The worlds of cloud computing and of telecom and internet infrastructure are increasingly becoming integrated with each other. Hence, trends like that of cloud native computing are quickly impinging on not just on applications that get delivered over internet infrastructure, but also on how that infrastructure is operated and maintained. With us today to delve into those ideas is Dmitry Netis, Q Advisors’ Managing Director, Business Development. Q Advisors specializes in M&A in the TMT space, but especially when it comes to the smaller, innovative technology players that are looking to shake things up.
TR: What is your background, and how did you come to your current role at Q Advisors?
DN: I have a pretty boring background. I got my double-E degree and spent about a dozen years in the industry, with IBM and then Globespan. After that company got acquired by Conexant out in the West Coast as opposed to moving to California and continuing along the operational role path, I became an equity research analyst in New York, initially covering semiconductors, then moving into communication equipment, data networking, storage and then telecom where I was covering Juniper, Cisco and Brocade. That was my initial foray into telecom, and from there I climbed up the technology stack. Two of the major trends that I saw developing at the time (some 13 years ago), were unified communications and the whole entire transformation of the telecom infrastructure layer. I was covering companies like BroadSoft and Acme Packet, and just by digging in and learning more about different ways of conducting telephony over IP, I became more knowledgeable in the field. Little did we know, at the time, that this was going to turn into the major sector it is today. In more recent times, I also branched into SaaS, cybersecurity, and DevOps. I had known Michael Quinn for many years and met Gerry DeHaven through a mutual friend. We started talking and I thought it was a great way to establish a career for the next decade by bringing all my relationships and knowledge of the ecosystem to Q Advisors and helping on the M&A business development front.
TR: The COVID-19 pandemic is the current elephant in the room of course, in what ways do you see it shifting behavior throughout the ecosystem?
DN: As we stand here in May, there are a lot of big things that are in flux. There seems to be an apparent lift from work-from-home environments. People have rushed to secure work-from-home infrastructure and productivity tools so they could at least stay productive. But as we look toward the second half of the year, things are kind of looking frozen at the moment. With payment deferrals, debt crisis are starting to develop, businesses are asking for extensions and flexible payment terms. There are a lot of unknowns in terms of cash flow and how these changes will propagate into overall business activity. So even for the guys that are benefitting from COVID-19, they are starting to see large deals from enterprise customers get deferred or get frozen in place with much longer sale cycles. You could bet, maybe, on the renewals business. If you already have a customer who wants to expand the number of seats in their contact center, that may still be happening. But some of the new deals we're seeing are being clogged for now.
TR: What technologies are seeing a surge in investment?
DN: On the technology side, we've seen an increase in remote contact centers, i.e. remote agents engaging with their customers over omnichannel solutions. That's obviously a big trend. Another is telehealth, where people are essentially rushing to do something that was not a mission-critical technology until now. It was actually at the bottom of the barrel, but all of a sudden, that's front and center and there's a lot of investment being plowed into technology that can power telehealth activities. Another trend that has been already happening before the pandemic is a move toward self-service. Millennials now represent over 50% of the workforce in 2020, and the ability to communicate over multiple different channels versus purely voice has already been happening. But in the wake of the pandemic it has accelerated further because people know that getting on the phone to talk to an agent to rebook a ticket or rebook a service may require time and waiting and so on and so forth. The vendors that are benefitting here are those that provide self-service capabilities, live chat, SMS chat, voice bots, etc. Voice-enabled bots can speak and can understand humans, and able to perceive some sentiment from the human voice and translate that into a coherent message to the real human that can then respond by returning the call or email or whatever.
TR: Which of these behavioral shifts do you think are just temporary measures, and which are likely to become permanent?
DN: I don't think this is a blip, many of these things will become permanent features. The whole reaction to COVID-19 is accelerating the digital transformation for many organizations. Once you come out of your comfort zone and are forced to work in this new environment, and you agree that it's solving the productivity question as well as the cost question, there's no reason to disband that use case, once the pandemic is over. When some things go online, they will typically stay there.
TR: What is cloud native computing, and how does the current environment provide a tailwind for it?
DN: Cloud native is a different way of building software. The old way is a monolithic stack, which is built once, tested and then used. Every time you have a new feature you have to test it within the environment, power down the system, bolt on the new feature, bring up the system, and then make it available to people. The whole process takes months to get the feature out. Cloud native is the new way of building software, and it’s often based on open source Kubernetes technology, which allows you to virtualize and host an operating system within containers, and make the software stack based on modular components, or microservices, for which a feature then be introduced in near real-time. It's an agile development process where you never have to power down the system. It also allows for a easy mash-up of different workflows in the cloud. Now what happens if I’m in a work-from-home environment today, and I suddenly need a tool that I only have available to me in the office environment? If that tool needs to be developed the old way, it might take 3-6 months to get integrated into my work environment at home. With cloud native, that feature could be enabled within days or maybe even hours by sourcing a cloud module and integrating it within my environment online, fostering more innovation and greater business agility.
