 Well, hello everyone, thanks for joining us today for this webcast to reveal and discuss the results of the fifth annual Future of Cloud Computing Survey conducted by Northbridge with the cooperation of Wikibon and some 50 other partners. This is the longest running and arguably the most ambitious survey of its kind. Been looking at cloud as it has developed from a cottage industry really back five years ago to now a mega trend that is dominating the business landscape and indeed is transforming the way we do IT. Because this survey has been conducted over the last five years, we have the privilege of being able to look at changes over that time. And I think you'll find in our discussion today that some of the changes we have seen in attitudes, in businesses that are adopting the cloud, in the way they're adopting the cloud, and in the way organizations are shifting to accommodate the cloud have changed rather dramatically in really a very short period of time. So joining me today on this panel are two experts, one on the investment side and one on the cloud adoption and the technology side. First meet Jim Moran who is a general partner with Northbridge, Northbridge is a venture capital firm. He's been with Northbridge since 2009 and he currently sits on the boards of WP Engine, eRecruit and Confir. Now Jim has extensive business experience, he was also on the board of Paytient which was acquired by PayPal this year. Prior to Northbridge he was chief executive officer of Convergence Networks and he was also a co-founder of Edox which became the leading service provider of web self service and online billing and payment solutions to the Fortune 500. And Jim has led the, really been the point person on this survey from the Northbridge perspective pulling together an extensive partner network to cover 952 respondents across 38 countries. So this survey is not only very large in scope, it's very large in geographic diversity as well. You're going to hear what's happening around the world as well as around many different industries. Joining us also on the panel today is Brian Gracely. Brian is a Wikibon senior analyst. He brings over 20 years of experience to the Wikibon community from leadership, product marketing strategy, marketing and technical marketing roles where he was at Cisco, Linksys, NetApp, Virtustream and EMC. Now Brian has delivered both commercial products and solutions in the open source realm to global markets as well as to commercial local markets. He's active in many technical communities. Very skilled technologists in the area of cloud and someone I'd like to turn to first, Brian, to sort of go over the high points and the agenda for what we're going to talk about during the next hour. Yeah, absolutely. So Paul, thanks for the introduction and great panel today. Really excited that the great thing about what we're doing today is not only is Wikibon working really, really closely with Northbridge. Northbridge has done a tremendous job pulling together all of this data, working with 50 plus industry partners about this. But we're doing this using a ton of cloud technologies. We want you, the audience, to be involved with this. So not only are we going to do this webinar live for the next hour or so, you can follow crowdchat.net slash future of cloud. So you want to interact with us. That's going to be going on for a couple of hours. If you want to just follow on Twitter slash future of cloud. So we're going to talk a lot about the trends. We're going to talk about the data. And we've got an awesome panel because we've got Jim, ton of VC background. You know where the investments are going. My background is in technology. Paul's going to give us a high level. So really excited about what's going on here. Why don't you jump in real quick? Yeah, sure. Because this is your baby. You've had it for four or five years. We have had it. And thank you, Paul, and thank you, Brian. It's been a big team effort here. And we're happy to sort of unveil some of these results here. And as you said, this whole survey is, we're eating the dog food as certainly powered in the cloud. So this is our fifth year and it's the most extensive survey of all things happening related to the cloud. And as you said, we've had over 51 companies involved in this and over a thousand respondents, I think in 38 countries, if I have it, correct. And calling out a few of our platinum collaborators who are folks like Acquia and Red Hat, CenturyLink, WP Engine, to name a few. So we've got a lot to talk about here and we're excited to sort of start to reveal some of the trends and the detail associated with these results. Right, right. And following up on what Brian said about the CrowdChat, I want to remind you that if you go to crowdchat.net slash future of cloud, you can follow along with the discussion that accompanies this presentation. And if there are topics that you would like us to address on this panel, introduce them in the CrowdChat. And we are monitoring the CrowdChat actively and we'll try to get to your questions live in the discussion. Brian, let's move on, start with hybrid, public, private cloud. Certainly, debate has been going on in the industry for some time over where the real growth is, where the action is. And I think this survey provides some clarity to that. Would you say so? Yeah, absolutely. One of the biggest questions that we always get about cloud computing is, is this a winner take all game? How fast are things going to move from traditional IT, which tends to live in the data center behind the firewall, into the public cloud? How does that impact today's traditional vendors? How does it impact the startups and the public cloud providers? So let's dig into the data a little bit. Let's give folks some numbers here. So right now what we're seeing from the thousand or so respondents is, the usage of public cloud, private cloud and hybrid cloud breaks down like this. It's about a third in the public cloud, about two thirds in what people are, and this is survey results, private or hybrid. And that aligns very well, not only with the survey respondents that we've seen, but with the Wikibon forecast, we're forecasting that we think we'll see in terms of spend for IT over the next 10 years, about a third of that will be in the public cloud, two thirds of that will remain in some sort of private or hybrid environment. Now, the interesting data point that came out of this for us was, we've all seen how fast public cloud's growing. Companies like Amazon have now been releasing their numbers so we get a better sense from a transparency perspective. But what's really changed is, as we look at this from 2011, the mode of what people are thinking about in terms of private, which is in your data center, you're more comfortable with it, it's got all the security and compliance pieces there, about 48%, almost 50% of people are saying, that's coming way down on their priority list, and they're looking much more towards a hybrid environment. Now, what hybrid means to different people, lots of different definitions out there, Stu Miniman and I did a video about this yesterday. But what it really, the way to think about it is, people are realizing they've got to take advantage of a combination of both public resources, which give them scalability, which allow them to be more agile, but they've also got aspects of their business that need to be compliant, they still maybe