May 9 2009
by Todd Hixon

IT Panel: TLH notes from the NVCA Annual Meeting

Moderator = Chip Hazard (a VC)
CIO of TransUnion
Partner at Bain who does IT consulting
David Skok, Matrix GP

CIOs cutting 10-20% based on expected revenue shortfalls of 10%-40%

  • have lost discretionary spending ability

Focus is on short term savings and efficiency, not on the future

  • 50% discount rate, need payback within a budget year
  • variablize costs — avoid capital and multi-year commitments

Decisions will be more centralized; technology more standardized

  • “ruthless standardization”
  • harder to find someone in a target company with budget and different ideas

Good portfolio companies will still sell and grow, but slower [the ones that grow are the good ones, I guess]

VC backed cos may need to partner with big integrators to give customers assurance that their products will be supported if the VC co goes under

Need guerilla tactics to penetrate

  • enter the org at the bottom with open source
  • partner with established vendors to get in the door

“Few companies in venture portfolios today have an ASP above $100k (if they were to speak the truth)”

TransUnion is aggressively rationalizing its asset base

  • virtualizing CPU and storage
  • use VMWare; would have been slower to choose them if not part of EMC

Bain partner:  have done a big internal study of economics of cloud computing, now rolling this out to client CIOs:  Key conclusions:  cloud computing is purely a cost argument

  • First step is an internal cloud — safe and easy to do
  • Further benefits from external cloud, esp if capacity demand is uncertain, or as a way to delay a major investment step (new data center) for the enterprise, or use cloud for development/test
    • brokers putting capacity in cloud for trading surges
  • External cloud not yet ready for prime time
    • security is #1 concern — apps not written with security built in, don’t want to put data in cloud
    • existing apps not architected right in other ways too, eg, monitoring and control of use
  • Recession (need to shed cost faster) could accelerate change, however
    • one example:  a move from own equip in CO-LO to cloud cut cost 80%
  • Everyone thinking about:  “what is my play in the cloud?”
  • Esp appealing to small/med size cos that lack scale to manage own cloud effectively [duh?]
  • Keep the most sensitive data on prem (eg, credit, customer PII)

Maturity of IT industry?

  • Hardware is mature:  clear global winners, scale plays
  • SW is different:  driven by innovation
    • 30 years ago could never have guessed where we are today
    • cloud helps with this:  de-scales infrastructure
    • consumer world keeps demanding innovation

Cost model for sales has changed:

  • Day of $250k salesman selling $500k deal is gone
  • Need to keep price point down, generate leads on web, use inside sales to qualify [is this new?]
  • Sell cheap and make money on volume
  • Buyers hate to be sold; they use web to learn and choose what to buy; you see millions of downloads of open source form of product
  • SaaS is great because it can be sold to business person w/o IT involvement, and free trial is cheap

What is there to be excited about?

  • More SaaS:  penetration is still low
  • New app areas:  marketing automation [=?]
  • Desktop virtualization:  MS to release products later this year
    • Management of the desktop and distributed data is a big unsolved problem
    • Facilitates off-shoring of management and support

Is too much being funded?

  • David Skok argued that there are still too many look alike competitors competing with his cos [this argument is familiar to those of us who have heard David on panels before]
  • There are more VC backed companies, but not more exits:  is there a fundamental limit on exits?
  • The reason good companies emerge from recessions is the recession kills off the “crap company” competitors
  • We all say this is a great time to invest, but we do fewer deals than last year
  • Hard times get entrepreneurs focused on tangible benefits and provable near-term ROI
  • Recession will probably end, but hard to see how/when the exit markets get fixed

“Three biggest value creating companies in the 90s were MSFT, Wal-Mart, and Berkshire Hathaway, and all three were controlled by a founder who did not care about the short term.” [Not clear these were the top 3; what about Cisco and Intel?]  But there is a point here; would apply to Google in this decade.

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