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201 7 EN T E R P R I S E A LM A NAC

USH E R I NG IN A NE W E R A O F E NTERP RI SE TECH

By Michael Yamnitsky
#2017Almanac
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INTR ODUCING THE WORK-BENCH ENTERPRISE ALMANAC

For the past four years at Work-Bench, we’ve been investing in a total reimagining of the enterprise technology stack.

We’re in the midst of a once in a decade tectonic shift of infrastructure that powers the Fortune 1000 and is unlike
anything we’ve seen before. Whereas consumer tech has the Mary Meeker Internet Trends report for an aggregate
view of industry trends, enterprise technology was missing a comprehensive overview of the key trends - so we’re
launching the Enterprise Almanac to share our thinking on the trends reshaping enterprise technology.

Our primary aim is to help founders see the forest from the trees. For Fortune 1000 executives and other players in
the ecosystem, it will help cut through the noise and marketing hype to see what really matters. It’s wishful thinking,
but we also hope new talent gets excited about enterprise after reading this report. By no means will most of the
predictions be correct, but our purpose is to start the discussion by putting this stake in the ground.

Please share any and all feedback via email at michael@work-bench.com or on Twitter at @ItsYamnitsky.

MI CH AE L YAMN IT S KY
Venture Partner, Work-Bench

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ABOUT WORK-B ENCH

About Us
Work-Bench is an enterprise technology focused venture fund.

Our Thesis
Customer-centricity. We make it our focus to deeply understand the business and IT needs of the
Fortune 1000 in order to make more informed decisions in our search for the next enterprise giants.
This is highly informed by our backgrounds in corporate IT at leading Wall Street banks and as Industry
Analysts which is unique in the venture business.

Our Model
Our model flows directly from our thesis. We leverage our deep corporate network in New York City and
beyond as a way to identify trends, pick the winners, and secure customers for our portfolio companies.

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TABLE OF CONTE NTS

I. 2017 Macro Perspective
The Next Generational Shift In Enterprise Technology Has Arrived

II. Four Vertical Themes
1. Machine Intelligence
2. Cloud Native
3. Cybersecurity
4. Internet of Things (IoT)

III. Tips for Entrepreneurs

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SPE CIAL THANKS

Special thanks to…

Team Work-Bench
Jonathan Lehr, Jessica Lin, Vipin Chamakkala, Kelley Mak, Mickey Graham, and Dash Adam who added significant
contributions and healthy debate for the content of this presentation.

Friends in the Enterprise Tech ecosystem
Scott Coleman (Ignition Partners), Lenny Pruss (Amplify Partners), Lonne Jaffe (Insight Venture Partners), Frank Gillett
(Forrester Research), Aaref Hilaly (Sequoia), Bradford Cross (Merlon Intelligence), Matt Turck (Firstmark Capital), Drew
Conway (Alluvium), Diego Oppenheimer (Algorithmia), Greg Smithies (Versive), Tim Eades & Keith Stewart (vArmour),
Divya Venkatachari (Cisco), Ed Anuff (Apigee/Google), and Winter Mead (Sapphire Ventures) for contributing their
thoughts.

Work-Bench Founders and CEOs
For keeping me honest and never failing to surprise us with with where technology can take us on this pale blue dot.

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SMALL DISCLAIMER

Our views are shaped by anecdotal evidence based on our interactions with entrepreneurs, corporate
customers, and big tech leaders. Take that for what it’s worth. We’ve done our best to separate fact from
opinion by highlighting opinionated perspectives in blue.

You’ll notice many qualitative details, but a dearth of data in this report. The trends we discuss are indeed
early – they can’t be rigorously quantified in customer surveys ran by Forrester and Gartner, nor can they be
segmented out of spending figures by IDC. CBInsights and Pitchbook provide valuable fundraising data,
but since history has shown there’s a disequilibrium between market potential and fundraising in early
market crests, we’ve decided to keep funding figures to a minimum. Our intent was to avoid cherry picking
funding data to serve our purpose and make unfair claims of causality.

We have disclosed our investments where appropriate.

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2017 Macro Perspective
The Next Generational Shift In Enterprise Technology Has Arrived

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MACRO PERSP ECTIVE
SPEED, SCALE, CX DEFI NES VALUE IN TODAY’S POST-INTERNET ECONOMY

The top 5 most valuable US public companies in 2017
Market leadership requires a combination of customer experience, scale, speed, standards, and insight

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MACRO PERSP ECTIVE
STARK EVID EN CE OF THIS AS 3 OF T HE M T R ANSFORM ENTERPRISE TECH

The core tenants of these powerful companies (speed, scale, standards) led them to expose their internal capabilities to global
companies around the world and evolve into “megaclouds” dominating growth in the enterprise IT market

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MACRO PERSP ECTIVE
MEGACLOUDS ARE F IG HTING TO BE #1 PLUMBING FOR DIGITAL BUSINESS
Besides a few serious regional players like Alibaba, global enterprises have 3 main
marketplace bazaars to choose from to power their digital transformation

PLAYER #1 (CATEGORY LEA DER) : PLAYER #2 (FOR NOW): PLAYER #3 (KILL ER PRODUCTS):
MOMENT UM AND BRAND NAME ENT ERPRISE HE RITAGE BUT WHERE’S TH E ENTERPRISE LOVE?

$17.1 Billion (2017 Revenue Est.) $6.1 Billion (2017 Revenue Est.) $950 Million (2017 Revenue Est.)
40% YoY Growth 81% YoY Growth 75% YoY Growth

PRODUCT STRATEGY PRODU CT STRAT EGY PRODUCT STRAT EGY
The monocloud that’s good enough for most things, Play to internal strengths: Underserved enterprise Google shines strength in machine learning, developer tools,
not amazing for anything. Heading down proprietary workloads like legacy Microsoft products, platform and and container orchestration (Kubernetes).
path as most services are integrally tied to their public application services for modern enterprise apps.
cloud architecture. GTM STRATEGY
GTM STRATEGY Historically Google hasn’t catered to the enterprise with sales
GTM STRATE GY Strong enterprise support model. & support. They’re apparently trying to change this though.
Aggressive enterprise sales: lock-in, land-and-expand.
BIG EXISTENTIAL QUESTION BIG EXISTEN TIAL QUESTION
BIG EXI STEN TIAL QUE STION Will enterprise chops trump Amazon’s scale and scope? Can Diane Green, Sam Ramji, and the first-class GTM team
Amazon can’t allocate 30 top PhDs to solve a single from Apigee bring Google from enterprise 0 to hero?
problem. Who will hit Amazon in the achilles heel?

Source: Estimates from Bank of America Merrill Lynch’s “Server & Enterprise Software: Cloud Wars 9: AI : From faster to smarter powered by ABC.” May 8, 2017. Revenue includes PaaS & IaaS.

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… The opportunity is massive, so
megaclouds have gotten a little bit
territorial…

Darth vader death grip?
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MACRO PERSP ECTIVE
TE CHNOLOGY GIANTS ARE CRUMBLING AT THE HEELS OF MEGACLOUDS

Software division spin out in 2016 20 straight quarters of YoY revenue decline

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MACRO PERSP ECTIVE
ENTREPR EN EURS IN SIL ICON VALLEY AREN’T IMMUNE EITHER

Megaclouds put tremendous pressure on startups within the cloud ecosystem —
the Amazon clan will either build it on their own or make it difficult for startups to scale

Amazon mines the startup ecosystem and
replicates their most popular software tools…

…And makes it difficult to create a
tech company around deep IP by
hosting the latest open source software
at a fraction of anyone else’s cost

Amazon’s ReInvent is a startup bloodbath
Amazon Lightsail = DigitalOcean killer?
AWS X-Ray = testing and debugging startup killer?
Amazon Pinpoint = mobile analytics startup killer?
The list goes on…

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… But the rules are about to change again
with the resurgence of Artificial Intelligence

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MACRO PERSP ECTIVE
AI STARTU P FUNDRAIS ING AT RECORD HIGH S

Source: CBInsights “The 2016 AI Recap: Startups See Record High In Deals And Funding”

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MACRO PERSP ECTIVE
TE CH POWERHOUSES ARE PLAYING DEFENSE WITH ACQUI-HIRES

Race for AI: top acquirers of AI startups

Source: CBInsights “The Race For AI: Google, Twitter, Intel, Apple In A Rush To Grab Artificial Intelligence Startups”

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MACRO PERSP ECTIVE
STRATEGY I S TO KEEP AI ON A LE ASH BY D EMOCRATIZING IT

Democratizing AI retains its disruptive power, allowing megaclouds to maintain
their power grip through sheer scale of delivering

“One of the most exciting things we all
can do is demystify machine learning
and AI. It’s important for this to be
accessible by all people” Sundar
Pichai, CEO of Google

Source: https://www.wired.com/2017/05/sundar-pichai-sees-googles-future-smartest-cloud/

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MACRO PERSP ECTIVE
JEFF BEZOS ADMITS AI VALUE IS IN REAL WORLD APPLICATION IN OPERATIONS

“But much of what we do with machine learning
happens beneath the surface. Machine learning
drives our algorithms for demand forecasting,
product search ranking, product and deals
recommendations, merchandising placements,
fraud detection, translations, and much more.

