Elephant in the Room to Weigh on Growth for Oracle, Teradata

August 18, 2013, 9:43 p.m. ET

Elephant in the Room to Weigh on Growth for Oracle, Teradata

ROLFE WINKLER

What do you get when you cross Google GOOG +1.02% with a toy elephant? A threat to sales growth for some big technology companies, and a new breed of promising IPO candidates.

In developing its powerful search engine, Google cracked one of the toughest “big data” nuts: figuring out how to make a copy of the Internet, digest what it means, and then use that information to answer a seemingly infinite number of user questions in nanoseconds. A decade later, Google’s innovations have spawned new open-source projects such as Hadoop—named after a toy elephant belonging to the son of one of its creators.Today, Hadoop is used by Google rivals like YahooYHOO -1.50% FacebookFB +1.97% and Apple AAPL +1.08% to help make sense of the flood of data generated by the digital revolution. It is also challenging tech heavyweights like OracleORCL -1.08% and Teradata TDC -1.77% . Their core database technology is too expensive and ill-suited for typical big data tasks.

Startups that support Hadoop users, including Cloudera and Hortonworks, are growing quickly and gearing up for initial public offerings. Hortonworks gets paid to support free Hadoop technology; Cloudera has its own paid version.

Traditional databases organize easy-to-categorize information. Customer records or ATM transactions, for example, arrive in a predefined format that is easy to process and analyze. These so-called relational databases are the kind offered by Oracle and Teradata among others, and the market for them runs to an estimated $30 billion a year, according to IDC estimates.

The Internet, though, is messy. Companies now also have to make sense of and store the mass of data being generated from tweets, Web-surfing logs and Internet-connected machines. Hadoop is a cheap technology to make that possible, and it was born of Google technologies detailed in academic papers.

The first challenge in making sense of the chaotic Web is that there is no single computer large enough to handle the job. So Google designed a file system to store data across thousands of inexpensive computers engineered to behave like one big one. It is cheap and it can grow as the amount of data grows, a necessary feature to deal with any big data problem today.

Another challenge is bringing order to the chaos. Google created an operating system of sorts, called MapReduce, to run programs needed to do so.

Hadoop was built on these and other innovations, including subsequent ones also published by Google. The technology has become so integral to Sears, for instance, it now has a consulting arm called MetaScale to sell its expertise.

As for the threat to database heavyweights like Oracle and Teradata, Hadoop won’t cause companies to abandon the kind of relational database products they offer. These remain the standard for processing easily organized data.

But Hadoop may slow their pace of growth. That is because companies could increasingly divert spending into Hadoop or similar technologies.

IDC analyst Carl Olofson, for example, estimates the market for Hadoop software will be worth around $800 million in 2016 versus $77 million in 2011. But that forecast may understate the technology’s likely adoption rate.

Because it is open source, for every user paying a company for support, there are others that use free versions. And to the extent that any user finds it less necessary to boost spending on traditional databases, that will have a negative impact on those offering such products.

 

Oracle, Teradata and other large technology companies have their own Hadoop products, but these are likely to account for just 5% to 10% of the market, estimates Mr. Olofson.

Google benefits from these technologies in ways that go beyond its core search engine. It rents space on its massive world-wide “computer.” It also sells software tools, delivered as a service over the Internet, to help companies analyze the data they collect. Over time that could become a business to rival Amazon’s successful Web-services unit.

Meanwhile, in Silicon Valley’s war for talent, publishing papers such as those that led to the creation of Hadoop can help with recruiting, showing potential recruits “that you’re working on good problems,” says Google Fellow Jeff Dean.

Ironically, besides Google itself, it was search rival Yahoo that may have benefited most, at least early on, from the development of the system that became Hadoop. Doug Cutting, Hadoop’s early co-developer with Mike Cafarella, joined Yahoo in 2006, bringing his open-source project with him. A year later, after its own development work, Yahoo made it the basis of an upgrade to its own search-engine technology.

Though Yahoo has since handed off its search function to Microsoft, the work it did on Hadoop led to the spinoff of what is now Hortonworks, in which Yahoo retains a minority stake. Meanwhile, Mr. Cutting left for another Hadoop startup, Cloudera.

Both companies support clients using Hadoop, are growing quickly and are targeting IPOs. Cloudera is seen as further along in this process. Hortonworks is thought to be targeting an offering by 2015.

It seems these leavings from Google’s table may make a rich technology feast for others.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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