TR: You mentioned Kubernetes, what other new technologies should we be paying attention to in order to understand the rise of cloud native computing?
DM: There’s a trade show in San Diego called Kubecon that started up around Kubernetes about five years ago. It's grown 20-fold since then, with 12,000 participants showing up at the last big show in December 2019. We have a list of about 100 private companies coming out of that show which basically shows tremendous investments that are going into the space. Kubernetes is a container-based management and orchestration system. But as you go through the process, you start discovering tools for development of software, tools for monitoring software performance in a cloud environment, tools for remedying some of the situations to preserve software code quality, and tools for continuous integration and continuous development. There is also security, which is a huge component especially with COVID-19 forcing more people work from home. Companies need to be able to monitor their endpoints not just to prevent viruses but to ensure systems and identities are secure and that people can get authenticated onto the mission-critical enterprise workflows they need while working online. When you actually begin to move containers from one cloud to another, every time you move the workflow, you ought to be monitoring that it is done in a secured fashion. Every enterprise workflow and integration in the cloud native software environment needs to be secured.
TR: I don’t know much about the players in this space. Who or what should I be keeping an eye on?
DN: We always talk about AWS, Azure and GCP, but two newcomers have made transformational acquisitions to become relevant in this space. One is IBM buying Red Hat was a huge deal. Red Hat was initially a Linux platform, but it acquired a bunch of companies in the Kubernetes cloud native ecosystem. And so they are now one of the largest vendors for cloud native orchestration and tools development. I think IBM’s purchase is changing the landscape and we should watch closely how IBM is becoming relevant in this whole cloud native ecosystem. Another one is VMware with their Pivotal acquisition, which was also very interesting and transformative. On a smaller scale, there are also a few companies one should be watching. CloudBees, which develops continuous delivery tools like Jenkins, is a very interesting company. With tools like Jira and acquisitions such as Bitbucket and OpsGenie, Atlassian has been the preeminent provider of DevOps tools for cloud native infrastructure. GitLab is the newcomer, with an open-source code repository and tracking tools that a lot of developers can grab and run with. Puppet is another one in the configuration and provisioning of applications space, used for the automation of cloud native platforms. CHEF Software specializes in containers automation and has accepted several rounds of investment now, and they are becoming really big. HashiCorp received pretty sizable investments from VCs. They provide open-source tools for provisioning, securing, and running various cloud native applications, and they're someone to absolutely pay attention to.
TR: What role do more traditional managed service providers play in this developing ecosystem? Are they waiting for it to mature before taking advantage of it? Should we expect M&A to add capabilities? Or do they risk being superseded?
DN: That’s a walled garden that has to open up at some point and MSPs ought to be thinking about it. You can't just service monolithic software/hardware kind of infrastructure out there and expect to enjoy strong margins alongside customer demand. They have to evolve, and one way would be to embrace this cloud native technology. Some of the acquisitions in the space are quite interesting. For example, Hitachi bought REAN Cloud, a managed cloud native infrastructure company. NTT DATA is very progressive in the way they're thinking about cloud native. They bought a company called Flux7 that enables migration of workloads from cloud to cloud. Atos bought a company called Maven Wave, and Rackspace bought Onica. So, you are starting to see some of the major MSPs either buying into or starting to embrace cloud native technology so that they can service their customers better and enable them with this DevOps and agile application development process. Because if they don't they'll likely get marginalized overtime.
TR: So what’s new on the horizon for cloud native technologies? What’s the next big challenge it will take on?
DN: One acquisition which piqued my interest was the Microsoft acquisition of the telco infrastructure company Affirmed Networks, which specializes in a virtual evolved packet core (EPC) for 5G environments. It’s essentially a cloud-based virtual mobile core that can be hosted in an enterprise-like megascale data center rather than a traditional telco central office environment. If Microsoft is looking to become the new telco, that could be very much how they see the world evolving as we come into the 5G era. So that's one trend which I am watching: how the megascale players, such as AWS, Microsoft and Google, attack the 5G and disintermediate hundred-year-old telco infrastructure. Initially it was just voice and the PSTN, but that has already evolved into Voice over Internet and not a big deal anymore. With 5G, things are now moving to a web-scale cloud data center. Telcos have started to evolve in trying to rebuild their central offices to look and feel like a web-scale data center where they can host these virtual cores and have edge computing such as a virtual packet core that controls the wireless base station. So, there's this new set of service providers coming to the fore from the likes of Microsoft and Google, which creates a very, very interesting dynamic. I would tend to think that those cloud guys could evolve much faster than the traditional old-school capex-heavy telco operator. But it's early yet, so it remains to be seen. They are probably faced with a lot of quality of service issues initially, but even those are technical problems that will get solved over time. But the landscape vendor names may change as we enter the 5G world.
TR: Thank you for talking with Telecom Ramblings!
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