Though less visible, much of the impact of
machine learning will be of this type — quietly
but meaningfully improving core operations.”

Source: http://www.businessinsider.com/jeff-bezos-shareholder-letter-on-ai-and-machine-learning-2017-4

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MACRO PERSP ECTIVE
WE BELIEVE A “MINI” AI CRASH IS IMMINENT

Large tech companies are ending their
talent shopping spree, leaving many AI
startups with inflated valuations and no real
business in the dust. Salesforce is already
showing signs it’s getting over acqui-hires as it
pivots to internally developing Einstein after
gobbling up startups in 2015 and 2016.

Too many competitive Series A & B deals in AI
that have come across our desks at Work-
Bench over the past year have had valuations
in the high double digits, with many even
$100M+. This can’t last long.

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MACRO PERSP ECTIVE
LIKE THE INTERNET ECONOMY, AI VALUE WILL BE CREATED AFTER THE CRASH

The successful companies will focus on using
After the crash…
AI to enable business process transformation

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MACRO PERSP ECTIVE
AI COMPAN IES WILL CREATE VALUE THROUGH SYSTEMS OF INTELLIGENCE

Systems of Intelligence are highly focused analytical systems intended to solve business challenges and
objectives (i.e. increase revenue and customer experience, improve operations, reduce risk)
Value created by:
• Designing products from data
capabilities up to user experience
and not the other way around
• Software UI as invisible as possible >
fancy GUIs. Name of the game is
making the workflow as seamless as
possible.
Value created by:
• Embedding domain experts into the
debugging and hyper-parameter
tuning process
• Incorporating feedback from human
experts into the system of record (SOR)

Value created by:
• Integrating data from multiple
sources include non-tradition
information rich channels
• Novel new forms of data capture
• Cleverly optimizing the data
preparation and AI training process

Original Framework Source: Jerry Chen’s “The New Moats - Why Systems of Intelligence are the Next Defensible Business Model”

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MACRO PERSP ECTIVE
EXAMPLE S OF SYSTEMS OF INTELLIGENCE

• Manufacturing: predictive maintenance on factory equipment in a
manufacturing facility

• Insurance: Automation of consumer car insurance filing claims

• Pharmaceuticals: Optimization of R&D resource allocation for a
portfolio of drug candidates in clinical trial

•Financial services: Automated customer interactions with retail
banking “chat bots” in natural language

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Systems of Intelligence are like Ford Assembly Lines and
Toyota Production Systems – powerful weapons for
competitive process advantage.

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MACRO PERSP ECTIVE
SYSTEMS OF INTELLI GE N C E BARRI E R TO E NTRY LIES IN TIGHT INTEGRATION

• Cloud moat =
Data-driven
Data
unbundling “capabilities” into product design
individually deployed “microservices”
for scale advantage

Turning the
Processes to intelligence into
maintain and action anchors
enhance data product design

• Systems of intelligence moat = Domain expertise
baked into product /
bundling “capabilities” into
operational lifecycle Domain
AI
processes advantage expertise

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MACRO PERSP ECTIVE
BUILDING A SYSTEM OF INTELLIGENCE REQUIRES GETTING INTO THE DETAILS

Deep domain expertise Rich, highly relevant data sets

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…Achilles heel of megaclouds = lack of
focus on the details of real-world
applications…

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Next-generation of successful entrepreneurs
will build systems of intelligence

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Still scared of this guy?

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Vertical Theme #1
Machine Intelligence

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TL;DR

MACHIN E INTELLIGENCE PREDICTIONS

Vertical AI continues to be a disruptive force in the enterprise, with ‘niche’ markets presenting massive
1
opportunities.

2 One caveat: complex vertical AI operating models = protracted path to product/market fit.

3 Invisible apps will ride consumerization wave faster than Slack.

Technology advances enable AI applications to expand beyond the limitations of large, well-labeled data
4
sets.

5 There won’t be a Twilio, but there will be a Github of AI.

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Misalignments
Cloud Native disruption
can’t be stopped

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MACH INE IN TE LLIGENCE
…BETWEEN TALENT AND OPPORTUNITY…

Most AI talent works here… Meanwhile the world changing
opportunities are out here…

… to optimize the output of…

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MACH INE IN TE LLIGENCE
…HYPE AND POTENT IAL…

Potential: 30 years ago Michael Porter predicted an IT
Hype: “Chatbots” rose and fell in the course of 9 months…
automated value chain we’re yet to fully achieve

…no one wanted to talk to a real human, why
would they want to talk to a bot?

Source: Michael Porter, “How Information Gives You Competitive Advantage” HBR

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MACH INE IN TE LLIGENCE
… EXPECTATIONS AND RE AL I TY…

What the press thinks of AI entrepreneurs… How entrepreneurs really feel right
now…

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Bridging the gap…

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MACH INE IN TE LLIGENCE
THE OPPORTUNITY IS GETTING MORE OBVIOUS…

Fortune 1000 CEOs… AI Entrepreneurs…

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MACH INE IN TE LLIGENCE
REF LECTI NG ON LESSONS LEARNED FROM THE RECENT PAST…

Your smartest people + our
Action Jack’s black box? Something in between?
smartest people in a room?

AI Masquerade Ball
14 months, 150 consultant
“ERP” projects

?
Is it Ava? Or Jake from
State Farm?

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MACH INE IN TE LLIGENCE
…AND DIG GING INTO THE ARCHIVES TO SEE WHAT WORKED IN THE PAST…

Artificial intelligence…

1960s 1970-1980s 1990-2000s Late 2000s Mid 2010s 2016
An algorithmic dream AI winter Internet Big Data 14 months, 150 consultant AI Masquerade Ball
“ERP” projects

Is it Ava? Or Jake from
State Farm?
… meets business process re-engineering
1985 2017+
Sybase PowerBuilder AI-powered business
process revolution

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MACH INE IN TE LLIGENCE
… TO WRITE THE FUTU RE PL AYB OOK FOR BUSINESS PROCESS AUTOMATION

2 winning personas for AI-powered enterprise software
invisible apps move faster; vertical AI is more complex to implement but stickier

Invisible apps Vertical AI
Packaged software to automate Hybrid app/services to automate company-specific processes.
common business processes

Operating model AI Human
Operating model AI Human
Data source Proprietary IT systems
Data source Biz app APIs (i.e. Gmail, Salesforce)

ID the killer app, ride on top of Implement with pilot customer, facilitate niche search
Strategy and user exploration in app to train the AI, ID MVP
Strategy established data set, create a data that can scale with respect to customer
label moat to protect against new
entrants implementation and sell that before expanding scope

Value prop Eliminate headcount, make those remaining more
Value prop Automate a business ‘task’
efficient

Buyer persona
Buyer persona

Employee BU leader/CxO

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MACH INE IN TE LLIGENCE
INVISIBL E APPS HAVE A MORE OBVIOUS TRAJECTORY

Prediction: By 2018 at least one breakthrough invisible app will
Buyer persona grow faster than the early days of Slack or Salesforce

Employee
•Impact: Dominant force disrupting the workforce over the
next five years because of deadly combination of task
automation + wide reach, ease of deployment of
consumerized SaaS Invisible apps
•Key distinction: end-to-end automation of a business task
so the value proposition is cost reduction. Otherwise
merits of AI = more efficient UX and it’s just a productivity
play like any other SaaS app.
•GTM differentiation: Shorter AI training periods leveraging
structure and rich semantics of biz app data. Busy execs,
consultants and sales people will purchase and expense
access to invisible apps in true consumerized fashion.
Examples of invisible apps:
*

* Work-Bench portfolio company

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MACH INE IN TE LLIGENCE
VERTICAL AI IS TRICKIER GIVEN THE MORE COMPLEX OPERATING MODEL…
Vertical AI
Invisible apps
“Lock-in” dynamic with integration services and
Defensibility driven by the data moat customer side annotation

Algorithm Action Algorithm Action
Feedback loop

Feedback loop
Vendor
Annotation Annotation

Note: there is some “human-in-the-loop” in that the user’s interactivity Deals with routine discrepancies
with the software drives model refinement, but the onus is not on the
customer to explicitly “train” the AI like in many cases of vertical AI

Customer
Annotation

Deals with sensitive information and drives functionality changes
requiring company-specific process expertise. Note: not all vertical
AI have customer annotation.

