Published on February 16, 2008
Investing in Web Services Startup, End User and Investor Perspectives Simeon Simeonov Polaris Venture Partners email@example.com
Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 2
Polaris Venture Partners ► Experienced team 12 partners, 22 investment professionals ► $2B under management, current $900M fund Highly diversified (2/3 IT, 1/3 life sciences) Allaire, Akamai, Alnylam, Nanosys ► Investment focus Great teams with great ideas, regardless of stage Most active early stage VC on the East Coast in 2002 ► Web services investment experience Evaluated several dozen Web services startups Invested in Service Integrity 3
Sim Simeonov ► Joined Polaris in 2002, IT focus Chief Architect + VP Emerging Technologies, Macromedia Part of founding team + Chief Architect, Allaire ► Deep Web services expertise Web Distributed Data Exchange (WDDX) back in 1998 Led Web services team at Macromedia (Axis architects) Standards work for W3C, OASIS, JCP Award-winning book: “Building Web Services” Editorial board member of Web Services Journal Regular contributor to XML Journal ► In touch with startups, big vendors and end users 4
Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 5
What Are Web Services? ► Many academic definitions are not helpful Web services enable app-to-app communication in a manner that is simpler, more open and more extensible So, what is a Web services startup anyway? ► NOT a technology revolution The next step in the evolution of distributed computing For some advanced uses, it is a step backwards! ► NOT a business model revolution …at least not for a long while Web services are just a means to an end ► Revolution in industry dynamics For the first time: distributed standards evolution 6
Distributed Standards Evolution ► Standards models Authoritarian: COM/DCOM Design-by-consensus: CORBA, IETF-related standards Distributed & composable: Web services ► Standards bodies W3C: core specifications OASIS: higher-level specifications (applications + facets) WS-I: interoperability specifications + use cases ► The truth about the standards “democracy” IBM + MS rule (and that’s OK) Startups have little influence 7
Web Services Architecture Messaging SOAP, WS-Addressing Description WSDL, WS-Policy Discovery UDDI, WS-MetadataExchange WS-Security, WS-Trust, Security WS-SecureConversation, WS-Federation Reliable Messaging WS-Reliable Messaging WS-Coordination, WS-AtomicTransaction, Transactions WS-BusinessActivity Service Composition BPEL4WS 8
Driving Forces ► Supply side Platform vendors want app servers on every node Platform vendors going after the $40B integration market MS going after the business applications market for SMBs Long term: networking vendors will want to play, too ► Demand side Agile business (both revenue and cost focused) ► Internally: rationalized infrastructure and easier integration ► Externally: syndication, outsourcing, multi-step value chains Multiple presentation modes ► Flexibleapplications: HTML / smart client / Win GUI ► Mobile Web: 3G / PDA 9
Web Services Now ► Early adopter stage; have not crossed the chasm Lots of experimentation with increasing deployments Mostly point-to-point internal integration B2B is still done over private networks Some CIOs are starting to demand Web services ► Focused demand Legacy extension Integration/workflow Security Better luck Management/monitoring next year? 10
The Current Statistics SIIA Study of 779 Professionals Summer 2002 Current Adoption Importance to End Users and ISVs / ASPs Investigation Very Important Important Experimentation Neutral Pilots Unimportant End-User ISV / ASP Live Very Unimportant 0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% Key Benefits Key Risks Reduce Costs Immature Standards Time to Market Security Tighter Partnerships Reliability Increase Revenues Scalability Efficient Business Immature Technology Differentiation Unclear Biz Benefits 11 0% 10% 20% 30% 40% 50% 0% 20% 40% 60% 80%
Web Services Futures ► Mainstream Mainly used for integration and syndication (EAI + B2B) Significant focus on SLAs and management/monitoring ► On the edge Service composability and application assembly High-level virtualization (pragmatic utility computing) Focus on semantics: key for more dynamic integration ► Still far out Fully dynamic e-business (auto-discovery/use of services) Hindered not by technology but by business issues ► Trust, liability, business quality of service, … 12
Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned Caveat This is just a surface snapshot of a rapidly evolving space 13
Investment Statistics Web Services Investments (2000-2003) (# of investments and total $M) $500 10 9 $400 8 7 $300 6 5 $200 4 3 $100 2 1 $- 0 2000 2001 2002 2003 ► Analysis based on VentureSource data 50 startups funded since 2000 working in core Web services 5 acquired, 10 out of business, 35 tagging along 14
XML/WS Product Categories 60 50 Together Startups Public 40 30 20 10 0 CMS DB Proxies Security SOI SOM Testing Tools 125 startups, 44 public companies, 169 in total 15
Web Services Product Focus 88 90 80 70 60 50 40 30 30 20 10 5 2 1 0 One Two Three Four Five 125 WS companies: Tools, Security, SOM, SOI, Testing 16
Web Services Technology Map Policy Mgmt Monitor New Manage Meter Systems Virtualize Existing Develop Test Deploy Expose Applications Discover Compose Integrate 17
The Holistic View Business Requirements Architecture / Design Business Strategy Tech Strategy Implementation Policy Testing Deployment IT Operations Business Impact Analysis 18
Challenges To Adoption ► Business strategy “Must have” vs. “good to have” New capability vs. “better, faster, cheaper” ► Technology strategy Top-down vs. bottom-up deployment Integrated vs. best-of-breed platforms Processes, policies and best practices Adoption of industry-specific vocabularies & biz processes ► Implementation Immaturity of standards, tools and platforms ► Operations Lack of good tools for IT/business ops monitoring/analysis 19
Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 20