have some concerns about security, but they're much more active in terms of, how do I blend those two things together? How do you see it from an investment perspective? We were talking earlier, you've got companies that you're investing in, maybe start in public, but have to deal with use cases that spread across that. Well, right, well, if we actually go to the next slide, it actually, some of that answer will be in there, for instance, as we reveal here. So 77% of all organizations have SaaS offerings today and have information as a service offerings, which is a 9% increase over 2014. So I would tell you that the investment dollars in the venture capital and growth equity community are being directed at organizations that are deploying innovative SaaS solutions for the enterprise. And examples of that today would be, there are firms like Splunk, analytics platforms like Tableau, and you look at other platforms like NetSuite or Intuit, and the consumers now are being trained to work with these mobile apps that are very intuitive, easy to download, easy to work with. And so in the enterprise, those same buyers of enterprise solutions are saying, why can't I have simple, easy to use solutions that business analysts and folks who are running businesses can dream up, deliver, and deploy as a service to their constituents? And today, that's really, we're seeing evidence of that today when you say 77% of companies today have SaaS offerings. Or, and one last point is information as a service, well subscription services today. If you're a subscriber to the New York Times, or you're a subscriber to another content management solution, those are being delivered in the cloud, and those kinds of solutions are more and more accessible. Dow Jones is a business to business offering in the cloud. And what we're seeing, Jim, I think also is some shifts in the way services are delivered, the way they're sold, the way customers expect to access them. We're seeing freemium models emerge, free trials, community additions, and really in some cases a displacement of the channel. And one of the interesting findings of this survey I think was that I believe about 70% of your respondents said that they prefer to deal directly with the service provider rather than going through a channel partner. Is that a seismic shift? Well yes, and so you raise two or three very important things there. So first of all, today it's not apparent, but when enterprises buy today, they buy very differently from the way that they bought 10 or 15 years ago. So 15 years ago when Oracle was selling its financials, it was a boots on the street, high friction in person, lots of meetings, dinners, lunches, onsite sort of selling. Today, enterprises do not buy like that. They buy, it's a sort of self-discovery process. They go online, they learn about the solutions that are available. They can do this today much more effectively and productively. They know what their needs are and their business requirements. Then they go online and they discover what is available to them mapping to their own critical business issues and then they raise their hand and say, I'm ready to try something which brings up the freemium model. Maybe they try, Splunk has made that freemium model very successful where you could use their solution up to a certain point and then if you wanted to use it further, you would then pay. So it's sort of try before you buy. Another theme is organizations today don't want to spend, they want to match their needs with capacity. So I only buy, the cloud is elastic. So today if I'm a subscriber of Salesforce.com, I only buy what I need when I need it. If I need more, I can cycle up. If I need less, I can bring it back down. And again, that elasticity in the cloud matching my needs and the demands of my business with technology is another big change in business model as well. You certainly increase its transparency as well because as a vendor you can't sell technology you don't have, you have to demonstrate your ability to deliver. Yeah, we're seeing more and more. I know a couple of data points. As we talk more and more with vendors, so that the side of the Wikibon business that talks with vendors, we're advising them more and more. If your customer wants to use your technology, especially software, and they can't get it up and running in an hour, they're not getting something within an hour, and I don't say that facetiously, they're probably going to kind of walk away from it. They don't have time to be having to figure those things out. We're seeing more and more software companies that are saying, look, you may eventually want to run this on-premises, right? You may have some reasons for running it behind the firewall, but initially we're going to give you a public cloud version of it. We're going to give you a SaaS version or something you can get as a package from Amazon Web Services. So we're seeing that trend more and more. The other thing that you pointed out in terms of the buying cycles, but who they trust, we're seeing more and more that they're looking to communities. They're looking to subject matter experts that aren't from the vendor. They're looking for some independence that say, I've tried this before, I've used it. I trust you more than I trust a vendor's marketing data sheet. And they're going to that first, they're learning about it first, they're investigating. And then when they want to make that buying decision, then they're reaching out to that vendor. So it's really changing the buying decision. Couldn't agree with you more on that, Brian. And I think also another point just to re-emphasize is if a requirement is, if I decide today, I would like to try your product tomorrow. I need to be able to do that. That is a requirement of the cloud. If you can't do that, then you're going to miss your opportunity because that enterprise buyer is going to move on to the next vendor. Let's talk about segmenting the market. And Brian, you've done a lot of research in this area. One of the findings of the research is that SaaS is overwhelmingly the biggest part of the market. It might surprise some people because we hear a lot about Amazon and Microsoft and what's going on in the platform area. But these are still relatively small parts of the overall cloud market, would you say? Yeah, the numbers that you see up on the screen, roughly $85 to $90 billion. We all sort of know that the IT industry is a whole closer to $2 trillion. So it's still early days for cloud. People want to know which inning it is. Sometimes we'll say it's the first inning or the first inning of a double header. There's definitely leaders that are emerging. I mean, in the IS space, Amazon, Azure, Google to an extent, IBM's making plays there. But SaaS is still really where the bulk of the revenue spent. Where I think people sometimes get surprised by that number is it's still somewhat fragmented. A lot of people can pick the seven or eight or 10 SaaS companies that they know off the top of their head. Maybe it's a WebEx or a Salesforce or something else. But there are hundreds and hundreds in that market. So huge opportunities for startups, but also huge opportunities for just anybody in business who goes, boy, I wish there was a service that did this. You can typically find two, three, sometimes five or six that do something specifically for that. You can get to using it really quickly. And what that says to me is