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MACH INE IN TE LLIGENCE
…AND HARD ER TO GE T TO DATA SETS…

Structured Invisible apps are intelligence systems riding on
data top of SoRs

Unstructured
data

Vertical AI require customization to get to legacy systems
and unstructured data

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MACH INE IN TE LLIGENCE
…SO THEY’RE SUBJECT TO TOUGHER REQT’S FOR PRODUCT/MARKET FIT

Invisible apps Vertical AI

Does it automate a task end-to-end with a Does it significantly augment humans?
high degree of accuracy?
Is the UX intuitive and enjoyable to use?
Is it easy for employees to use?

Does the AI require the customer’s
This is arguably the trickiest part to intervention? Who? Data scientists?
building vertical AI and thus where Business analysts?
startups should differentiate
What level of abstraction from the guts of
the system will the UX need?

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MACH INE IN TE LLIGENCE
VERTICAL OPPS ARE MASSIVE: EX. FINANCIAL SERVICES

Business process: Compliance workflows (i.e. KYC, AML)
Buyer persona Industry: Financial Services

BU leader/CxO
Vertical AI can help firms reduce
There’s a multi-billion dollar differential Regulation is such a powerful force on Wall
compliance headcount by
in investment bank cost structure, and Street that compliance officers seem to be
automating the mind numbingly
compliance is dominating expenditure running the business and driving divisional
repetitive tasks within compliance:
post 2008 financial regulation. efficiency initiatives.
*

Outcome: increase speed, reduce human overhead
* Work-Bench portfolio company

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MACH INE IN TE LLIGENCE
VERTICAL OPPS ARE MASSIVE: EX. PHARMA

Business process: Pre-clinical informatics research (i.e. drug predictions)
Buyer persona
Industry: Pharmaceuticals

BU leader/CxO Vertical AI can help firms speed the
Opportunity to simulate pre-clinical
Massive pre-clinical research cost ($1B+), development pipeline and focus
processes by identifying molecule
vast timeline (3-4 years), high failure rates clinical trial efforts on drugs with
combinations most likely to succeed in
(99.5%). higher likelihood of success by
clinical trial.
automating informatics research.
Service-provider business model

+ some startups innovating here

Proprietary drug pipeline
business model

Outcome: increase speed, decrease R&D expenditure

Source: Joseph A. DiMasi, Henry G. Grabowski, Ronald W. Hansen “Innovation In The Pharmaceutical Industry: New Estimates of R&D Costs”; Harvard Business School “The Medicines Case”

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MACH INE IN TE LLIGENCE
VERTICAL OPPS ARE MASSIVE FOR A REASON…

Higher margins =
larger margin differential across firms =
wider gap for AI to be used as a
competitive advantage

Source: Factset

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New forces extend the possibilities in
enterprise AI

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MACH INE IN TE LLIGENCE
UNSTRUCTURED DATA PREP = MORE USE CASES, FASTER TO MARKET
70% of time in AI development spent on data prep
Automated data prep has historically only worked
for the 10% of structured data…
*

Now automated data prep possible for the 90%
of unstructured data in large enterprises…

Result: expansion of possible uses cases within
enterprises as data prep is an initial step in any AI
process

* Work-Bench portfolio company

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MACH INE IN TE LLIGENCE
INDUSTRI ALIZED DATA ANNOTATION = MORE ACCURATE AI

Deep learning common among AI elite; special sauce turning to data annotation in ebb/flow pattern between data and algos

Data Deep Industrialization of data
Machine
annotation learning annotation Industrialization of data annotation
learning

From a single highly tuned data
annotation console …

Yellow brick road towards
autonomous AI
Level of

…to many highly-tuned data annotation consoles…

Modular enough to be outsourced…

2014 2015 2016 2017
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MACH INE IN TE LLIGENCE
DEEP LEARN ING SUBST ITUTES = MORE INFERENCE, LESS DATA + EASIER TO USE

Deep Learning and more exotic forms of AI are great in theory, but difficult to implement in practice due to the intensive parameter tuning and amount
of data required to train an algorithm…
New trend: make AI methods that require less data more accessible by adding representation schemes from “traditional” ML.

Example: Hierarchical temporal memory Example: Deep Forest
Combining exotic bayesian networks with Ensemble method in the woodworks that limits
common decision tree structure of neural nets to the number of hyper-parameters relative to
bring deep-learning like algos to natural deep learning and adds common (albeit vast,
language understanding. pun intended) decision tree structure.

Ease the training curve Lower the level of expertise required

Expand the possibilities:
More elastic anomaly detection Learning from fewer examples Transfer knowledge between tasks Put language into context

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MACH INE IN TE LLIGENCE
BAYESIAN LEARNING = PARTICULARLY PROMIS ING AS COMPLEXITY RISES

As the industry continues to explore more complex … The need for easier to use substitutes for deep
machine learning challenges… learning like bayesian learning will rise

Deep learning

Expert human effort
Bayesian learning

Problem difficulty

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MACH INE IN TE LLIGENCE
COMP ETIT IVE FOR C ES IN AI- POWE RE D SOFTWARE ARE CHANGING

Competitive forces will be in flux as the AI landscape continues to develop at rapid speed.
Here is where things currently stand and directionally where they are going:

Data moat? Algorithmic differentiation? Data product differentiation?

Weaker: still a significant barrier, but Weaker: tough to sustain with open Stronger: The key value driver
it’s faster to develop and thus harder source, but there is some value in moving forward is developing
to sustain a data moat. novel training, profiling, debugging, products bottoms up, from data
and testing processes. and analytical capabilities to
features and user experience, and
creating a virtuous loop between
the two.
Locus of focus shifting from the
quantity you own to the process Example: Merlon intelligence
you use to sustain these assets* designs its automated compliance
workflow software to BOTH shorten
insights to action and gather
Direction = whether this factor will be more or less significant 12-24 months from now feedback from users as new data
*For more on this topic, see Matt Turck’s “The Power of Data Network Effects” that feeds into the models.

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MACH INE IN TE LLIGENCE
FORGET AI ELITISM, MAINSTREAM NOW BETT ER EQUIPPED/EAGER TO BUILD AI

After missing out on the internet and struggling with mobile, Corporate America wants in early on AI

“Suits and Hoodies” at Goldman Sachs
•Ambitious attitudes: “AI is a competitive differentiator. We
want to own the model, we don’t want Palantir to own it.”

•Smart recruiting tactics: Avoiding talent wars with the web-
scales by sourcing data scientists in India rather than US, and
Masters-levels rather than PhDs.

•…But some skepticism, particularly around deep learning:
“We have lots of existing regression models that are finely
tuned. Deep learning is just going to be incremental and more
expensive right?”

Source: Quotes from interviews with machine learning executives at top-tier Wall Street banks

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MACH INE IN TE LLIGENCE
WITH A PL ETHORA OPEN SOURCE IT WILL BE EASY, RIGHT?

Widely available backend computing libraries… … Intuitive interfaces

Out-of-the-box deep learning Good for recursive neural nets Good for convolutional neural Higher-level APIs
with differentiated AI training nets, speedy/flexible but no
support for Keras

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MACH INE IN TE LLIGENCE
WELL THERE’S A STEE P LEARNING CURVE…

It takes more experience to debug AI efficiently than to debug ‘traditional’ software

Root-cause analysis in AI is vastly more complex than regular + longer time cycle testing the fix
software…

Software development = hours
Algorithm design

Machine learning = days
Implementation

Two dimensions of Four dimensions of investigation: Why?
investigation: • Re-training algorithm on dataset is time
• Algorithm design
• Algorithm design • Implementation consuming, pushing a code change to
• Implementation • Choice of model production is not.
Source: S. Zayd Enam, Stanford AI Lab • Data

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MACH INE IN TE LLIGENCE
…AND BR ICK WALLS SI LOING INTERNAL EFFORTS = LACK OF LEVERAGE

•Enterprise data science functions are decentralizing to get more funding/buy-in from across the enterprise.
•Most organizations lack culture of collaborative data exchange, and data governance teams slow projects down.

