10 employees. Over the last decade, smaller firms and SMBs have adopted new technologies faster than anticipated to create leaner and efficient operations. At the same time, large enterprises have warmed up to multiple key technologies by moving asway from central IT purchase model to enabling individual business units (BUs) to procure best Information Technology (IT) solutions that suits their specific needs.
With multiple new trends emerging within every mega IT trends on an annual basis, there is a general struggle to understand the implications of these innovation and the evolutionary path forward from existing status quo. The advent of Internet of Things (IoT) and Artificial Intelligence (AI) have created both opportunities and challenges for society and businesses. Cyber Security risks and compromised events are being reported on a continuous basis. New standards of communications technology such as 5G and satellite based Low Earth Orit (LEO) communications spearheaded by luminary companies such as SpaceX are opening new ways to improve our day to day living. Technologies such as Quantum Computing is enabling us to discover drugs faster for incurable diseases. Major advancement in Semiconductor and Optical technologies are solving computing bottlenecks, enabling new system architectures that can bring improvements in power, performance, area and cost beyond the limits of traditional Moore’s Law scaling for important applications such as high-performance computing needed for weather forecasting.
We at Service Ventures use a basic evaluation framework (5 Pillars of IT Framework) to understand these numerous IT trends, their mutual interactions/overlaps and their short-term tactical value propositions and long-term strategic implications to evaluate best possible various investment opportunities.
The Bedrock Pillars of Information Technology (IT) Industry
IT Pillar 1 - IT Infrastructure
This is the most traditional pillar that deals with the hardware and software to build the foundation of IT. Some amount of IT infrastructure is needed for any business top operate in today’s digital first era. In order to target mobile users, companies need right infrastructure capabilities to establish their brand in all form of mobile space with online offerings optimized for mobile devices, whether that means building mobile-friendly web sites or building native mobile apps.
The multiple benefits of Internet have driven infrastructure awareness among executives - a static online presence is no longer feasible for modern business operations; companies use dynamic web tools for daily operations and workflows to distribute products and services across the world. Cloud computing has been a well-accepted component of IT infrastructure for the past several years. The cloud first infrastructure is responsible for extending such desktop and web applications into a mobile world to boost productivity on mobile devices. We see a clear mandate for building IT architecture with a cloud-first mentality. This does not mean that 100% of applications and systems will be in the cloud. Going forward, a multi-cloud environment will be the status quo for most businesses, including pieces across multiple cloud vendors and pieces that remain on-prem. But using cloud as a starting point and then shifting to other options as needed is the best option for flexibility and resiliency.
IT Pillar 2 - SW Development
Software development capability is becoming more important as companies move away from pre-packaged software into customized applications that suits their specific business needs. Even relatively small businesses now need internal SW development efforts as they customize applications for different business units, build a dynamic online web presence, or increase productivity and remote working capability through the development of mobile tools. With new commoditized tools and an increase in technical literacy, the barriers of entry have lowered, and a much broader group of companies, along with large enterprises are now enabling internal SW development efforts. As a result, applications that are used by different business units are built or customized with the internal SW development capabilities. There will be a much wider spectrum of in-house SW development activity taking place as business units shift towards driving more of their own technology initiatives and build out their own SW Development functions.
We think there were two main innovation opportunities in SW development as companies pursue in-house development instead of buying off-the-shelf SW applications: business specific customization and operation automation. Barriers to entry for in-house customized SW development have been lowered with innovation in open source ecosystem, microarchitectures, and low-code/no-code practices. Depending on the internal and business specific needs, employees in a company with varying degrees of technical skill can easily build databases or automated workflow using tools that look more like flowcharts than C++ command lines. Employees sitting inside non-IT departments will develop applications specifically for that group’s use.
IT Pillar 3 - IT Operations
This is the foundational layer in which system administrators or network operators perform back-office IT tasks that have been part of IT since the IBM mainframe era. Today’s IT infrastructure setup and the ongoing operations and management requires physical HW maintenance, virtual system administration, network connectivity configuration, and storage planning. Regardless of the IT architecture and business strategy that a company may choose, IT operations is responsible for assembling the components and supporting daily technology needs through help desk and latest software support. These tasks, which have traditionally centered around On-Premise IT components, establish the foundation for the rest of the IT architecture.
COVID-19 has demonstrated that operationalizing and managing a large-scale IT infrastructure cannot be done efficiently by human elements only. People in charge of making sure IT infrastructure functions properly and delivers results for end business outcomes need multiple tools/techniques at their disposal to carry out their day-to-day tasks such as installing SW applications for business, keeping applications running securely and providing much needed help desk services to business leaders and stakeholders. The one key activity that became clear during the current work-from-home environment is the management and security of endpoint devices - laptops, mobile devices and other critical tools provided by enterprises to their employees or the end users as monitoring the operational activity of these devices acts as the first line of defense for overall infrastructure or application issues.
