Bringing Order to Data Chaos; As cloud computing has taken off, companies have built ever-larger data centers that increasingly tax the ability of staffers to manage them

Bringing Order to Data Chaos

By Olga Kharif February 06, 2014

As cloud computing has taken off, companies have built ever-larger data centers that increasingly tax the ability of staffers to manage them. Two Pacific Northwest companies, Puppet Labs and Chef, are here to help. They’re taking on the likes of IBM(IBM), Hewlett-Packard (HPQ), BMC Software, and CA Technologies (CA) in what market researcher IDC calls a roughly $2 billion business to help companies make all those servers work more efficiently together. On top of that, there’s a growing corporate demand for software that can better manage computer networks or fine-tune a server system that handles terabytes of data, everything from streaming songs to document-sharing apps.

Puppet, in Portland, Ore., and rival Chef, based in Seattle, have helped develop open-source management software used by companies such as Google (GOOG) and Twitter (TWTR). The two young companies make money, though not much, by customizing versions of the software for clients such as PayPal (EBAY), Square, and Salesforce.com (CRM) and advising them how best to use it.

Luke Kanies, Puppet’s founder and chief executive officer, says his company’s revenue grew by 3,000 percent from 2009 to 2012 and by 125 percent last year. In September, he said Puppet’s 2012 revenue was $8.8 million, which would put the 2013 total at less than $20 million. That’s well below the roughly $34 million he says it cost to run the business last year. (Kanies declined to discuss 2013 revenue.) IDC analyst Mary Johnston Turner puts Chef in the same revenue ballpark. Chef CEO Barry Crist says his business grew by about 200 percent last year, but wouldn’t discuss Chef’s revenue or profit.

For these companies to turn a profit, they need to expand into more specialized device management markets where they can sell more proprietary (as opposed to free, open-source) software. Both startups are revving up efforts to sell programs that manage networking switches, routers, and storage devices for server networks. In addition, Puppet and Chef are betting there’s money to be made helping companies better automate a broad software installation, like a new version of Office, on PC networks and tablets. Expanding into new markets “is critical to us to be able to grow our revenues at 100 percent for the foreseeable future,” says Puppet CEO Kanies.

Google, an early convert to Puppet, uses its products to rapidly update the software running servers and employee PCs. So does music-streaming service Spotify. On servers or PCs, “it would have been impossible to grow and manage the Spotify infrastructure without a configuration management tool like Puppet,” says company engineer Johan Haals. GE Capital (GE) uses Chef to manage its servers and network switches, and chief engineer Justin Arbuckle says he can use it to distribute a new app across a network in a couple of hours. “In the past, it would have literally taken weeks and weeks,” he says.

Jayshree Ullal, CEO of networking vendor Arista Networks, says buying management programs for a wide range of devices from one software maker, as opposed to buying separate software for PCs, mobile devices, and everything in the data center, can cut capital spending on computing infrastructure by as much as 50 percent. Arista and rivals Cisco Systems (CSCO) and Juniper Networks (JNPR) are incorporating Chef and Puppet software into their products.

Founded in 2009 under the name Opscode, Chef raised a $32 million round of funding in December, bringing its total investment to more than $60 million. It has 100 employees. Nine-year-old Puppet, which has 250 employees, has raised $46 million from investors including Cisco, VMware (VMW), and Google Ventures. While Chef and Puppet are well-reviewed by customers, “they are very, very small,” says IDC’s Turner.

Kanies estimates that 10 percent of customers will use Puppet on devices that aren’t servers by the end of 2014. Both his company and Crist’s are betting that their expansion is a step toward selling services to manage a growing range of Web-connected devices, from cars to smart thermostats and other appliances. “The way data centers looked 10 years ago, your house is going to look like 10 years from now,” Kanies says.

The bottom line: Fast-growing data center software companies are expanding their services in search of profitability.

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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