Siloed data science initiatives

Data governance overlords

Business Unit #1 Business Unit #2 Business Unit #3
+
•Data •Data •Data
•Algos •Algos •Algos

= Enterprise are not getting
Common organizational processes mean algos can be used leverage with their data science
across business units to solve different use cases
efforts
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MACH INE IN TE LLIGENCE
DISPARATE DATA SCIE NCE OPERATIONS = NEED FOR SEAMLESS PIPELINE

How do you keep everyone up to speed App Dev
on latest model commits and updates? Product owners
ti s e
e r
exp
a in • Domain experts responsible for
m
Do application of models in BUs

APIs
‘Central intelligence’ This role is the newest addition to the
enterprise data science function highly
underserved from a SW perspective

• Small group of high paid
technical experts responsible
Tra
ining
for initial model development
da
ta
Production-ready models
Backend AI trainers IT ops
How do you manage
resources and costs running
• Less sophisticated/cheaper/ complicated deep learning
often internationally based data models? • Infrastructure owners responsible
science support function for deploying models in a cost-
responsible for preparing data efficient manner
and hyper-parameter tuning
models developed by ‘central
intelligence’

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MACH INE IN TE LLIGENCE
ML PIPELIN ES EVOLV IN G INTO A PLATFORM TO BUILD & DEPLOY ML
ML platforms help enterprises centralize, reuse, and deploy their models at scale.
Value will be in tight integration of ML workflows spanning the entire pipeline.

Collaboration
Historical lineage of ML models ready *
to be leveraged across the org

Modeling tools and platforms
Tools to build, optimize, language-
convert, containerize, and data connect
ML models. Level of abstraction varies
depending on the role targeted (i.e.
less sophisticated data scientists vs.
* hardcore deep learning engineers)

No-ops deployment Data lake
Git push like model employment
* Data store, version control,
with smart orchestration and
parallel processing
serverless computing
Algos Data
= area for differentiation for vendors
* Work-Bench portfolio company

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MACH INE IN TE LLIGENCE
WHAT IT M EANS: FUT URE = GITHUB + HEROKU FOR AI, FUTURE ≠ TWILIO FOR AI

YES NO
Collaboration With deflationary pressure from open source, we expect
*
MLaaS or “Twilio for AI” vendors with differentiated IP and
talented teams will try to pivot towards ‘Github for AI’, but
Modeling tools and platforms will most likely get acqui-hired or resort to selling their data
sets to sustain their business.

*

No-ops deployment Data lake

*

acquired by Cisco
Algos Data

= area for differentiation
* Work-Bench portfolio company

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Vertical Theme #2
Cloud Native

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TL;DR

CLOUD NATIVE PREDICTIONS

1 2017 is shaping up to be a pivotal year for Fortune 1000 deployments of cloud native infrastructure.

Container orchestration is the ‘VMware’ anchoring the cloud native ecosystem. Exactly who will play
2 this critical role will become clearer this year.

3 Cloud native is reshaping databases, middleware, big data, developer tools, and business models.

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CLO UD NAT IV E
APPLICATI ON INFRAST RUCTURE TRANSFORMATION = WELL UNDER WAY

The container disruption = slowly shifting enterprise infrastructure away from virtual machines (VMs)

Yesterday Today Tomorrow

Containers
Apps Containers
orchestrated on
on VMs on VMs
bare metal

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CLO UD NAT IV E
WHY CON TAINERS OVE R VMS?

Container are simply a better unit of deployment for the cloud than VMs

Containers are lighter — 10’s-100’s of MBs vs. multiple GBs, just the right size for component based microservices

Containers are faster — they can be spun up and down in seconds vs. minutes to realize the true agility, resilience,
and portability of cloud computing

Containers are more efficient — you can fit 4-8 times as many app components (or microservices) on a bare metal
container server than you can on a VM because of the way containers share OS resources to free up space

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CLO UD NAT IV E
A NEW CLO U D N ATI VE STAC K IS BE ING DE VELOPED AROUND CONTAINERS

Developer crave for speed and simplicity combined with 4-8X potential server efficiency gains across $726B in global IT
infrastructure spend more than justifies the new economy of container-centric IT infrastructure dubbed “cloud native”

Sources: Forrester Research, Cloud Native Computing Foundation/Redpoint Ventures

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CLO UD NAT IV E
WHY THIS MATTERS FOR THE FORTUNE 100 0

World’s largest custodian of Major media company goes “no-ops” Major education company goes cloud
assets to be largest non web- with self-service cloud native PaaS native to efficiently scale its growing
scale to go cloud native •Use case: rapid-application customer base
•Use case: mission critical development platform to meet •Use case: core digital learning platform
internal workloads and demands of its deadline-driven •Business case: rapid scalability
partner facing developer business •Tool & vendors: Kubernetes, Docker
platform called “NEXEN” •Business case: developer productivity
•Business case: transactional •Tool & vendors: Kubernetes, Docker
velocity, cost cutting
•Tool & vendors: Apache
Mesos, Kubernetes,
OpenStack, Docker

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CLO UD NAT IV E
FORTUN E 1 000S WANT DEVELOPMENT AGILITY LIKE THE WEB-SCALES…

Microservices fulfills on the promises of service-oriented architecture by decoupling apps into single-purpose services that
communicate with other microservices via APIs or messages

Speedier app delivery

Rapid cycle times and easier
updates

Higher code-to-server density ratio

Sources: PWC “Agile coding in enterprise IT: Code small and local”

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CLO UD NAT IV E
…AND TO SCALE AS E FFICIENTLY AS THE WEB-SCALES TOO

Average server utilization by type of environment

?
50-70%

Cloud-native

10-15%
Hallmark vendor

5-10%
Virtualized
Infrastructure type Non-virtualized

Example users

Sources: Gartner, Codeship

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CLO UD NAT IV E
DESPITE ORGANIZATIONAL HURDLES ENTERPRISES NEED TO OVERCOME…

The cloud native organizational disconnect = ops getting the short end of the stick

Devs Tech leadership to ops Ops
“We’re going to be placing you on a special
“Why the f&ck don’t we use projects team to migrate all of our workloads “…”
Kubernetes?” over to Kubernetes… After that, we’re going
to have to let you go.”

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CLO UD NAT IV E
…2017 IS SHAPING UP TO BE A PIVOTAL YEAR FOR CLOUD NATIVE ADOPTION

• Container adoption is crossing the chasm: 11% of global developers reported using Docker containers for
deployments in late 2016.

• Megaclouds are increasing their integration and support for container orchestration: Amazon natively integrates
with Mesos, Microsoft Azure container services supports Kubernetes, Docker Swarm, and Mesos, Google naturally
integrates with Kubernetes, and even Oracle now supports Kubernetes!

• Developers are embracing new programming models like functional pipelines (i.e. serverless) and the agent
model to ease their migration to microservices.

“Serverless” on Google Trends

Sources: Forrester Research, Google Trends

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“I want in, where do I invest?”

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CLO UD NAT IV E
ORCHESTRATION = CE NTRAL NERVOUS SYSTEM OF CLOUD NATIVE = $$$

Container orchestration tools are the data center operating systems of the future. They automate container deployments by
spinning up and managing deployment of containers in production applications to fully realize the agility, resiliency, and
portability benefits of containers.

Major OSS container orchestrators

À la carte option for running micro Most mature solution for scale out apps Best bet for greenfield apps
services on existing infrastructure • More mature project than Kubernetes and Nomad • Largest open source initiative by Google
• Individual open source projects for service scheduling, • Integrates well with existing Hadoop stack • Fully featured orchestrator for enterprise apps
discovery, and secrets management that together are • Not so self-service: bring your own service discovery, • Several commercial vendors in ecosystem as with
competitive to Kubernetes highly skilled operators, and maintenance staff Hadoop
• Existing companies with legacy inertia use Nomad for • Major Partners: Microsoft, HP • Major Partners: Google, Rackspace, RedHat, Intel,
service discover and secrets management CoreOS, Oracle
• Managed by Hashicorp

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CLO UD NAT IV E
CONTAINER OR CHE STRAT ION V E NDORS ARE THE NEXT BIG IT VENDORS

Commercial software vendors bring container orchestration to life

LEGACY TRAN SI TI ON FU TURE

*

EXISTING PAAS PLATFORMS ADDING NEW P LATFORMS BUILT G ROUN D UP
VIRT UALIZ ED SERV E RS
CON TAINER SUPP ORT FOR CONTAINE RS

* Work-Bench portfolio company

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Kubernetes is a disruptive pirate ship —
built by Google, with sails set straight for Amazon

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CLO UD NAT IV E
A FEW REAS ON S W HY KUBE RN E T E S WILL WIN THE RACE FOR DATA CENTER OS

#1. Maximizes ease of use as the industry’s
most fully-featured orchestrator

#2. Vibrant open source community

#3. Like with Hadoop, lack of vendor
dominance encourages the community to
freely innovate on OSS foundation

#4. Technically sophisticated stack built from
Kubernetes-first OSS projects emerging
the ground up with the right level of
abstractions for users to build and deploy “Istio currently only supports the Kubernetes platform,
although we plan support for additional platforms such
applications using containers
as Cloud Foundry, and Mesos in the near future.”