Case Study #1 ► Fortune 50 company Mission critical business and consumer services Business strategy demands agility and IT cost reduction ► Top-down strategy for SOA deployment Abstract services notion (superset of Web services) Thousands of services in heterogeneous technology islands Architecture group defines policies ► Bottom-up implementation Islands responsible for own implementation No service bus; services accessed on multiple transports Custom SOAP headers for security and other functions ► Operations Standard IT management tools but custom monitoring/analysis 21
Case Study #2 ► Division of Fortune 100 company Diversified financial institution doing Business strategy demands agility and IT cost reduction ► Top-down strategy for SOA deployment Web services are just an access mechanism One mega-service exposes dozens of operations ► Top-down implementation Infrastructure group implements native language libraries SOAP messages travel on enterprise message bus Custom SOAP header for security ► Operations Standard IT management tools 22
Points of Commonality ► Same business drivers But very different approaches ► Strategy is top-down Department-level experimentation does not lead to company-wide deployment ► Only one product from a startup is in use Both companies use some open-source WS software ► Great willingness to deploy Web services …despite standards/tools immaturity ► No fancy products, please No interest in SOI/SOM right now; waiting out market 23
Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 24
End Users ► Poor spending climate Vendors must show clear, hard ROI within 3-12 months ► Moving slowly Migrating from pilots to deployments Business cases are still in development Evaluators/decision-makers/users not always well-defined ► Leveraging existing approaches For example: private networks for security ► Want the world Get started quickly and cheaply (no big infrastructure) Long-term aligned with platform vendors 25
Industry ► Industry dynamics matter more than ever ► Platform vendor path Significant evolution in platform vendor position How does their trajectory evolve over time? ► Market structure is still forming Product/solution boundaries are evolving Integrated vs. best-of-breed is undecided ► Battle of the Cloud Two world views are going to collide in the future Networking vendors: smart cloud, dumb endpoints Platform vendors: smart endpoints, dumb cloud 26
Startups ► Team Web services & domain expertise Connections with standards bodies + industry leaders ► Product Solid roadmap: start small, grow big Design for extensibility Make sure it fits in the evolution of the space ► Competition Align with platform vendors’ expansion path A little “better, faster, cheaper” is not enough Need non-trivial innovation to survive Applications: look for outstanding trapped assets 27
Startups (2) ► Business model Tricky: customers have not fully developed business cases Know who you are selling to: Web services span development, LOB, IT operations, network, security Choose carefully: best-of-breed vs. integrated solution ► Timing The chasm is big because of market conditions and business models that are in flux; control burn carefully ► Valuation + choosing the right investors Series A valuations are reasonable Huge diversity in follow-on rounds Look for co-investors with deep platform expertise 28
Q&A Simeon Simeonov firstname.lastname@example.org 29
SOA Enablement ► Web services “platform” startups Key players: Cape Clear, Systinet, TME Mixed customer traction Diverging strategies ► Risks Core platforms owned by platform leaders + other incumbents such as IONA and Novell/SilverStream Too late for startups ► Opportunities Web services platforms for mobile devices New SOA-based development models/tools 30
Virtualization & QoS ► QoS: security, reliability, transactions, etc. ► Four models VAN (Grand Central): low capex but cumbersome Appliance (Datapower, Forum): transparent but what scope SW Layer (TME): flexible but touches endpoints Integrated solution (Blue Titan): powerful but intrusive ► Risks Crowded space; market timing; platform competition ► Opportunities Appliance company acquisitions by network vendors Solutions delivered via grid technology 31
Service-Oriented Integration ► Spans EAI, B2B and BPA/M Three key problems ► Legacy extension (exposing systems as Web services) ► Dynamic service discovery (repositories, negotiation, etc.) ► Business process automation/management Key players: Cape Clear, Nimble, XAware ► Risks Many established vendors (Vitria, webMethods) at high end Platform vendors have offerings in this space as well ► Opportunities New models for SOI (declarative, semantics-based, etc.) 32
Application Assembly ► Building an entire application from Web services Different from SOI: not just back end but also presentation Enables flexible value chain & truly customizable SW See WSIA & WSRP initiatives at OASIS Key players: mainly portal vendors (Plumtree, BEA, …) ► Risks Too complex a problem; if you build it will they come? What is the value? Platform vendors own programming model; packaged app vendors own the functionality ► Opportunities Flexible software-as-service solutions (platform vs. apps) 33
Testing in SOA ► Interesting market, though immature right now Traditionally has created standalone companies ► Current approaches are often too simplistic Have yet to see a sustainable roadmap Key players: Empirix, MindReef ► Risks Basic testing becomes a feature of development tools ► Opportunities Complex diagnostics for multi-point service deployments Linking development and deployment (testing to mgmt) Meta-data driven testing can significantly help automation 34
Service-Oriented Management ► Two key areas Monitoring: operations + SLA + LOB visibility, analysis Control: provisioning, version mgmt, policy enforcement Key players: Amberpoint, Confluent + many others ► Risks Established mgmt vendors are moving to service mgmt Integrated approaches: powerful but intrusive Best-of-breed approaches: flexible but have dependencies ► Opportunities Significantly lower opex in non-trivial environments Provide value-add analysis to business users 35
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