There can be little doubt that the next wave of cloud computing has arrived. It's microservices based and API-centric, but it has no well-defined name. Some call it cloud native, others use the acronym MACH, at diginomica we talk about tierless architecture. For Chris Barbin, former CEO and co-founder of pioneering cloud integrator Appirio, it's the third wave of cloud and an opportunity to forge a new career as an investor in the professional services startups best placed to surge in this new wave.
Having seen Appirio acquired by IT services giant Wipro for $500 million in 2015, Barbin now heads up Tercera, a boutique investment firm with a $225 million fund ready to invest in professional services ventures specializing in this new wave. It announced its first portfolio company yesterday. BeyondID, the recipient of $9 million in series A funding, specializes in cybersecurity and cloud services, and is one of the leading ecosystem partners of cloud identity and access management vendor Okta.
The investment is in the "sweet spot" for Tercera, says Barbin, which plans to invest $5-20 million each in a series of professional services firms currently at $5-20 million in annual revenues but with the potential to scale to $100 million plus and become the leader in their chosen field. Along with Okta, the ISV ecosystems that Tercera is scouting include Twilio, Snowflake, Datadog, Cloudflare and HashiCorp. Barbin says:
We've spent some time over the last year [to] 18 months mapping those ecosystems, and the demand for those skills is incredibly high. Yet the players, the Appirios of those worlds don't necessarily exist yet.
[That] is really what was the catalyst to start the firm — to find those types of players and to help scale them.
Advice and mentoring
Along with funding, Tercera plans to provide advice and mentoring that's often lacking from traditional equity investment firms, as Barbin explains:
The capital is the easy part, the hard part is giving them the right advice, helping them find more talent, their own executive teams, their board members, and then scaling them up gracefully.
Barbin's experience at Appirio, along with a team of advisors the firm has assembled, forms the backbone of Tercera's advice. He elaborates:
A lot of the playbook, frankly, is what we learned at Appirio, as we scaled it from zero up to 200 million. How you partner with somebody like a Salesforce or the ISV. The tightrope you have to walk between scaling your services business and any other recurring business, product business. Everyone has IP — what do you do with that IP? When do you go international? ... How do you build your team? ...
What's refreshing for a lot of these entrepreneurs is, they're getting advice that's pragmatic — 'Been there, done that,' not just, 'Give me another spreadsheet, let's make another model.'
Challenging accepted norms
Another aspect of the Appirio experience is knowing what it's like to challenge accepted norms and go against the grain. Outsiders often underestimate the potential market opportunity when a new category is getting established. As Barbin recalls:
When we joined up with Salesforce, no one believed they needed services, it was only for the SMB. But we knew they were moving into the platform, they were moving to the enterprise.
That's no different than an Okta, Twilio, Hashi, where they may have a singular focus today, but over time, they're moving upstream, adding more enterprise capabilities, adding more platform capabilities — and as a result, need high-class services partners to support them.
The firm has already done a lot of research of the sector and will likely announce one new investment per quarter. Barbin reveals:
We've mapped close to 10,000 firms across these different ecosystems. We have spent time with about 200 of them. And we have about 20 firms that are, I'd say, very high on our list right now that we're spending some time with.
The professional services angle is often overlooked. As a case in point, who noticed Salesforce's $570 million acquisition of its consulting partner Acumen Solutions, announced the same day in early December as its acquisition of Slack? As Barbin's blog post on the deal notes, it was "the biggest professional services acquisition in the cloud market to date," but was largely ignored.
And yet a thriving professional services ecosystem is crucial to the success of any new wave in computing, and the historical evidence is that it requires a new breed of provider to figure out the models and methodologies a new technology demands. Existing providers — in particular the incumbent global systems integrators — are too wedded to their ways to get this right.
We concur with Tercera's thesis that this is a brand new wave that demands a new breed of SI. The rise of composable API-centric platforms and services represents a fundamental break with the current mainstream of enterprise cloud applications. It implies a shift to much more of a continuous delivery model and one that is comfortable working across an ecosystem of vendors. The value that SIs can deliver in this new world is the ability to help clients patch together the different components that people are going to use in this new space, and continue to support them as they add, remove and upgrade components. They will often also have to become adept at supporting the low-code automation that's required for clients to realize the flexibility of this new IT infrastructure.
My only disagreement is the scale of the opportunity — I would say it's at least an order of magnitude larger. This universe is expanding fast. Add to Barbin's own list the digital experience vendors that formed the MACH Alliance last year to promote this more composable, best-of-breed architecture in digital content and commerce. Even add Unit4's composable ERP platform that we wrote about yesterday. These are just a few of many examples.
This all suggests there will be no shortage of demand for Barbin's advice on how to scale a professional services firm in the midst of massive market opportunity for a new set of consulting skills.