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Cloud Native disruption
can’t be stopped

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CLO UD NAT IV E
DATAB AS ES FINALLY CATC HI NG U P WI T H D EMANDS OF CLOUD NATIVE

Cloud native needs databases that can keep up. Problem = databases are sluggish beasts that never quite benefitted from the
pace of innovation the rest of the industry enjoyed.

Former Google VP of Infrastructure Eric Brewer summarized the engineering challenges of developing database infrastructure
with the CAP Theorem: you can only achieve two of the following guarantees for your database: 1) transactional integrity,
2) availability, 3) and scalability.

Until now. New solutions emerging that dispel CAP Theorem:

*

Microsoft Cosmos Google Spanner CockroachDB

Transactional integrity Availability Scalability
* Work-Bench portfolio company

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CLO UD NAT IV E
APPLICATI ON MONITORING CATCHING UP AS WELL

New problems… + new enablers…

Distributed tracing techniques and
Latency in event time stamping
community support

Buoyant
Interbred app-service dependencies
* Powerful stream processing

Network-riddled app logs
Machine learning

* Work-Bench portfolio company

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CLO UD NAT IV E
CLOUD NATIVE MON ITORING VIA MULTI-V ENDOR TOOL CHAIN…

Common cloud native monitoring configurations…

+ +

+

+

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CLO UD NAT IV E
… POINT TO ANOTHER ROU N D OF APM CON S OLIDATION?

Will new monitoring entrants evolve standalone or will APM leaders AppDynamics/New Relic lead the charge?

Cloud Native: early Cloud Native: consolidated
On-premise: fragmented APM Cloud: consolidated APM monitoring fragmentation APM?

Buoyant
?
Either way, both categories expand with shift to cloud native

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CLO UD NAT IV E
WITH CLOUD NATIVE , SOFTWARE EATS MIDD LEWARE

• Then: App servers, complex event processing
servers, and ESBs were complex new
technologies in the first generation of cloud
requiring dedicated servers to manage them.

• Now: many of these functions are now
distributed directly across the application
code, thinning the traditional middleware
layer in the stack.
Middleware

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CLO UD NAT IV E
NEW P ROGRAMMING MODELS ABSTRACT MID DLEWARE FUNCTIONS INTO CODE

Middleware, once a core layer of the IT stack, is shedding significant weight as middleware
functions now reside in distributed code.

Functional pipelines (aka “serverless”)
Actor model = no more bloated app servers
= no more complex event processor Software actors implement concurrency via asynchronous messages and spread proxies across
Ephemeral snippets of code govern app data traffic, rendering the need for physical servers to manage consistency. App servers are thus relieved of resiliency duties.
dedicated services for business rules obsolete.

Google Amazon
IBM Bluemix Microsoft Azure
Cloud AWS
OpenWhisk Service Fabric
Functions Lambda

Iron.io Serverless

Microsoft Pivotal Cloud
Azure Foundry Spring
Functions Cloud Services

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CLO UD NAT IV E
SERVICE MESHES ABST RACT NETWORK FUNCTIONS VIA LIGHTWEIGHT PROXIES

Service meshes are lightweight network proxies governing service-to-service communications for tasks such as service
discovery, load balancing, and monitoring in highly complex distributed systems

Service discovery is the new IP
gRPC and REST are the new TCP/IP
address and DNS Service meshes use new protocols developed for communications at the service level rather
New system of dynamically routing services to manage latency in large scale than underlying network
distributed systems

LinkerD Buoyant Istio

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CLO UD NAT IV E
MIDDLEWAR E MARKE T ISN’T DEAD, IT’S JUST EVOLVING

Replacing middleware pipes is a new software-human middleware layer tackling the more specialized functions of
complex modern apps:

Systems of engagement

Next-generation middleware
Helping data
Streaming platform Ingesting and
scientists add ML pipeline
interpreting real-time
intelligence and
information from
automation to
around the world
software

Infrastructure

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CLO UD NAT IV E
STREAMING I S TH E NE W COMPLE X E V E NT P ROCESSING SERVER & ESB

“Data stack” Cloud Native stack

Lightweight network proxies for load balance
Next-gen complex and service discovery
Next-gen ESB
event processing server

Operations and container image
ML pipeline Streaming platform management
Messaging Stream
system processing External integrations

Business logic as
distributed code
Code Container orchestration
Code

Container engine
Data lake/distributed database
Container OS

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CLO UD NAT IV E
THE RACE I S ON FO R STREAM PROCESSING

It’s a story of multi-purpose convenience vs. purpose-built performance, with support for
cloud-native schedulers becoming a must

Streaming native systems Multi-purpose batch systems with streaming bolt-on

•Already considered • New streaming • New streaming • One stop shop for • Streaming and • Tied closely with
“legacy” in Silicon library on popular library developed at batch, streaming, batch in one YARN architecture
Valley with Spark distributed log with Twitter with promise and ML that plays system incurs • Latency issues as
demonstrating mid-2016 release of better scalability well with Hadoop latency a multi-purpose
considerably more • Unproven scalability/ and manageability • “Near” real-time • Limited system
more horsepower stability, support for than Storm streaming is good production use
• Doesn’t work out of cloud-native • Architecture enough but not great cases and
the box at scale and schedulers supports cloud- with respect to scale, unclear
frustrating to set up native schedulers throughput, and development
and manage and Storm migration latency path

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Cloud native stack Big data stack

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CLO UD NAT IV E
STREAMING I NTEG RATIONS = DATA AND APPS WILL LIVE IN ONE STACK

Data and app stacks have been separate until now… Container orchestrators like Kubernetes and
Mesos distribute data workloads better than Hadoop’s Yarn. Spark, Kafka, Herron and other new
school stream processing engines all integrate directly with container orchestrators.

“Data stack” Cloud Native stack
Cloud native schedulers take on
Specialized processing libraries
packaging and deployment of big data
instead of all-in-one clusters tied
workloads
to a specific scheduler

Operations and container image
ML pipeline Streaming platform management
Messaging Stream
system processing External integrations

Code Container orchestration
Code

Container engine
Data lake/distributed database
Container OS

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CLO UD NAT IV E
MORE BR OADLY, HADOOP IS LOSING ITS DOMINANCE

Megaclouds ate Hadoop’s lunch
•Megaclouds use the Hadoop distribution in their cloud services,
but by unbundling the underlying file system (HDFS) from the
cluster manager (YARN) and making these components inter-
changible with alternatives, Hadoop is losing it’s position as a
central nervous system for the data stack.

Markets demands moving to machine learning,
where Hadoop has no shine
•Spark > ML for Hadoop, and with cloud-based
object store, you don’t need Hadoop for Spark.
•ML is best run on highly specialized chips
like Google’s TPUs and NVIDIA’s DGX-1 rather
than the commodity hardware Hadoop was
developed for.

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CLO UD NAT IV E
SERVERLESS COMPUT ING MAKES FINANCIAL SENSE OF MICROSERVICES…

Microservices = more shallow utilization across a wider footprint = uneconomical with
sever-based units of measurement in “pay-as-you-go” business model

Spend per server: “pay-as-you-go” vs. serverless

“Pay-as-you-go”: theoretical maximum
utilization of infrastructure
“Serverless”: actual instance run rate
idle time
Resource
utilization
run time

App components
Serverless lowers operating costs for software vendors.
Still TBD whether vendors decide to pass these savings down to customers.

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CLO UD NAT IV E
…WILL IT FORTI FY ME GACLOUD LOCK-IN OR D IS S OLVE IT ?

Amazon sees Lambda as another form of lock-in. Google wants to make functions more
It wouldn’t be trivial for Amazon to change their posture extensible to promote multi-clouds and
because architecturally, functions are tied to AWS public combat Amazon’s lock-in grip. They
cloud and it would take extensive work with partner hope to commoditize AWS by lowering
VMware to extend functions into private cloud. switching costs with serverless.

Google Functions

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CLO UD NAT IV E
ML W ILL S OON PLAY AN INTEGRAL ROLE FOR INFRA OPS AND APPDEV

IT is by nature a data-driven organization, making it the perfect function to infuse with the power of AI

Examples in the market:

ML-powered cluster management ML-powered static code analysis ML-powered IT ops
Improving resource efficiency by Analyzing code commits to figure Bots for new employee on-boarding
adding a Netflix-like recommendation out how to better allocate developer tasks
system to allocation of app resources across the organization
components across resources

*

Electric.ai
Hyperpilot

* Work-Bench portfolio company

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Vertical Theme #3
Cybersecurity

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TL;DR

SECURITY PREDICTIONS FOR 2017

The security ecosystem is re-organizing itself into Systems of Intelligence (SOI). Systems of record (SORs)
1
must become SOIs or risk being relegated to “plumbing.”

