Big Data poses questions for investors: How should investors in companies operating in a hyped-up technology field feel?

Big Data poses questions for investors

How should investors in companies operating in a hyped-up technology field feel?

20 August 13 10:15, Shmulik Shelach

Over-enthusiasm about a technology trend is part of the lifestyle of the enterprise computing world. The reason is clear: $2.2 trillion will be spent this year along the enterprise computing food chain, from PC components through hardware for infrastructures at server farms worldwide. This is big money, and any fluctuation in a technology trend can result in vendors of new solutions to painful problems of IT systems managers winning big budgets.Enterprise computing people are in a constant race to improve and streamline in response to rising demands placed on computer systems. Capturing their attention can be very quickly reflected in a vendor’s profit and loss account, and later on Wall Street. How should investors in companies operating in a hyped-up technology field feel? The answer, as usual, mostly depends on an investor’s appetite for risk: to sell and run, or to wait for developments with a satisfied smile.

The world of enterprise data management is going through interesting times, which include the rapid penetration of technologies, new companies coming into being, and rising values for public companies. The big noise today in Big Data is called by consultancy firm Gartner the greatest hype in the world of enterprise computing. The market role of Big Data, let us recall, is to provide alternative infrastructures for the rapid handling of a range of very large quantities of data.

On the side closer to the end user are software solutions for analyzing business and operating data , or business intelligence (BI), and the share prices of companies in these fields have soared recently. The new generation of public BI companies – the most prominent of which are Qlik Technologies Inc. (Nasdaq: QLIK) and Splunk Inc. (Nasdaq: SPLK) – have had returns of up to 75% since the beginning of the year. Tableau Software Inc. (Nasdaq: DATA), which only went public in May, has risen 35%.

In contrast, shares of vendors of traditional infrastructure solutions, such as Informatica Corporation (Nasdaq: INFA) and Teradata Inc. (NYSE: TDC), have been much more volatile, swinging by up to 20%.

An ideological approach

Many companies offering similar functionality entered the enterprise data management market, competing for the attention of enterprise computing staff, if not for their budgets. As a result, even if we are talking about complementary products, budget allocations are liable to be affected.

Signs of the threats come out in technology research and financial research studies. In June, Gartner estimated that the growth rate of the BI market slowed to 6.8% in 2012 from 17% in 2011, which it attributed to confusion at enterprises about what Big Data means for them.

JPMorgan believes that enterprises’ plans to assess the value and costs of Big Data technologies is liable to affect longstanding vendors in the field in the short term. It sees companies such as Informatica and Teradata being affected by this.

From a historic perspective, the veteran business data analysis solutions (BI) are designed to provide managers with basic analysis, supported by a visual interface of developments at companies’ business and operating departments. In the past decade, this approach has undergone rapid changes at the levels of infrastructure, end solution, type of users, and data analyzed. Big Data adds a set of technologies for handling quantities of data which older information infrastructures could not handle, as well as a range of mechanisms for “translating” the data for use.

In fact, at companies in the field, it is possible to find an ideological approach to the question of where enterprise data should be headed. The main thing for companies which focus on BI reporting tools is the appeal to the user. As far as they are concerned, everything that happens behind the scenes is not relevant, and will have no great future in the near term.

Big Data companies counter that advanced infrastructures are needed more than ever to quickly access types of relevant data (such as content from social networks), without which reporting is ineffective.

No need to run

As for Wall Street, the bottom line of the debate for investors is clear to analysts who cover data management companies – there is no need to run. JPMorgan says that all the companies mentioned here will ultimately benefit from the expansion of big data technologies.

Barclays Capital wonders about the future of Informatica and Teradata as new infrastructure solutions mature. It concludes on a calming note, saying that Informatica is finding its place in the Big Data world, and reiterates its “Overweight” recommendation.

Does this mean that no revolution is expected? Tableau’s interface for displaying data from enterprise computer systems is considered one of the solutions that is changing the market. Credit Suisse, which gives the company a “Neutral” recommendation, believes that Tableau is well positioned to disrupt and redefine the existing BI market. In other words, the company can take market share away from current solutions of companies such as SAP AG (NYSE; DAX: SAP), Oracle Corporation (Nasdaq: ORCL), IBM Corporation (NYSE: IBM), and even relatively new Qlik Technologies.

“There’s confusion”

In a new study, JPMorgan says that most innovation in the field comes from the private sector. This means that start-ups, sometimes still deep in the garage, can affect computing budgets that flow to veteran companies. For example, companies such as Cloudera Inc.,Hortonworks Inc., MapR Inc. and even Israel’s SiSense Ltd.

Qlik Technologies, which provides popular BI software, is trying to sort out the differences between what is seen in the field and what computer people sense. “There is confusion on this point,” admits Joel Sela, the co-CEO of QlikView Israel Ltd., a Qlik Technologies distributor. “It is difficult for customers to understand these things thoroughly. Customers don’t really understand what Big Data is, but some of the bigger customers stop and try to understand.”

Qlik Technologies’ approach is that the infrastructures that gather data do not really matter, and the company’s ideology is to provide the “last mile”; in other words, the tools to try and provide optimal analysis capabilities to the end-user. As Sela says, “If you don’t understand the story, it doesn’t matter how much data you get.”