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Investing in Web Services
Startup, End User and Investor Perspectives

               Simeon Simeonov
            Polaris ...
Agenda
►   Introductions
►   Web services status quo
►   Market analysis
►   Case studies
►   Lessons learned




        ...
Polaris Venture Partners
►   Experienced team
     12 partners, 22 investment professionals
►   $2B under management, cur...
Sim Simeonov
►   Joined Polaris in 2002, IT focus
     Chief Architect + VP Emerging Technologies, Macromedia
     Part ...
Agenda
►   Introductions
►   Web services status quo
►   Market analysis
►   Case studies
►   Lessons learned




        ...
What Are Web Services?
►   Many academic definitions are not helpful
     Web services enable app-to-app communication in...
Distributed Standards Evolution
►   Standards models
       Authoritarian: COM/DCOM
       Design-by-consensus: CORBA, I...
Web Services Architecture
Messaging             SOAP, WS-Addressing

Description           WSDL, WS-Policy

Discovery     ...
Driving Forces
►   Supply side
       Platform vendors want app servers on every node
       Platform vendors going afte...
Web Services Now
►   Early adopter stage; have not crossed the chasm
       Lots of experimentation with increasing deplo...
The Current Statistics
                                                                                                   ...
Web Services Futures
►   Mainstream
     Mainly used for integration and syndication (EAI + B2B)
     Significant focus ...
Agenda
►   Introductions
►   Web services status quo
►   Market analysis
►   Case studies
►   Lessons learned

           ...
Investment Statistics
                           Web Services Investments (2000-2003)
                             (# of i...
XML/WS Product Categories
60


50                                   Together    Startups   Public

40


30


20


10


0
 ...
Web Services Product Focus
       88
 90
 80
 70
 60
 50
 40
                 30
 30
 20
 10                       5      ...
Web Services Technology Map

                                                   Policy Mgmt
                        Monito...
The Holistic View

                                         Business Requirements

                                       ...
Challenges To Adoption
►   Business strategy
     “Must have” vs. “good to have”
     New capability vs. “better, faster...
Agenda
►   Introductions
►   Web services status quo
►   Market analysis
►   Case studies
►   Lessons learned




        ...
Case Study #1
►   Fortune 50 company
     Mission critical business and consumer services
     Business strategy demands...
Case Study #2
►   Division of Fortune 100 company
     Diversified financial institution doing
     Business strategy de...
Points of Commonality
►   Same business drivers
     But very different approaches
►   Strategy is top-down
     Departm...
Agenda
►   Introductions
►   Web services status quo
►   Market analysis
►   Case studies
►   Lessons learned




        ...
End Users
►   Poor spending climate
     Vendors must show clear, hard ROI within 3-12 months
►   Moving slowly
       M...
Industry
►   Industry dynamics matter more than ever
►   Platform vendor path
     Significant evolution in platform vend...
Startups
►   Team
     Web services & domain expertise
     Connections with standards bodies + industry leaders
►   Pro...
Startups (2)
►   Business model
     Tricky: customers have not fully developed business cases
     Know who you are sel...
Q&A

   Simeon Simeonov
sim@polarisventures.com




                          29
SOA Enablement
►   Web services “platform” startups
       Key players: Cape Clear, Systinet, TME
       Mixed customer ...
Virtualization & QoS
►   QoS: security, reliability, transactions, etc.
►   Four models
       VAN (Grand Central): low c...
Service-Oriented Integration
►   Spans EAI, B2B and BPA/M
     Three key problems
       ► Legacy extension (exposing sys...
Application Assembly
►   Building an entire application from Web services
       Different from SOI: not just back end bu...
Testing in SOA
►   Interesting market, though immature right now
     Traditionally has created standalone companies
►   ...
Service-Oriented Management
►   Two key areas
       Monitoring: operations + SLA + LOB visibility, analysis
       Cont...
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Investing In Web Services

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Some ideas on how to make money in the Web services space from 2004.

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  • Transcript of "Investing In Web Services"

    1. 1. Investing in Web Services Startup, End User and Investor Perspectives Simeon Simeonov Polaris Venture Partners sim@polarisventures.com
    2. 2. Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 2
    3. 3. 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
    4. 4. 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
    5. 5. Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 5
    6. 6. 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
    7. 7. 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
    8. 8. 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
    9. 9. 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
    10. 10. 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
    11. 11. 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%
    12. 12. 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
    13. 13. 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
    14. 14. 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
    15. 15. 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
    16. 16. 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
    17. 17. Web Services Technology Map Policy Mgmt Monitor New Manage Meter Systems Virtualize Existing Develop Test Deploy Expose Applications Discover Compose Integrate 17
    18. 18. The Holistic View Business Requirements Architecture / Design Business Strategy Tech Strategy Implementation Policy Testing Deployment IT Operations Business Impact Analysis 18
    19. 19. 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
    20. 20. Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 20
    21. 21. 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
    22. 22. 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
    23. 23. 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
    24. 24. Agenda ► Introductions ► Web services status quo ► Market analysis ► Case studies ► Lessons learned 24
    25. 25. 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
    26. 26. 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
    27. 27. 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
    28. 28. 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
    29. 29. Q&A Simeon Simeonov sim@polarisventures.com 29
    30. 30. 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
    31. 31. 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
    32. 32. 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
    33. 33. 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
    34. 34. 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
    35. 35. 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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