SecDevOps blurs the lines between networking and application security as the race for cloud-native
2
security products intensifies.

Beyond the 1%: SOIs as consumable microservices will bring advanced security technology to the 99% of
3
companies who previously couldn’t afford.

In the sweeping wave of industry consolidation, legacy security companies will buy up security analytics
4
and Security Operations, Analytics, and Reporting (SOAR) companies in yet another bout to stay relevant.

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A bird’s eye view

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CYBERS ECU R ITY
LAST 5 YEARS = EVOLUTION FROM SECURITY PRODUCTS TO SOR PLATFORMS

It used to be about product oligopolies…

AN T I VI R U S SI EM F IREWALL D LP IA M MA LWA RE

Now the center of attention is around a new breed of monopolistic Systems of Record
platforms assembling themselves around layers of the IT stack…
E N DP OI N T

N E TWORK // H OST
*

A P P LICATIO N / / CO D E
?
* Work-Bench portfolio company

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CYBERS EC UR ITY
SECURITY ECOSYSTEM EVOLVING INTO A SY STEM OF INTELLIGENCE
SORs have a natural first mover advantage to put all the pieces together

Primary value driver**
With new security tool overload and highly understaffed sec orgs,
how do you make workflows more seamless? How do you foster
collaboration amongst security teams? Can you use automation?
Data-driven
product design

…and have a little bit of this

How do you make sense of and take action based on the wealth of new
Domain
information generated by modern security systems? AI
expertise
SORs are getting here…

How do you get the most comprehensive observability of IT systems Data
in the most seamless fashion?
*

**Note: each value driver is sized based on its ability to create sustainable competitive advantage.
Original framework source: Jerry Chen (Greylock Partners) “The New Moats” * Work-Bench portfolio company

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CYBERS ECU R ITY
SYSTEMS OF INTELLI GE N C E PRI N C I PL E S B EH IND BREAKTHROUGH SORS

How do you create a System of Record platform?

First you land customers with a single product, the
Data-driven
Data product “thin edge of the wedge.” Designing a product starts
design
with what type of data you can peek into:

Get better data… …to build a better product:

How do you seamlessly instrument into IT systems? How do you build great data-driven products with
attributes CISOs really care about?

E ND POI NT • Traditional software agents Ease of implementation and management

• Distributed sensors that act like agents but
NE TWO RK are decoupled from underlying hardware
Scalability in complex IT environments
• Traditional software agents

• Agents on web servers or application run-times
• In-line forward/reverse proxy or agent
AP PLI CATI O N • Traffic access point off firewall or web proxy Short time-to-value
• App APIs

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CYBERS ECU R ITY
…AS THE BASIS FOR BEATING LEGACY CO'S AT PRODUCT OLIGOPOLY GAME

You expand beyond the “thin edge of the wedge” by leveraging data/instrumentation advantages to extend product scope
and displace product-centric companies in adjacent categories.

Instrumentation: lightweight endpoint agents collaborating in a distributed system
VUL NE RABIL ITY POLICY MGMT OS PATC H CON FIGURATION INCIDENCE
MGMT MANAGEMENT MGMT RESP ONSE

Land Distributed security architecture is
Expand Expand a common thread here because it
brings outsized speed & scale to
the process of obtaining data to
* build a host of security “products.”

Instrumentation: distributed network sensor system
SECU RI TY POLICY MGMT MICRO- FIREWALL DECEPTION
ANALYTIC S SEGMENTAT ION

Land
Expand Expand * Work-Bench portfolio company

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CYBERS ECU R ITY
REASONS WHY A PLAT FORM STRATEGY IS SO CRITICAL TO SUCCESS…

• Long term sustainable competitive advantage.
With superior performance characteristics and a
growing treasure trove of data, you can evolve with
the rapidly changing industry pace, much like the
ancient force trumps the latest imperial weapon. It’s
difficult to stay competitive with a single-product
strategy because hackers will eventually figure out
workarounds, rendering your product obsolete.
FireEye’s uncertain future is a case in point.

• Cost-reduction value proposition. Platforms are
stickier than products. The comprehensiveness of
your platform allow customers to rip-and-replace
their old tools in a cost reduction play.

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CYBERS ECU R ITY
SOR LANDSCAPE = MORE COMPLICATED AS NETWORK/APP LINES BLUR

A P P LICATIO N / / CO D E

N E TWORK // H OST

TL;DR: Network and app layer are looking to achieve the same goal of bringing X-Ray vision of apps to
security. Culture + technology factor into this shift. In startup race, network/host layer leaders have first
mover advantage over new entrants to gain X-ray vision up the stack.

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CYBERS ECU R ITY
DEVSECOPS : THE CULT URAL ASPECT OF NET WORK/APP BLUR

App Dev is bringing new infrastructure and tools to the table, so security teams must
keep up with the rich insights into applications these tools generate

• Owns the Systems of Record (including legacy security tools)

VP Infrastructure

• Assembling the Systems of Intelligence to bridge the
CISO
divide (creating a pane of glass for security)

• Making pane of glass more complicated by using new tools with rich
insight into app activity without VP Infrastructure buy-in
App Dev

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CYBERS ECU R ITY
ABSTRACTED INFRA: T HE TECHNICAL ASPECT OF NETWORK/APP BLUR

Old-world app X-ray vision = server = mostly network data in firewall + some data from endpoint

NETWORK

X-ray vision
ENDPOIN T

New-world app X-ray vision =

Dispersed across more abstracted infrastructure Hidden in data-rich DevOps tools

RUN TIME?
CI/CD toolchain
LAYER 7?

CONTAI NE R? Container orchestration
OS HOST?

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CYBERS ECU R ITY
BLURRING NETWORK/ APP LINES CREATE NEW BATTLE FOR CLOUD NATIVE SEC

NET WO RKING
With application logic distributed across individual
* microservices callable via APIs on the network, east-west
traffic visibility via deep packet inspection is critical
Thin edge = WAF bandaid Thin edge = vulnerability management

CO NTAINER

New “app dev first” entrants = “thin edge of the wedge”
point products with hopes to become new Systems of
CODE IMAGE Record in cloud native security world.
*
*

CONTAINER ORC HESTRATION Security tools must limit network activity between containers
* running on distributed hosts and observe communication
interdependencies between containers on the same host OS
OS HOST
* Host layer Systems of Record = extending product
capabilities to ensure compatibility with containers and
cloud native architecture

* Work-Bench portfolio company

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CYBERS EC UR ITY
SOR P LATFORMS WILL HAVE TO EVOLVE INTO SOIS TO REMAIN COMPETITIVE

SOAR**

Or these guys?

*
Security analytics
Chicken and egg problem:
Do we acquire one of
how do we partner to get
these guys?
the SOR data?

*

**SOAR: new term dubbed by Gartner for “Security Operations, Analysis and Reporting” technologies that support workflow management.
Note: these categories are not mutually exclusive in that several Systems of Record vendors have Systems of Intelligence capabilities and vice versa.
Original framework source: Jerry Chen (Greylock Partners) “The New Moats” * Work-Bench portfolio company

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CYBERS EC UR ITY
SOI ENTR ANTS = SEC URITY ANALYTICS, ON THE HUNT FOR DATA

Security analytics work across Systems of Record (SORs) to make sense of all the data. With SORs
developing security analytics capabilities themselves, they must prove out the value of generating
insights across SORs if they are to endure as independent vendors.

Example: Versive partners across the SORs to build a “deep
and wide” data moat in security analytics

*
Acquired by HP
Acquired by Oracle

*

*

Flexibility to pull
Deeply instrumented Best visibility into mission
data from end user
in the data center critical workloads
devices selectively

* Work-Bench portfolio company

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CYBERS EC UR ITY
SOE ENTRAN TS = SOAR, SECURITY WORKFLOW EXPERTS

Security Operations, Analytics, and Reporting (SOAR) tools automatically run playbooks for common security
workflows, freeing up limited analyst bandwidth to handle the more niche cases. It’s still to be decided whether
they meaningfully penetrate the enterprise market directly or power the next generation of managed
security service providers as CISOs increasingly outsource analyst work.

Example: Demisto is developing a workflow tool that
integrates existing security tools

Sources: Demisto

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So how will this all play out?

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CYBERS EC UR ITY
THE SOR S M UST EMBRACE CREATIVE DISRUPT ION AND SHIFT INTO SOI

SOR landscape getting complicated and competitive. New SOIs are coming in. SORs
must move “up the stack” and embrace new operating models that commoditize their
very crown jewels.
Step 1: commoditize SORs into
backend “data feeds”

Step 2: de-couple analytics and
Step 3: develop an application
policy control capabilities into a
platform for SOEs to build on top
marketplace of “callable” security
of the SOIs. Splunk’s Splunkbase is
function modules that leverage a
an early illustration of this concept.
broad swathe of SOR data.

