Who’s Buying? Cloudera Is The Must-Follow IPO Nightmare That We Can’t Take Our Eyes Off [Analysis]

Screen Shot 2017-04-06 at 6.39.38 AMThe tech world has recently come to a stir over Cloudera’s huge S-1 filing, indicating their intention to IPO in the coming months.

A lot has been written about this in different circles but I’d like to take a step back and just think about what this means — selling Hadoop + security and automation hasn’t yet proven to be a break-even-able model yet for the firms in the business, but the two major players will still be public. Whatever happened to businesses turning a profit, exactly? You say, what about SNAP and other social media players? Those are B2C, they haven’t got people paying for services yet, they rely heavily on advertising, the value is really in the data and not the services, and other arguments come to mind. But enterprise software was supposed to be the place where companies actually made money, right? Not in Hadoop.

Why is it so costly? Here is why: these vendors are specializing in a space which requires hiring expensive talent (look at the market for big data engineers and you’ll see why), lots of field sales work (on-premise software solutions costing many $$$ millions don’t sell over the phone) plus proof-of-concept work to make a sale. In additional, organizations require buy-in from the C-suite to IT and Ops to make Hadoop happen inside a company, slowing down sales cycles to an ant’s pace. Other vendors in the space like Alteryx or DataRobot or Tableau don’t have the same magnitude of concerns since the analytics slice of the market is closer to the value-drivers, showing clear ROI with less upfront marginal costs.

Also Cloudera is likely hugely overvalued based on its last funding round. Check out the link and you’ll see some analysis covering why, but it doesn’t look pretty.

Where is the golden path to growth?

We know the famous Forrester Research quote where “100 percent of large companies will adopt Hadoop in the next few years”. Does that mean that this is a rapidly maturing market? Where is the mega growth potential for Hadoop if the largest potential customers will already be on board? Going down-market with cloud/managed Hadoop solutions like we see with Amazon EMR or Micrsoft Azure HDInsights could be a key move forward, making Hadoop licenses accessible for more mid-market players trying to catch up to the Fortune 500. This is the main play that I see opening up a path to future growth for Hortonworks and Cloudera, especially if they can price in a way that enables them to make a healthy margin on these. Doubling down on inside sales for high-availability private VPC deployments would reduce CAC (cost to acquire the customer) costs, upfront hardware costs (instead with a focus on SAAS engagement/recurring revenue) and shorten deal cycles to the level where they could rapidly become very profitable. Also note that once an Org has done the HUGE legwork to direct all their data streams into their Hadoop VPC, the solution itself is rather sticky. So why not disassociate the software from the cost of the box?

Let me wrap up by saying that I very much hope that Cloudera’s IPO is a smash hit, being in this industry myself (Cloudera is also a close partner of DataRobot). A profitable and wildly successful Cloudera bodes well for the rest of the new enterprise data stack (Hardware, Storage, Platform, ETL, Data Science, Viz) that is currently taking over the market.

As the market leader, Cloudera is aiming much higher than rival Hortonworks:


Hortonworks S1 (2016: 185m revenue)Screen Shot 2017-04-06 at 6.08.50 AM

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