disintermediating the decision making from IT essentially driving everything to the business being able to go, if I want to try and do something, I can go do it right now. I, again, couldn't agree with you more. And I think that's in fact how companies like Salesforce got rolling or expensify. A salesperson decides, I'm going to start using this tool because it makes me more productive. I can decide today that I want to start using this application in the afternoon. And then once, then they tell two friends and they tell two friends and next thing you know, you then the management team and folks above start to understand how quickly they could roll it out across the organization. And then the benefits, the ROI on that solution gets pulled in. That's another very important driver in SaaS. Traditionally speaking, you would go license software. You would then start to do all your testing. You do all your professional services and integration. And then over time, like in the days of deploying SAP, your time to ROI, your time to return on investment was elongated. In the world of SaaS, your payback period is very short. Yeah, I think the numbers we saw were less than three months for SaaS and less than six months for PaaS. So the acceleration on ROI is really, really fast. You work with a lot of SaaS companies. Do you find that the SaaS business model is ultimately a more profitable, we know it's a more stable one, but is ultimately a more profitable business model than traditional on-premise? Well, over time, yes. So the SaaS model, if you're starting a software company today, you're starting it in the cloud. You're starting it engineered for SaaS delivery. And that's a different business model. And so when you're developing something that's enterprise grade, it requires investment to get it to that point. So you're in a SaaS world, you're investing ahead of the revenue returns over time. Many of you will recall, there are several SaaS companies that are public today, and some of them, when they went public, they were not profitable, but over time, as their subscription revenues grow, you know, it's sort of invest once, run many. And although these organizations, many of which we're investors in, don't stop investing in R&D, but I'm seeing the bulk of the upfront investment, you then, you start to harvest for that as more subscribers come on. So your incremental costs are much less over time. And of course, they're taking a lot of cost out of the process as well, with the need for expensive sales forces. Let's talk about some of the lesser-known cloud technology, specifically, databases service, platform as a service, and software-defined networking. The survey did cover those as well. And Brian, can you give us some high-level observations about what's growing, what rate? Yeah, what this really told us from the survey respondents was, you know, what are the technologies that you expect to use in the next two years, or you're beginning to use right now? So what we're seeing out of this is a couple of things. You know, from the biggest one that's growing there is platform as a service. I think what this is really telling us is, we're seeing more and more companies, not just startups, but enterprise companies that are saying, I need to start building software to differentiate my business, right? I need to start building applications that are going to allow me as the automotive industry to compete against Uber or Tesla. As, you know, if I'm in the agriculture industry, I want to be able to give more value to the farmers, to the people that are supplying food and so forth. So we're seeing more and more companies that are saying, I'm going to own software, I'm going to own applications to differentiate myself. The other two that we're seeing, and these shouldn't come as any surprise, database is a service. People looking to spin up more data, more database is a service. And then the other one that was surprising, 23% of the people said they're really experimenting around SDN. So we've all heard, you know, around SDN software to find networking. VMware made a big acquisition there. Cisco obviously has a huge play. But what it really says is, and networking has always been a place that was slow to evolve. But we're seeing, we're seeing about a quarter of the people say, hey, you know, my environments are virtualized, my environments are becoming more agile and more, you know, need more flexibility. Software to find networking technology helps them in that space. And we're seeing, you know, those evolving technologies, not just the baseline storage, compute and networking anymore. Jeremy, you're making some big bets in any of these areas right now? We do. We have, we're investors in couch base. We're also investors in Actifio, which is storage in the cloud. So absolutely we are. And Brian's points, I mean, it's early days in some of it. Database as a service, early days, but we definitely see the trends. Where the rubber meets the road is, of course, in how this stuff is all being used. And Brian, this is something you followed in your research. You follow closely what different companies, how different industries are adopting a cloud. Why don't you talk about how it's being used in some of these new areas? Yeah, so, you know, it's kind of, it's become a trend these days. If you go to any event, any conference, somebody's going to talk to you in the keynote about Uber, they're going to talk to you about Airbnb, they're going to talk to you about Tesla. But if you think about it, cloud computing has really become pervasive in almost every net new product that we're seeing out there, physical products. So not just digital products anymore. We show an example here in the slide of Tesla. Tesla's a beautiful automobile if you've ever had a chance to see one. Incredibly engineered, incredibly well thought out. But the thing that really differentiates it is, how it integrates with the cloud. How it brings technology to the car. So how it does communication within the vehicle. How you get entertainment. We just saw a couple of weeks ago, they pushed an over-the-air upload to the car that now gives you some form of sort of driverless driving or self-automated driving. You think about that. We now have products that after you buy them become more valuable, get more functionality. And we're seeing that. We're seeing that in automobiles. We're seeing that in manufacturing. We're seeing that in farming. Almost every single industry. Yeah, and you've hit most of them and I would just add one more. I'm just thinking of an experience I had personally just a couple of days ago with my new Fitbit, which I bought. And then to register and sync it with my mobile app, I had to actually register in the cloud. So they have all my information now, my vitals. They sync it with the actual device. And this is how these organizations are now communicating. When you open the box and you activate, you're pushing all of it up in the cloud. The same thing just happened a couple of days ago too with a refresh of the operating system on my TV. Yeah, absolutely. And all the apps across were updated. And your Fitbit actually updates now via your mobile app, via the cloud, internet of things, right? The device on your wrist. Let's talk about, move on to IT's role. A lot of people think that the cloud is, will disintermediate IT. It will take people directly to the services that they want to buy. I think