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CYBERS EC UR ITY
SOI WILL EXPAND MARKET OF LOW COST SEC URITY SERVICES
Cutting edge security technology has historically been prohibitively expensive

$140,000

FEYE
$120,000

More Expensive / Less Expensive /
$100,000
Narrow Customer Set Broader Customer Set
Average order size

$80,000
PFPT
CYBR
$60,000
IMPV
Blue Coat
$40,000 PANW

$20,000
CHKP
FTNT SYMC
MIME
$0
0 50000 100000 150000 200000 250000 300000 350000 400000
Customer count

But what if we could deliver SOI functions as callable microservices on serverless
backends to lower the cost of delivering security services?

Source: Company data, Goldman Sachs Global Investment Research

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CYBERS ECU R ITY
WHAT WI LL HAPPEN TO LEGACY SECURITY COMPANIES ?

Security incumbents have been busy buying cybersecurity startups — is M&A really a silver bullet?

•Legacy security companies need to shift from peripheral to disruptive
acquisitions. Ex. CASB acquisitions from 2016 do not place incumbents directly
into the heart of the cloud, but buying a System of Record platform startup will.

•Most likely outcome this year and and next is legacy security companies buy
Security Operations, Analytics, and Reporting (SOAR) startups to put
themselves closer, but not fully embedded in the cloud IT stack.

•Paradox of legacy companies and PE firms buying and integrating security
products is that it only brightens the spotlight on independent SOAR and
security analytics vendors who differentiate by casting a wider net than
any multi-product suite.

•Democratization of machine learning may swing the pendulum in favor of SIEM
vendors who can build an intelligence moat around their legacy SORs.

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Vertical Theme #4
Internet of Things (IoT)

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TL;DR

IND USTRIAL IOT PREDICTIONS

IoT is potent for competitive advantage amongst industrials like gunpowder was for kingdoms of the
1
1200s.

2 Industrial IoT = earlier than most of us think because distributed infrastructure remains in its infancy.

3 Distributed analytics will be critical for remote/low-bandwidth industrial IoT operations.

4 Security for IoT will spawn directly from distributed analytics architectures.

5 The next frontier is systems management software bridging disparate IoT software systems.

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So, have you ever IOT’d before?

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INTERN ET OF THINGS
WELL, EVE RYONE TALK S ABOUT IT…

Predictive maintenance of equipment can save massive amount of time and cost

Building security systems Oil & gas refinery Natural gas driller

63% reduction $340K-$1.7M loss per day $11M loss per day of
in maintenance time on site due to shutdown unplanned downtime

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…NOBODY REALLY KNOWS HOW TO DO IT

IoT product platforms have been in market for years
with an established approach…

Closed system software stack with broad protocol support and prepackaged apps for asset
management, alert management, product relationship management, and workflow management

…the industry just assumed Industrial IoT would work similarly.

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INTERN ET OF THINGS
PR ODUCT VS. INDUST RI AL IOT

Product Industrial IoT

The connected washing machine The autonomous drone in a sensor-laden oil field

Connectivity Ample in home environment Low-bandwidth in remote environment

Homogenous time-series data streams Heterogeneous data from the drones,
Data
from a couple sensors drills, and operational databases

Analytics Business rules, ML-based anomoly
Complex, event-driven analytics
detection

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INTERN ET OF THINGS
…EV ERYONE THINKS E VERYONE ELSE IS DOIN G IT

John Deere has mastered connected farming
What does the connected cow have to say?
operations

Sure dude…

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INTERN ET OF THINGS
SO EVERYON E CLAIMS THEY ARE DOING IT…

• Forrester: 25% of enterprise IT claims to be using IoT software platforms, 33% of
global enterprise developers reported building IoT applications in 2017.

• BCG/IDC: Insights from clients points to €250B in annual spend by 2020.

Sources: Forrester Research, “Winning in IoT: It’s All About the Business Processes” by BCG

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Putting hype aside… IoT = new era of
industrial competitive advantage

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MACRO PERSP ECTIVE
GE IS ALR EADY LEADING PACK OF INDUSTRIALS BECOMING TECH COMPANIES

In 2012, GE and followers set out to
create software systems to improve
internal operational efficiency

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INTERN ET OF THINGS
THEY SOON REALIZED WHAT THEY WERE BUILD ING WAS UNIQUE

Industrials are building IoT platforms — highly specialized PaaS with modules for industrial processes
such as asset productivity, operations scheduling, maintenance, and product delivery for their clients

Megaclouds will scale your application
… but have no idea how to bring software over here…
up, down, and side-ways…

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INTERN ET OF THINGS
INDUSTRI AL CHARTER = DEVELOP SYSTEMS OF INTELLIGENCE

Industrials have the opportunity to evolve their software platforms into powerfully defensible systems
of intelligence

Industrial systems of intelligence
?
AI
Domain expertise

Data-driven product design
Data

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INTERN ET OF THINGS
MORE IMM EDIATELY, RACE IS ON FOR SOFTWARE PLATFORM DOMINANCE
Most mature industrial IoT software platform
• Built on Cloud Foundry with easy migration between on-premise and cloud
• Developing analytics capabilities with acquisitions of wise.io for machine learning and Bit Stew for data ingestion and transfer
• Planning to better automate services with Servicemax acquisition
• Strong network of SIs and partners
• Needs to developed more pre-packaged software modules

The Palantir of Industrial IoT Developing portfolio of IoT software Strongest in distributed computing with
• Services company helping industrials like • Differentiating with distributed analytics capabilities Greengrass and Lambda
John Deere develop their own systems of and blockchain for P2P transactions. • Greengrass adds a smart app server to IoT
intelligence for IoT • Bought Tririga for facilities management applications gateways to enable distributed computing
• Amazon’s Lambda functions govern business logic
and manage device state across distributed systems

Parlaying Azure portfolio towards IoT Strong player for remote, low-bandwidth scenarios Analytics chops and industrial customer base
• Microsoft combined an IoT device relying on cellular connections • Streaming analytics capabilities via SAP HANA
management platform with its robust portfolio • With Jasper Technologies acquisition, strongest • Developing modules for predictive maintenance and
of streaming analytics, and easy-to-use machine network of telcos to better manage cellular data fees asset management
learning services to develop IoT software for in remote locations • It has one of the strongest industrial customer bases
predictive maintenance and remote monitoring • Acquisition of ParStream is a catalyst for Cisco to in the tech sphere with its ERP heritage, but with a
• Recently announced edge analytics for develop edge analytics capabilities needed for very different type of buyer it is not clear this will give
distributing analytics processing across devices, remote area IoT them an advantage in IoT
gateways, and the cloud

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INTERN ET OF THINGS
SKILL SETS ARE GOING TO COME TOGETHER

Can these guys learn to run technology businesses? Can these guys learn industrial processes?
i.e. developer evangelism, partnerships and integrations Seems doubtful…

So we’re starting to see healthy signs of cooperation

GE for application PaaS Microsoft for IaaS

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IoT requires highly distributed
infrastructure

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INTERN ET OF THINGS
TI DES AR E TURNING AWAY FROM CLOUD AND BACK TO THE EDGE

Compute resources will slowly shift from the cloud to devices

Edge servers as bridges

Data centers as central control Endpoints as massive P2P data centers

Mini data centers in cell towers

IoT gateways

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INTERN ET OF THINGS
CONSUMER TECH TRE NDS + NE W E DGE PROCESSES = READY FOR EDGE ML

Nest proved out local ML data
processing… +
New NVIDIA Jetson TK1 is
built for computer vision, ML,
NLP on a variety of small
devices

…as did Google Now

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INTERN ET OF THINGS
GATEWAYS ARE LOCAL FUELING STATIONS BRIDGING DEVICES AND CLOUD

Gateway

1010101010101010101010101010 1010101010
Spewing data 1010101010101010101010101010 1010101010
streams >>
1010101010101010101010101010 1010101010
50B devices in 2020 1010101010101010101010101010 1010101010
Centralized cloud

Bridges gaps in:
•Networking throughput that render real-time data processing too slow for the cloud
•Compute for local data preprocessing that may be too resource intensive for endpoints
•Intermediary data store for efficient, spoke-hub distribution of sensor data

Source: Cisco IoT Report

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INTERN ET OF THINGS
GATEWAYS ARE BEING INFUSED WITH SOFTWARE TO ENABLE EDGE COMPUTING

Cisco’s Parstream allows for Amazon’s Greengrass sends functions Vapor.io retrofits cell towers with
efficient, spoke-hub distribution with complex event processing rules mini data centers for local data
of sensor data at IoT gateways for data filtration and synchronization of preprocessing that may be too
digital shadows for managing asset resource intensive for endpoints and
state across low network environments too time sensitive or prohibitively
expensive to send to the cloud

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Putting it all together — highly distributed IoT operations
Scenario: Brake failure preventative maintenance on remote supply transport train

Large wireless data fees to send
to cloud. Worth the cost? Only if
useful for historical analysis.