Given the nature of today’s distributed Enterprises, IT Operations is welcoming various innovation that can keep the core enterprise infrastructure up and running 365X24X7 non-stop. Innovation in IT operations is bringing efficiency, speed and agility to tasks that were once considered boring and mundane. We actively look for startups and investment opportunities in this segment as we are convinced that the nature of IT infrastructure has become extremely complex and industry will need tools and innovation to manage it securely.
Pillar 4 - Information Management
This pillar focuses on the management, analysis and visualization of corporate information and data from a variety of sources. It deals with basic management of data, including an understanding of all data throughout an organization and efficient data management capability. But many organizations, especially in the SMB space, have data silos where departments have performed their own operations. These silos make overall data analysis difficult and lead to a fractured architecture. Similarly, many organizations do not have sophisticated data analysis tools and instead rely on spreadsheets or other simple tools for analysis. The recent acceleration in the amount of information generation and the types of data that a company can manage requires specialized IT capabilities. Currently companies are building disciplines around the way they handle all internal external data, whether that means dedicated personnel, infrastructure, or more structured conversation throughout the organization. Most of this activity is currently directed at improving the data to enhance decision making. But data is slowly getting baked into actual business output.
As companies grow in data sophistication, new information management capabilities are needed to efficiently manage the flow of data and perform more advanced analysis to draw out business insights. With strong information management capabilities, companies can move to more advanced tactics that involves Hadoop, Non-Relational databases, artificial intelligence-based analysis tools, high performance computing capabilities, and efficient data visualization tools. Data may have multiple sources of generation within various business units as different departments have different needs for data and may employ different IT capabilities to sift through information and determine a course of action. This brings an organizational challenge as IT determines how to best allow flexibility while maintaining overall corporate guidelines. This is one area of innovation we are actively hunting for. Moving forward, we think, companies will transition from data-driven decisions to data-enhanced offerings and that is where innovation will add enormous value.
Pillar 5 - IT Security & Resiliency
Most companies have long used firewall and antivirus as the means for securing their infrastructure and endpoint devices. With business operations relying more heavily on cloud computing resources and mobility becoming a part of hybrid working environment, a secure perimeter defined by enterprise firewall is not sufficient anymore. Security is now much more than a suite of traditional antiviruses and rules based static firewalls. For the new digital-first organizations, this traditional secure perimeter is not sufficient as applications and data regularly travel outside the protected walls of the company.
Cybersecurity capability now needs to shift their mindset from preventing all attacks to detecting a breach and reacting quickly and decisively. The characteristics of modern security has been redefined and one of the biggest changes for companies has been the breakdown of the secure perimeter inside an IT/network firewall. As a result, companies must expand their technology toolbox, build new processes to define secure operations, and educate their entire workforce on new and evolving security issues. Many of these actions have been piecemeal so far, with businesses figuring out which investments to make and how to measure success. The most challenging part of building a good enterprise security posture today may be ensuring proper behavior among end users. Companies consistently report that human error is the primary factor in security breaches and data loss, but the resolution is not simple.
New innovative tools such as Digital Loss Prevention (DLP), Identity and Access Management (IAM), and Security Information and Event Management (SIEM) must be layered into the enterprise capabilities along with firewall and antivirus, and security professionals need to shift their mindset from preventing all attacks to detecting the inevitable breach and acting quickly and decisively. Recently, a new framework has emerged that provides a foundational approach for all new security activities. The Zero Trust Model of security completely upends any previous “set it and forget it” mentality. Going forward, every activity must now be verified, and that mindset is the market driver for new technology and innovation. We project this pillar is perhaps the most likely to undergo transformation thanks to cloud computing. The use of multiple providers leads to the need for a formal evaluation of security posture. The movement of applications and data outside company walls drives demand for new technology and we at Service Ventures are actively scouting for investment opportunities in the area.
Looking for Disruptive Innovation at the Intersections
IT capabilities obviously do not stay in a vacuum. Two or more capabilities will operate together as they work towards the common corporate and business goals. At Service Ventures, we are very much interested in innovation that play at the intersection of those capabilities, as we believe that such technologies have the potential to be the true disruptors of tomorrow. And to find such technologies at the intersection of those 5 key capabilities for venture investment purpose, we ask ourselves:
IT Infrastructure + SW Development = Can Infrastructure match the Development needs?
IT Security & Resiliency + IT Infrastructure = Can HW + SW infrastructure be combined intelligently to create better secure posture?
IT Infrastructure + Information Management = Can storage and network be optimized for data flow and data usage?
SW Development + IT Security & Resiliency = Can Security be built directly into SW Applications while developing?
Information Management + SW Development = Can Data Insights be injected into SW to study application behavior?
Information Management + IT Security & Resiliency = Are their new ways to secure data at rest, in compute and in motion?
Without a doubt, enterprise technology is becoming more complex. There are more technologies to choose from and more parts making up an overall business system and user experience. As the world becomes more digital, companies are transforming themselves to use technology more intelligently and more strategically. This transformation in the face of growing complexity is a huge opportunity for disruptive innovation. At Service Ventures, we utilize this basic investment evaluation framework for new technologies to avoid confusion around new trends and buzz word distractions of Silicon Valley that act as barriers for superior investment returns.
/Service Ventures Team
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