the survey found that IT is actually beginning to reassert itself in the process. Brian, can you talk about the high points there? Yeah, there's a couple of pieces here. We talk about not only how much more IT is getting involved. Couple of years ago, there's lots of talk about shadow IT and the concern about shadow IT. I think more and more IT is realizing, you know what, it's get in or get out. And they're really kind of shifting it. Like the business is driving things. The business is saying, look, there are no more IT projects. Everything is a business project, but technology's a core underpinning of that. The big thing that we're seeing changes, it's less about kind of concern. And they're now saying, how do I become more agile? How do I help become part of this process to go quickly? I'll give you just a little, you know, random nugget that we saw this year. Usually, if you would go to events and trade shows, they might show, you know, a vendor might bring a customer on stage and say, hey, what'd you do? They'll typically talk about, well, we implemented your technology. We saved 25%. But they don't typically talk about, you know, radically changing their business. General Electric, who we know from the industrial internet, they're trying to change their business. They were the keynote speaker at Cloud Foundry Summit, at Oracle Open World, at AWS, and a couple of other events. They essentially were out there saying, we need to use IT to change our business. They were actively recruiting developers. So, IT is getting much, much more involved in wanting to be part of business decisions, not just, you know, IT decisions. And one other point to add there, too, when you talk about shadow IT for applications in the cloud, well, I don't think you'll rely less on IT. I actually think an example would be cybersecurity. As you put more in the cloud, we have an investment in a company called Confer, which puts a sensor on a lightweight sensor on endpoint devices, your mobile phone, your tablet, your desktop. And it's becoming, as the consumerization of the enterprise evolves, and those endpoints now are talking to these cloud apps or behind the firewall apps in the enterprise, IT is more and more involved to make sure that they are monitoring threats and Confer's solution, for instance, is threat detection and behavioral analytics. And it becomes, you know, more and more important. I think every other day, we hear about the latest cybersecurity breach. So, as we shift to the cloud, there are new problems and new things that are created, which IT needs to deal with. How does this affect the buying decision, though? Very important for the companies that you invest in to know who their customer is. And traditionally, IT has been the core customer. Is that changing? Well, yes, I mean, I think, you know, an example, a mobile banking application, cloud solution, a mobile app, you log in and you're accessing your vital personal financial information. And oftentimes, I think these financial institutions are getting better and better. If they recognize, which just happened again recently, I logged into a financial institution from a different device. Well, they wanted to know if it was me. So, they then sent a text to my mobile phone. I took that five digit code that came to my phone and had to enter it on my laptop to get connected. And that's an example of the bank, the financial institution is looking to respond to its customer set that wants mobile banking and mobile banking access, but yet has to partner with the IT organization to manage and monitor the threats that are ever present and exist today with bad actors who are looking to sort of get in the middle of that transaction and, you know, typically for malicious intentions. So, the role of IT changes, but it doesn't become really any less important. No, I think the role of IT changes and it becomes, you know, one could argue, it's continuing to become more important. One of the interesting findings of the survey, Brian, was that the motivations for people to adopt cloud have changed somewhat over time. This is where this five year horizon is really important. We can look back at the decision factors in 2011 and compare them to today. How have they changed? Well, I think if we look back, you know, to 2011, look back a couple of years ago, you know, scalability is still at the top of the list, whether it was four years ago or now. That really is saying, hey, I want to leverage public cloud resources in some cases where, you know, I don't have to buy them. I can use them on demand. But what's really changed is the second, third, and fourth order things that are driving it. You know, in the past, people thought, well, if it's on demand, it's saving me money, you know, maybe I'm driving a little more innovation. Really what's flipped is because business is going faster, agility is a huge piece of it. People want to be able to respond to their lines of business and say, you've got a great business idea, great. How long is it going to take from idea to execution? So they want to compress that cycle. Cost is still a factor. It's becoming less and less because we're seeing transparency of the cloud providers. People have a better sense of how to measure that. And what's interesting, you know, we show innovation here as being the bottom of the, you know, that four is the fourth one. I think what that really says is people don't think of technology as purely an innovation like it's magic anymore. I think they think of it as it's a core piece of business, just like if I've got expertise in financing, I've got expertise in marketing, expertise in technology has to be core, not sort of, you know, pure innovation. Again, I couldn't agree more. I mean, technology is a competitive weapon for the enterprise today and it makes them more productive, more profitable, ultimately driving shareholder value. And so I think, and that's going to continue to certainly be the case. And agility is important when these enterprises who are looking to innovate are trying to come out with a new app, whether it's an insurance app, a banking app, an e-commerce app, they're trying to deliver solutions that they know their constituents want and need, and whether that's being an innovator or being responsive to competitive threats, and that agility component needs to be absolutely key in order to deliver these solutions in a rapid fashion. All companies are indeed software companies these days. Yes. I touched, Brian, on another data point in the survey though. You mentioned that cost has declined over time as a driving factor in decision-making, yet the survey found that the cost of cloud services is three times as likely to be a concern today as it was five years ago. So there is growing concern over cost. Yeah, I think there is, and I think what that is is it's coming from experience. As people begin to use the cloud, multiple types of clouds, whether it's SaaS or infrastructure as a service, they're beginning to understand not only, how do I think about that? Because I think a lot of times people use to say, well, if I'm paying by the hour and it's pennies versus a million dollar deal, boy, I'm comparing apples and apples. Now they're understanding how to use reserved instances. They're learning how to be more sophisticated. So it's still there. They've got much more data points to go by, and in some cases, stories of success and failure and