Amazon AWS
Analytics at the edge to make Greengrass
instantaneous decisions. Speed is mission
critical in the case of brake failure detection
on a speeding train, where symptoms show
up in data just minutes before a disaster. Utilize gateways when you
can to save on device
battery power drain.

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… Governing data flow will be a new analytics architecture
Scenario: Brake failure preventative maintenance on remote supply transport train

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INTERN ET OF THINGS
ANALYTICAL TOOLS BUILT FOR THE INTERNET DON’T WORK FOR IOT

Try putting heterogeneous industrial data streams into traditional big data pipeline…

Data lake

ETL

Learn

Build

Extract value

X Resource intensive
X High latency
X Loss of critical real-time insights

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INTERN ET OF THINGS
ANATOMY OF A DISTRIBUTED IOT ANALYTICS ARCHITECTURE

Device Gateway Cloud

Machine Additional context, Deep insights,
Instant response
learning data filtering model updates

Industrial scale ETL Software modules
Messaging Stream Predictive
System Distributed system processing maintenance
architecture instrumentation
Expert operator Data
Industrial sensors Inventory mgmt
feedback labelling
Machine processes

Data historians Asset productivity

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INTERN ET OF THINGS
CONTENDER S FOR D ISTRIBUT E D IOT ANALYT ICS IN THREE CAMPS

Megaclouds Pure play startups IoT application PaaS

*

(recently acquired by Greenwave Systems)

* Work-Bench portfolio company

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INTERN ET OF THINGS
SECURITY FLOWS FROM DISTRIBUTED ANALY TICS

•Distributed analytics architectures instrument deeply into endpoints in the gateway, Example startups
and thus will be the providing data to security solutions focused on device anomaly
detection and distributed policy-based prevention.

•Traditional security vendors talk a big game about IoT but they are going to struggle
to get into the industrial space because operators aren’t going to want to instrument
connected assets 10 ways like IT does in the data center.

•Because of this dynamic, distributed analytics vendors have an opportunity to
become security vendors themselves. Armis
• Outside of endpoint and network security, the radio frequency spectrum is a new
topology that the most discerning government agencies and financial institutions
will protect against external IoT “intruders.”

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INTERN ET OF THINGS
NEXT UP: OPPORTUNI TY TO BUILD SYSTEMS MGMT LAYER OF INDUSTRIAL IOT

Industrials connecting asset in their supply chain must do the same for software shipped with these assets.
Much like with the rise of systems management software (Tivoli, BMC) in the 90s to help IT more efficiently manage and get value
out of disparate appliances in the data center, a management layer to integrate disparate IoT software stacks will likely emerge.

Connected asset #1 Connected asset #2 Connected asset #3 Connected asset #4 Connected asset #5

OEM/IoT
platform
vendor

Management layer

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INTERN ET OF THINGS
LASTLY, I OT SOFTWARE STARTUPS SHOULD AVOID DEVELOPING HARDWARE

TL;DR: IoT software startups should focus on use cases in which the underlying
physical assets are already IoT-enabled.

• Vertical AI software is highly specialized, and creating a full stack solution tuned to a
particular use case often means developing proprietary hardware to obtain data from
older, non-IoT enabled physical assets.

• Besides the operational challenge for a startup to set up hardware manufacturing, many
startups we meet are incurring heavier losses than typical vertical SaaS companies at the
same stage because they absorb the hardware cost and just sell the software.

• These startups intend to convince OEMs to manufacture the devices on their behalf. We
believe this wishful thinking because OEMs will not be able to extract enough value from
hardware purpose-built to serve even the largest of vertical application markets.

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Lastly, A Few Tips for
Entrepreneurs Going Forward

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TL;DR

TIPS FOR ENTREPRENEURS GOING F ORWARD

1 Systems of Intelligence are the long run combative play against the megaclouds, but there are still ways to
build value in cloud ecosystem.

2 Systems of Intelligence companies will need a thin-edge of the wedge market entry strategy, for which
there are several models emerging.

3 Enterprises still want licenses. Thwart their demand by undercutting SaaS pricing sooner rather than later.

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Megaclouds will be busy duking it out this year…

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TIP S FOR E NT REPRENEURS
WHEN ME GACLOUDS HOST OSS PROJECTS, FOCUS ON ‘NICHE’ FEATURES

Google releases Kubernetes to the OSS community…

Neither of them are focusing on enterprise
features and support, leaving room for these
pure plays to shine:

Defensive play aligning with *
Offensive play to render
more mature (although less
Amazon lock-in obsolete.
progressive) alternative

…Amazon reacts by integrating with Mesos

* Work-Bench portfolio company

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TIP S FOR E NT REPRENEURS
WHEN ME GACLOUDS G O COMMERCIAL SERVIC E, PLAY AGAINST LOCK-IN…

When megaclouds go play the lock-in game… …Go multi-cloud, multi-region as a differentiator

Google releases Spanner as a managed service for GCP
Pure play Cockroach Labs is well positioned to power
Amazon’s combative strategy and address the massive
landscape of enterprise managed databases.

Google tries the Amazon lock-in approach thinking it *
can lure new GCP customers with its innovative new
database product.

Microsoft releases me-too competitor called Cosmos

Private/virtual
private cloud

* Work-Bench portfolio company

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TIP S FOR E NT REPRENEURS
MEGACLOUD AGNOSTI C PLAY = PERTINENT WHEN SENSITIVE DATA INVOLVED

Google, Microsoft, and Amazon want to enforce vendor lock-in … But enterprises need flexibility to move ML workloads to
by developing one-click ML deployment services on their where the data is and not vice versa as megaclouds hope.
functional backends…
Why? Because machine learning and data need to sit together,
often on the same GPU server, and sensitive customer records
can’t just instantaneously be moved to the cloud for a data
science project.

Hence a big opportunity for pure play ML platform startups:

*

* Work-Bench portfolio company

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TIP S FOR E NT REPRENEURS
THIN-EDGE OF WEDGE STRATEGIES CRITICAL FOR SYSTEMS OF INTELLIGENCE

Systems of Intelligence have a chicken and egg problem: Customers want proof the power of automation can
help their business and startups need the data to train the system so it can actually deliver on that promise.

• The DVR player: Lightweight version of the product that takes historical data from a customer and delivers
insights in retrospect. This approach provides the necessary training data and proof points to convince the
customer to deploy the solution for real-time analysis.

• Vertical AI masquerading as invisible software: Although example in the market are less obvious today, some
enterprise chatbot startups take this approach where they sell automation bots bottoms up to employees with the
intention of using the data the bots integrate with to gathering insights into how businesses operate. This can be
used to build a system of intelligence for optimizing business functions and operations to be sold more formally to
senior management as a next evolution of the company.

• Single pane of glass: A prevalent approach is to integrate disparate data and provide unified visibility across
databases. In this respect, the thin edge strategy is data middleware, with applications that enable business
process transformation upsold on top of this core functionality.

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Megaclouds aren’t the only bullies,
don’t forget the SaaS-holes

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TIP S FOR E NT REPRENEURS
SAAS-HOL ES ARE TO BL AME FOR ‘LICENSES IN THE CLOUD’ PHENOMENON

Why this matters:
More license revenue = less deferred
•SaaS vendors are making enterprises run back to licenses.
SaaS SOR vendors are becoming mighty and taking advantage revenue = higher capital
of it — using aggressive tactics to expand dollar share within
existing accounts, often by shoving excessive features and requirements
extensive contract terms down customers’ throats
•Enterprises are push back by opting for licenses to run in
their own virtual private cloud… which may ruin things for the
rest of the industry should the trend continue to persist.

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TIP S FOR E NT REPRENEURS
UNDERCU T SAAS PRIC ING TO AVOID LICENSES IN THE CLOUD RUT

Theoretical growth metrics for high growth enterprise infrastructure startup

3-year TCO by year of sales contract ($USD, 000s)
450
First-time customers by deployment
400 model (%)
350 100%
300 80%
250
60%
200

150 40%
100 20%
50
0%
0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Annual subscription 3-year license Subscription-based License-based

Most enterprise infrastructure startups Long protracted path to get out of
make the mistake of not undercutting ‘licenses in the cloud’ rut, discounting
This leads to ‘licenses in the cloud.’
SaaS prices right away, and only do so SaaS prices helps.
after customers start opting for licenses.

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thank you
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MI CH AE L YAMN IT S KY
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