Where Are CXOs In the Cycle of Swapping Out Old Tech for New?

// Mike Brown Jr. - Guest Contributor

+ Contact
March 19, 2014
  • Email
Still At The Beginning Of An Enormous Opportunity: $160B In Exits Represents Just 10% Penetration

Enormous changes are afoot in the C-suite at companies at every level of scale and growth. We built Bowery Capital on the thesis that roughly $357 billion would change hands over the next ten years through the swapping out of old technology for new. This perspective comes from years of seeing internet natives becoming IT decision-makers, a concept on the rise, but this is something we are just at the beginning of. Greylock’s David Sze recently talked about finding companies to invest in that access the "$140 billion of IT spend up for grabs." We not only agree, but see the number as far higher. More specifically, we think we are only in the 1st or 2nd inning of this shift.

In my view, the absence of a few key discussions is further proof that we’re in the very early stages:

Risk & Safety versus Growth & Leverage

We focus on helping startups win their first 5 customers, and to do so we’ve naturally developed deep networks of CMOs, CTOs, and CIOs. Many of these people in medium to large companies still think in terms of risk and safety rather than growth and leverage. While this is a broad generalization and no doubt every CMO, CTO, and CIO is thinking about "enterprise 2.0," we have just not seen a radical shift in thinking towards growth. Concepts like Bring Your Own Device (BYOD), Cloud, etc. are going to take a long time to truly impact the medium to large company so long as people continue to think from a place of fear, not opportunity.

Cloud Computing

Okay, maybe this one is talked about a lot. But I focus on the hosting abstraction over the software paradigm (client-server) because I think it is actually more important. While this concept is not novel to any VC, we’re only seeing surface-level adoption across the mass of medium to large companies. Many of these companies are just starting to understand the scale, cost, and power efficiencies of cloud computing. Just think about the length of time it took to move from standalone applications to client-server applications.

Consumer Battle Testing

For the first time in history you actually have consumers battle testing software that can then be sold into medium to large companies – think Dropbox, Skype, etc. These companies now have the ability to answer the age old question, "How do I know your product can scale to my organization?" While there are competitive dynamics at play beyond this concept (i.e. time will tell whether Dropbox can build a major enterprise product to compete with Box), we believe the next 10 years will see winners that provide best-of-breed tools to both consumers and businesses.

Horizontal versus Vertical

The old guard grew up in the world of horizontal software solutions. Oracle and SAP are the greatest examples of this and I would even argue that Workday is as well. These organizations have malleable product and solution selling that can win in any category or business type. Very few organizations have really gone vertical though, with solutions that truly dominate and outcompete these players in a specific category. A few examples of companies who’ve grasped this concept are CareCloud (health practices), Fleetmatics (fleet tracking), and Veeva (global life sciences). Industries such as health, manufacturing, retail, media, education, etc. are all up for grabs and in the future there will be billion dollar specialists in every category.

Look At Revenue + Customer Numbers

Anchoring the $357B of spend shifts, are enterprise 2.0 companies really capturing a ton of the market from a revenue standpoint? Sure, Buddy Media and ExactTarget sold for a lot, and Workday and Palo Alto Networks IPOed. If you look at these companies’ revenue and customer numbers though, they have a long way to go relative to their 1.0 predecessors. In our view there has only been about $12B that has changed hands to date out of old and into new. We’re optimistic with the initial swapping cycle, and excited the market is still in its early days.

The views, opinions, beliefs, conclusions, and other information expressed in this material is not given, verified, or endorsed by Square 1 Financial, Inc. or any of its affiliates. Instead, this material is solely the work of the author, and represents his views, opinions, beliefs, conclusions, and other information he wishes to present, in all cases without any manner of endorsement from or verification by Square 1 Financial, Inc. or any of its affiliates. 

This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that the author believes to be reliable, but which has not been independently verified by the author, Square 1 Bank, or any Square 1 affiliate, and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal, or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to this material should be construed as a solicitation, offer, or recommendation to acquire or dispose of any investment, or to engage in any other transaction. 

All material presented, unless specifically indicated otherwise, is under copyright to the author or Square 1 Financial, Inc. (or its affiliates), and is for informational purposes only. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied, or distributed to any other party, without the prior express written permission of Square 1 Financial, Inc. or the author. All trademarks, service marks, and logos used in this material are trademarks, service marks, or registered trademarks of Square 1 Financial, Inc. or one of its affiliates. 

Square 1 Bank is a member of FDIC and Federal Reserve System. Square 1 Bank and the Square 1 logo are among the trademarks registered to Square 1 Financial, Inc. Square 1 Asset Management, a registered investment advisor, is a non-bank affiliate of Square 1 Bank. Products offered by Square 1 Asset Management are not FDIC insured, are not deposits or other obligations of Square 1 Bank, and may lose value. 


Back To Insights

  • Email