stuff, but I don't think, we're seeing costs continue to come down, but they're just becoming more sophisticated. They're becoming more aware. Moving on to data, one of the points that the survey touched on that found some unease was over data transportability, particularly as companies look to shift their resources seamlessly between public, private, and hybrid clouds. What did you find regarding the issues of data being on the move? Yeah, we saw some interesting things, and some of these feel a little bit kind of counterintuitive, right? The natural thinking is more and more data will move into the public cloud. It's more scalable. You've got very, very low cost storage prices, especially, but what we saw, we saw 38% of the respondents said that they've actually moved data from a public cloud back into a private or hybrid environment. We don't have the ability to get another level deeper in that. My suspicion is a lot of that is, development organizations that have started in the public cloud, they've begun to learn more about their environments. They may have done it as shadow IT a couple years ago, and IT is getting more actively involved in saying, hey, let me help bring some of that back in house that may be secure, something I've got to secure, become more compliant about. The concerns about data still very much consistent with what we'd expect. Privacy is still probably the number one concern. How much control I have over that, whether the providers are gonna be in business, we've seen some providers get in and out of the cloud. And then the biggest thing that unfortunately we don't have any way to control is the speed of light and fixing physics. So people still struggle somewhat with moving very large amounts of data, although we are seeing some unique and creative things from the vendors and the cloud providers about how to move more data into the cloud and go from there. I should just touch on the issue of privacy being a driving factor in moving data back into private clouds. However, the biggest data breaches we've seen over the last couple of years have been inside the firewall. Right, right. There have been no cases that I'm aware of of major breaches of public cloud. Well, and those are the ones that could come out. I mean, we've seen some of the retail companies, some of the credit card things. I think what we've seen more and more is people are learning how to be secure in the cloud. They're learning how to work cooperatively with their cloud provider. We're seeing larger levels of encryption. People are feeling more comfortable there. I think that piece is coming down. I think what they're really trying to figure out that we see from a Wikibon perspective is do I build applications that have data that originates in the cloud or am I doing integration between what exists today in applications and new applications? And that really is the next architectural challenge that they're all trying to really master. This is true. And one quick example, e-commerce. Huge market opportunity. Many of us have gone online and ordered something. You could go to Nike.com or pick your favorite place, Amazon, what have you, and order. Well, if something happens with that order, like it didn't show up or it came in damaged or it wasn't actually what you ordered when you receive it, well, the follow up from there, when you end up speaking with someone at the organization where the retailer is a merchant, where you purchased the good or service, those folks are then going to say, okay, what's your name? What's your address number? What was the account number? Here's the order tracking number. And that is where they then go hit these disparate systems that we're talking about. And that data resides all over the place. And it's very difficult to hit those legacy systems and bring those back and forth between public and private. And you're actually finding that some of the early inhibitors to cloud adoption from your 2011 survey are beginning to resurface when it comes to data transfer. Why do you think that's happening? Well, my take would be it's just the growth of cloud. So early 2011, there was a lot of experimentation. There was some fud, there was some sort of rumors and so forth of what was out there. Less people were actively using it. You heard some, the news wanted to pick up on some bad stories. I think now we're seeing this growth more and more people are just using the services. They're figuring it out. And we've talked for a long time that the skills have to evolve as well. So there is, we've talked to a number of customers and they say, you know, it takes me three, six months to get used to the different learning curves, the different terminology. And I think that leads to a little bit of some of the difficulties. It's getting easier and easier to use it. People still have to kind of get over their learning curves and they're more actively using it, so. You mentioned user expectations earlier, Brian. I want to return to that of how this affects the way companies are, IT organizations are expected to deliver value to their users as well as the speed with which companies deliver new products and services to the market. Is cloud sort of fundamentally reshaping these expectation curves? Oh, absolutely, absolutely. It's, you know, I always say that the IT organization was always the one group where they've been the biggest laggard group. If you sit around the C level table, every other group says, look, if I've got things I've got to accomplish and they've got to be accomplished in this quarter because I've got to report earnings to Wall Street or I've got to meet this six month window, they go find out how to mix and match what they own in-house and what they have expertise with and what they go and sort of outsource or go leverage a cloud for. IT is now starting to figure that out and people want to, the lines of business leaders want to be able to say I have an idea in this quarter and I'd like to see at least an experiment of what that looks like in this same quarter. I don't want to wait two, three, four quarters to plan for that. Jim, you talked earlier about the direct relationship with the cloud provider and how this may be disintermediating some of the channel. How does the, what are the ancillary effects of that? As companies want to deal more directly with their providers, how does that reshape the way services, the way the companies you're investing in take their services to the market? Yeah, well it's a good point, Paul, and I think it makes the whole process much more efficient. I as the technology provider have developed a service, a solution, and I know who my prospect or customer is, and on the other side of it, I as a customer, if I decide I'm looking for a new home banking application or CRM solution or data analytics platform or marketing analytics platform, I know now that I can go out and take the requirements documents that I've gathered in-house. What do I need in my business? What do I need to build? How do I need to be responsive to the business and competitive pressures and go map that to the various providers in the marketplace? And that dialogue between providers and buyers is just much more efficient now in the cloud. And before a buyer raises his hand and even self-discovers and lets one of these software solution providers know that they're even in the market for the solution, they've done, they're so much more informed