Tuesday, February 23, 2016

$100 Million Startup Reveals Innovation Weaknesses At IBM And Oracle

A $2 billion market is small potatoes for a big publicly-traded company like IBM. But it can be a gold mine for a startup.

After all, if the startup can get a mere 5% of that market, its revenues will hit $100 million and that could make it a candidate for an initial public offering.

Moreover, by focusing all its efforts on winning new business from a market that big companies neglect, that startup can grow much faster than its rivals.

This comes to mind in considering the $2 billion to $3 billion (annual revenues) identity management software market – from which Austin, Texas-base SailPoint owes half its revenue to deals it says it has snagged from the likes of IBM, Oracle and CA Technologies.

How so? SailPoint is winning business because its product and customer service are better than rivals’ at enabling companies to grant and revoke employee, partner and supplier access to a company’s computer systems as they join, move, and leave.

In declining to comment Oracle cited its quiet period.

IBM believes that its security business is going well. According to IBM spokesperson, Ian Colley, “IBM’s innovation in the security market has propelled it to $2B in annual revenue and its position as the fastest growing enterprise security business in the world.”

With hackers costing CEOs their jobs — think Sony and Target, the seemingly mundane job of identity management can go a long way to making sure that only the right people can get access to a company’s systems and more importantly — the wrong people are blocked from such access.

The True Entrepreneur Is A Doer, Not A Dreamer

While the loss of identity management software market share is of little concern to investors in those tech giants, what it reveals about their inability to innovate is bad news for Warren Buffett and other owners of IBM stock. The same applies to investors in Oracle and CA Technologies.

SailPoint was founded in 2005 and it hibernated through the financial crisis. In a February 19 interview with Tivoli alumni, CEO Mark McClain and president Kevin Cunningham, explained that the company has taken ”nearly $50 million in business away from IBM, Oracle and CA Technologies through ‘rip and replace.’”

They told me that SailPoint is “highly profitable with over $100 million in revenues, 530 customers and 550 employees with plans to file an IPO in 2017. In August 2014 private equity firm, Thoma Bravo, bought out our original investors. They offer us excellent advice that helps us grow at 30% to 40% a year with 10% to 15% [earnings before interest, taxes, depreciation, and amortization]

What should be of concern to Oracle and IBM investors — where McClain and Cunningham worked after their companies were acquired (IBM bought Tivoli for $743 million in 1996 and their next startup, Waveset, was bought in 2003 by Sun Microsystems which Oracle acquired in 2009 for $7.4 billion) – is how difficult it is for these big companies to come up with new products that customers love.

Innovation for a successful startup means listening to customers and responding quickly with product improvements that help customers alleviate the real pain they are feeling.

When it comes to identity, companies needed a much less technically complex way to present the information so that high-level executives could make clear choices about which access to provide, change, or eliminate for which users, according to McClain and Cunningham.

They claim that it is very difficult for IBM and its peers to innovate in that way. “These big technology companies acquire companies that make point products. Their product managers focus on making the acquired products compatible with their other products such as database software and middleware. Their product managers don’t spend enough time listening to customers and if a customer wants new features, they struggle to get the engineering resources to respond.”

To be sure, these technology giants do have a major competitive advantage — long-standing relationships with senior client executives.

As McClain and Cunningham said, “A Gartner analyst estimates that 75% of the identity management deals are bundled into with much bigger contracts for database and other kinds of software and are not put for true competitive bids. In those deals, we will sometimes get asked to participate but our contribution is ‘column fodder’ — that is not seriously considered by the customer.”

In the 25% of identity management deals where SailPoint is seriously considered, it claims to win a whopping 80% to 90% of the time. “We have 530 customers and a 96% customer approval rating. Potential customers want to see a proof of concept and we welcome the opportunity to shine,” said McClain and Cunningham.

Disclaimer: Following article come from Forbes

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