David Gildeh

With the recent acquisition of Instagram for a ridiculous $1bil. (and potentially worth up to $3bil. if FaceBook IPOs at $100bil. later this year for the share exchange they took) you can’t help wondering if this is the trigger before the boom, the same way Netscape was the trigger for the dot.com boom in the 90’s. Today, Splunk, an Enterprise Big Data Analytics company, IPO’d for a market cap of almost $3bil. on revenues of $120mil and a loss of $12mil. Evernote is about to close a new round at a $1bil. valuation apparently, and Box is apparently going for ANOTHER round of funding also aiming for the $1bil. mark on annual revenues of around $25mil (hazarding a guess from what I’ve heard on the grapevine)

All in all, a lot of activity going on in the market with +$1bil. valuations (it seems to be the magic number now as apparently a million dollars isn’t cool since the Social Network movie) for companies with relatively low revenues or in Instagram’s case, none whatsoever. It makes me wonder how much Alfresco would IPO for with our high growth and revenue!

So are we in another bubble? We never quite hit the last one people predicted around 2004 with “web 2.0” so its risky calling one now, but for me there are a few real game changers happening that are enabling a 13 person company to get bought out for $1bil. after 2 years.

It’s all about the commoditization Curve:

If you look at all the major disruptions in the technology space, there’s usually a 20 year cycle from when the technology was first created in the labs, to when it hits the mainstream. This is because it takes time for the technology to mature and the cost to drop to a point where its able to sell to the mass market and disrupt it’s industry. For example, the Internet’s basic protocols and concept were originally designed in 1974. 21 years later, in 1995, Netscape IPO’d and we entered the boom years of dot.com. What changed? First the technology had matured to a point that it was actually useful for general people, but more importantly the cost of communication dropped through the floor making it possible for consumers to sign up with a dial up modem and use the Internet. The big disruption was the commoditization of communication, enabling new companies like Amazon to launch and disrupt their industry by taking advantage of this commoditization.

Right now we’re hitting a huge commoditization curve that is finally coming of age – Cloud. The Cloud itself sits on several other commoditization curves, Open-Source has commoditized the software stacks they run on and enabled the developers that build new services to build them quicker than ever using free libraries and software, and PCs are now so cheap Amazon literally stacks 100’s of thousands of them in their data centers as does Google. Now anyone can launch an online service, and distribute it to millions of users, for litterally thousands of dollars in running costs. No need to get huge VC cheques to launch a new company, if you’re really good and patient you could even bootstrap your company without any funding!

Tie this in with the explosive growth of mobile devices (which are also powered by the Cloud behind the scenes), and all in all, its a recipe for some pretty disruptive innovation.

Does the Cloud mean another boom?

If Instagram is the tipping point like Netscape was in the 90’s, it is definitely a poster child of what is happening in the technology space right now. Powered by Amazon Web Services, a team of 13, with only a few million dollars (which is nothing compared to what they would have required only 5-10 years ago) launched a service that grew to 50 million users in less than 2yrs and was acquired for $1bil.

DropBox has grown to 50mil users initially on only a few million before last years round, Draw Something grew to 1mil. users in 9 days before it was acquired for 120mil. by Zynga, another Cloud powered company. All of these companies, and thousands more have benefited from the commoditization of computing power – the Cloud. You don’t need to be a data center expert to buy, setup and run the infrastructure to launch a huge new service, you just put your credit card in and go.

Cloud is a game changer like the Internet was in the 90’s and its going to completely disrupt the way consumer services are launched (if it hasn’t already) and is now being accepted by large Enterprises that are shifting to buy Cloud services like Alfresco. It’s a perfect storm for a boom and everywhere I look I can see the market heating up.

So what should you do?

I’m not the only one asking this question, Adeo Ressi seems to think Instagram is a turning point too. Although I don’t agree with everything he says (in a boom you should still focus on building a sustainable business and not hope to be one of the lucky ones like Instagram who sell out without any real business model before the bubble inevitably bursts), this would be a great time to raise some money or do an IPO (like we’re planning sometime next year) to take advantage of the jump in valuations. But if you are sitting on the sidelines, this is also a great time to invest, and although their stock is pretty volatile, Amazon is probably going to be the winner out of all of this as every company/start-up I know getting into Cloud right now is pretty much using them, including Alfresco. Basically, any company that is supporting this boom or leveraging this boom to the max. with a sustainable business model will do well if you were to buy their stock soon and hold it for the next 12-24 months.

And if not Cloud, what’s next?

In case I’m wrong about Cloud being a real driver for another boom over the next 2-3 years (although I’m pretty bullish right now!), there’s a couple of other areas I’m interested in that also appear to be hitting their commoditization curves and I think will be hugely disruptive over the next decade.

First is 3D printing, about 20 years in the making and with the cost of the technology plummeting, I can see this industry severely disrupting the cost of producing and distributing physical goods. The second is Bio-tech. I saw a BBC documentary a few months ago that talked about how the cost of building a lab to produce new genetic proteins was so low you literally had people setting up labs in their garage experimenting with new proteins which they could buy the base ingredients for off the Internet. When you consider some of these proteins can be use to produce things like Diesel Fuel and other commodities, it makes you wonder how long it will be until we see the next garage billionaire appearing from that industry.