and ready to buy because they may have been on the website, they may have been to a webinar, they may have downloaded white papers, they may have done a more exhaustive competitive analysis than they could have done in the past, and so it takes so much friction out of the selling and buying process and it gets the two parties who are actually going to be talking direct, directly communicating. Does it also permanently lower barriers to entry? I mean, are you seeing that the companies that you fund are able to effectively challenge very large players because SaaS removes some of those barriers? Absolutely, I mean, you see it time and again. I mean, whether it's a work day or a net suite or a salesforce.com or one of the recent companies that just went public is Atlassian and you can go on and on and you see companies that were born in 2008 and 2009 who come out of the gates. Splunk is another example, Tableau, another example, Marketo, and they build big multi-billion dollar franchises in relatively short order as compared to how long it took for an Oracle or a PeopleSoft or a Siebel Systems or you name it to grow to that same level. And so it's a much more efficient way to go. And they are hugely disruptive to the legacy ecosystem. And it's why you see companies like IBM really struggling for growth. And because they get to this point where the innovation side of their DNA around innovation just doesn't exist in these big companies and it becomes harder and harder for them to compete. And the legacy rather than being an asset becomes a liability. Brian, speak to another finding of the survey is the companies are doing business with fewer providers in the cloud market than in the on-premise market. What shifts does that pretend? Well, you know, so as we saw, 75% of the respondents said that they're doing business with 10 or less vendors. It says a number of things. It says, you know, the large vendors and again, some of this is nuanced but for the main things they do, you know, the game is moving very quickly. The large providers, whether that's a large vendor, somebody like an Oracle or a large provider like AWS is, you know, people feel comfortable with them. Those companies in the past used to very much follow certain swim lanes. You were a database company, you were a network company, you were an application company. They're beginning to come together. It's, we're seeing this happen in the marketplace both, you know, in the SaaS and cloud space but we're seeing it on the vendor side as well. It's the reason that drove the EMC, you know, the Dell acquisition of EMC. It drove why Oracle was so adamant at Oracle OpenWorld about having a huge cloud play. It's reshaping what Microsoft is doing and not talking about Windows as much anymore but talking about Azure and Xbox. You know, we're seeing this play out. The rules are very much changing. I like to say that, you know, 2015 was the year that we really saw the game, the rules, being driven by the public cloud companies and everybody else in the ecosystem and the supply chain is having to respond to, you know, how they're going to start to play by those new rules. So how do you see this playing out, Brian? Are we going to have, is the market going to trend toward very large companies that offer everything, the Amazon Web Services model, or toward companies that are more specialized, the Rackspace model or both? Well, you know, I think that the answer to that question is it always ebbs and flows. So we tend to see consolidation at times when there's a lot of, you know, when things begin to mature a little bit we see consolidation. We're starting to see some of that today. And then as people, you know, as companies consolidate they have to do a lot of integration to merge things together. Maybe the response time to customers doesn't happen as quickly. That's where you're always seeing opportunities for new companies, for startups to go be very customer focused and deliver new things. So right now we're in a little bit of a consolidation. We're starting to see some of the bigger players come together. But by no means are we seeing any less activity and we're going to get into this, you know, investment in people that want to be disruptive, that want to find new niches that are very specific and very profitable. We are going to get into that now. And Jim, I'd like you to speak to the investment activity. We know it's been a crazy 18 months for financing of startups now. Some people will say we're in a bubble but certainly the bubble simply gets bigger. What is driving all of these investments right now? Well, so first I'd say we probably are in a little bit of an overheated market. And, you know, there are no venture firm or growth equity firm that I know of is really investing in sort of perpetual or old school technology models. It's all SaaS and all cloud. So that trend is here to stay. And I think, you know, at the end of the day, the investment thesis is still, I think the same as it's been, you know, for a couple of few decades, right? It's looking for companies that have come up with something that's innovative and disruptive, that has a solution that will help an enterprise be more profitable and more productive. Where this technology can help become a competitive weapon and help them ring cost out of their enterprise. I think, you know, you talked about some of the old dogs, you know, folks like GE. GE is, you know, becoming a bigger player and internet of things as an example, right? When you see a company like Nest come out with a device, come out of, you know, left field, create this business and the enterprise value and then have the kind of exit they did. And you think to yourself, how did a Honeywell or a GE or somebody like that, you know, not, you know, the companies that are supposed to bring good things to life, not come up with this sort of technology. And so I think, you know, it's, we will continue to pour investment dollars into businesses like the ones I've been referencing that can come out with an innovative solution, you know, pointed at a very large addressable market and these companies will continue to garner, you know, big war chests because it's been proven, not all of them, right? The venture business, you know, half of them, half of them win and half of them don't and that's probably being generous. Only half, 10% is considered good. Yeah, well, you know, and, you know, if you make 10 investments, you're really looking for two to really be sort of your outsized returns. And so, you know, they will continue to be spectacular investment opportunities in the cloud, in SaaS, in platform as a service, in information as a service, in database as a service. And so it's here to stay. And I think the real art is finding the teams that have the know-how, the vision, have come up with a solution, architected something that is pointed at a big addressable market that will literally show meaningful return on investment to the end user. I want to ask you about the economics of the sale to the customer. Now, Microsoft has said that the subscription model is actually delivers twice as much revenue over, I believe, a five-year period as the traditional package model. Is that what you're finding with the companies you fund? Yes, and I think, you know, I don't know the Xbox financials off the top of my head, but I think they're, you know, it's clearly more than, this is a substantial billion-dollar-plus business. And, you know, it's a subscription business. And, you know, they are finding that as somebody becomes more addicted, if you will, or enchanted with Xbox, the more games they're gonna buy, the more bandwidth they may buy, the more in-app purchases they may make. And so that is the case. And it's the same in the enterprise. You may start off using a solution from, you know, a NetSuite, or a Workday, or a Marketo, and or Splunk, and you're using X amount of functionality, but because you're seeing the return on investment, you then decide you're gonna turn on this feature and you're gonna turn on that feature, which is bringing the subscription revenue per seat up. Right, so your money is flowing out $1 at a time rather than $10,000 at a time. Yes. Brian, any comment on that, on how you see buying cycles and the corporate spending changing as a result of cloud? Yeah, I think, you know, a lot of people will talk about where budgets are. I think what we've seen is, while IT budgets, in a lot of cases, are attending, sort of trending flat to, you know, low single digits, business buying is growing. And I think it becomes a more complicated thing to measure. So while you may spend more in just purely the license cost of something like that, you're not spending nearly as much in power and electricity in your data center. You're enabling your people to work on any device at any time and, you know, I think we're still going through a radical shift of getting used to the idea that, you know, what can I do on a mobile device, which is, you know, there's now three to five times as many mobile devices as there are laptop devices, and how does that drive productivity? And, you know, the SaaS applications, the things that are cloudified that I can get to from any device, there's productivity dollars that haven't yet been fully measured, but, you know, that customers can look at that and go, even if I'm paying a little bit more over a long period of time, it wasn't a capital expenditure. I can align it to productivity, I can align it to results better. And I think even from an accounting perspective, it becomes easier to say, measure opportunity, measure cost, measure results, as opposed to having to do it over five year periods with depreciation and all that other complexity. And I think if I could add one other point there, Brian, you know, the other piece of it is if you look at SaaS companies, you see much, much lower professional services revenue component. And it's because the days of an SAP organization telling a very large, you know, caterpillar, you need to wrap your business around my software application. And then hire us to go, you'll spend $3 for every $1 in software license fees and 10 years ago or 15 years ago, you spent $3 in professional services to hammer that solution in. Today you don't do that. Today you decide I want to start using this SaaS application and it doesn't require the significant spend in professional services to integrate one of these solutions in. You can decide to start using it today and through an open set of APIs integrated in with your legacy applications and it becomes a much simpler way to implement. And your time to productivity is significantly shortened which again, plays into ROI. Yep, the latest Labor Department figures I believe show the productivity, office productivity in the U.S. has not risen at all in the last five years. And I'm wondering if this is because we're going through a cyclical change where we're learning to adopt these new technologies. Are we on the threshold of an explosion in productivity as cloud really makes its impact felt? Brian? I think that may not be necessarily the right area to focus on. I think in the office productivity that worker while they provide a valuable function for the business the investment is around driving the things that touch the customer more so. Not get me through a meeting more efficiently or get me through batch processing. It's how do I help a customer be more informed about my product? How do I help them understand things that could impact their thing? That's where the investment's really being made and I think that'll be the metric more so in this phase of the industry that we'll start to measure. Measure time to make a buying decision, time to, or even just trying to measure the intelligence of the customers as opposed to productivity of users which it's a cog in the business but it's maybe not the thing that drives revenue. So maybe the stuff we're measuring is not all that valid? Well, and I think it's shifted. I think IT used to be focused on productivity of the business. IT is shifting to become, we heard it in a talk yesterday, business technology, not information technology anymore. And Wikibon has written extensively about the transition from systems of record to systems of intelligence. And this is a big shift for IT as well. Absolutely. How do you see cloud enabling this IT shift to bring more value to the business? Well, the simplest way to think about it is what cloud enables at its scale and the pace at which you can do things. The systems of intelligence, systems of engagement, they're all about data. They're all about experimenting with data, being able to take large, large data sets and be able to do analytics on top of those. The cloud's a perfect platform for that because I can experiment, use things for a month or I can store massive amounts of data that maybe I couldn't economically do in my data center previously. So those types of systems, incredibly data intensive but very, as Jim was saying, API-driven. I want to interact with multiple systems. Doing that in the public cloud is much easier than having to sort of orchestrate it behind your firewall and all the security concerns of that. Jim, I wonder how you're evaluating companies these days. We're sort of moving into the second generation of SaaS, you could say. I mean, SaaS as a concept is about a decade old now. Are you seeing the types of companies that are coming to you seeking funding? Are they changing or the types of value they're bringing to the market changing? Absolutely. And you can go sort of industry by industry and continue to find really innovative SaaS solution providers. One that we're investors in is a company called eRecruit which is basically a SaaS based solution for the staffing industry. And it literally helps you from, if you're a large organization and you happen to be a healthcare provider and you're looking for orderlies and nurses and visiting nurses and you want to staff up for these folks. It's difficult in today's employment environment to find those people, so source them, interview them, onboard them, validate their credentials, make sure that there's a handoff between your payroll provider and have that all in the cloud. We've invested in a company called eRecruit that basically took what was a whole bunch of manual processes, phone calls, emails, disparate things going on and brought it all to the cloud so that everybody who's in that life cycle of, from inception, I have a requisition, I need to hire a human being to join my organization to welcome to your first day in our enterprise. There's a lot that happens in and between there and here's an example of a cloud based solution, a SaaS solution that drives so much productivity in that process because there are so many people involved, whether the HR department, the hiring manager, the benefits and administration folks, the payroll provider, et cetera, et cetera. And interestingly, the survey found that HR has moved from one of the lowest cloud adopters in 2011 to I think third on the list this year. So we're seeing new functions actually derive value from the cloud that they didn't see before. Absolutely. Any thoughts about loyalty? This survey showed that companies want to do business with fewer vendors in the cloud than they did on premise, but theoretically switching costs should also be lower, it should be easier to switch. Do you see any trends in loyalty to cloud providers being different than to more traditional companies? You know, I think we're going to see, there'll be a certain amount of that. People feel, because we have to remember, switching costs, while there's the cost of the actual switching, the bigger cost is retraining people, having to redefine processes, all those types of things. So, you know, I don't know that people have ever felt, you know, incredibly loyal to their vendor. I think when their vendor, whether it was a vendor or a cloud provider, took good care of them. They were a good customer. There was a good customer-vendor relationship. Those things worked out very well. I think that's going to continue to be the metric. How well do you take care of my business? The difference being, you know, there's competition amongst the SaaS providers. We're seeing a lot of competition in the platform as a service space. But the metric of switching is still complicated. You know, switching's not easy. What it becomes is, let's find those companies that are good, that are easy to work with. You know, some of those metrics are going to change. How easy is it for me as the vendor to do business with you? How easy do I make it for you? Because that switching is getting somewhat simpler. And I would say, one example leaving some of the names, I won't mention some of them. I'll leave some of them out. But we're investors in WP Engine, which is a leading WordPress hosting and content management platform. And it has had huge growth over the last three years. Significant growth. And we've had a couple of providers in the cloud that have not been able to keep pace with our growth. And so we've had some switching costs and gone through a little bit of pain, ultimately, to get to a very good place. But these cloud service providers need to be able to keep pace with their partners and make sure that they have the requisite resources and scalability and uptime and SLA service level agreements to be able to deliver. And that's going to happen. I mean, the last year of business, like you said, you're not investing in businesses that are doing year-long ELAs and perpetual licenses. As some of those licensing models go away, they become more on demand. The vendor doesn't have the ability to be, to just build lock-in strategies. They've got to build strategies about really trying to satisfy their customers. Do you see, the question for you, Jim, about how this market evolves. A little bit of crystal ball gazing here. Do you see this market actually proliferating five years from now? Will there be many more SaaS providers? Or will we actually see some consolidation, the winners sort of consolidate their positions? Sure. I mean, I think the natural laws of consolidation will continue to occur. So some of the big legacy enterprise companies out there that are natural acquirers of high-growth SaaS businesses will continue to take some of these companies out from an M&A perspective. So you'll see folks like IBM and Oracle and others continue to make acquisitions. But I think at the bottom of the pyramid, you'll also see the significant flow of new startups that are all cloud and SaaS-based that are coming to market with something new and innovative. So my crystal ball would say, I'm certainly bullish on continued innovation. I'm certainly bullish on, there'll certainly be big winners who will disrupt through that innovation process, some pretty significant markets. We hope to be there as investors in some of these companies. But I think the velocity is going to continue to increase in all of these segments that we've been discussing. Brian, this is a time of year, of course, when a lot of predictions are made and you're the smartest cloud guy I know, what do you think is coming in the next year? Well, I think we're in for, like I said early on, I think 2015 was the year of the tipping year where the rules kind of got changed. I think we're going to begin to see companies make major investments, whether those are the established 10 or 12 largest vendors that are out there making big changes in not just their technology, but really changing how they go to market. Chuck Robbins, who's now the new CEO of Cisco, every one of his quarterly earnings, the biggest thing he's talking about is recurring revenue in software. You never would have heard that from Cisco three years ago, five years ago, but that's top of mind. You heard Larry Ellison talking about SaaS and cloud at Oracle Open World. I think this is going to be the year where we're really seeing, from a large vendor perspective, them having to radically change their business models to align better to this competitive situation. Jim, same question to you. What's coming in the next year? Well, and you know, one thing I'll add on to that point, one of the things about the SaaS business model that's fantastic is this recurring revenue we like to refer to, I like to refer to it, is the gift that keeps on giving. In the old perpetual model, you were always sort of swinging from the monkey bars, is the company going to make the quarter? Did they sell enough perpetual licenses? Is the growth still there? With a SaaS subscription business, you can smooth it out and you know you have a backlog of customers, you have subscription, you have revenue, you know what your expense line is, and it's a much more intuitive and easy way to sort of manage your business. And so, Paul, I guess, you know, last view of the crystal ball, I mean, we'll be closing on another investment here soon, I hope, in another SaaS solution provider, all cloud-based, and you know, I think the opportunity for us to deploy more capital in each of these segments is going to continue, as I said earlier, the velocity is going to continue to increase, and I think the future is bright. You know, four or five years ago, I don't know that anybody would have predicted the kind of growth that this market has seen in each of these segments, and I don't think it's stopping anytime soon. We certainly hope it doesn't stop anytime soon because no one's looking forward to a crash. Thank you both gentlemen, Jim Moran, Brian Grace Lee from Wikibon for fielding a terrific survey, one that provides a lot of new insight on where the market is going. If you want to get a copy of the survey, you can find it on SlideShare. You simply have to, the easiest way is to follow our Twitter handle at Future of Cloud on Twitter, follow hashtag Future of Cloud, or simply search for the Future of Cloud survey by Northbridge. You will find the 64 slide presentation on SlideShare that goes into considerable detail on the results of the study. We certainly hope you'll be doing it again next year. So, thanks again to Jim and to Brian and for Silicon Angle Wikibon. This is Paul Gillan saying thanks to you for joining us. We will see you again soon and have a great holiday season.