The rapid pace of innovation followed by obsolescence in the information technology sector provides a constant flow of investment opportunities.
Within the corporate market, we currently see two powerful forces that are far outpacing the trend line of about 3% worldwide growth in IT: resources shifting to the Cloud and data security spending.
IT resources shifting to “the Cloud”
The Cloud can simply be thought of as a hyperscale data center managed by an IT vendor who acts as a servicer. CRM (customer relationship management) applications were the pioneers of this service in the late 1990s. Since then, these types of applications have expanded into nearly all other categories such as human resource management, marketing, enterprise resource planning and financial management. Collectively, software provided over the Internet in this way is now known as Software-as-a-Service, or SaaS.
Most sophisticated technology companies in the world now offer computing resources (ie, servers), storage capacity, database warehousing and other services to the corporate market in what is known as Infrastructure-as-a-Service.
The upshot of this megatrend is that those companies which sold computing resources to individual entities are seeing that demand shift to Cloud service providers, who operate on a global scale. That gives the vendors less pricing leverage, and in some cases, the Cloud providers build their own hardware in-house, effectively freezing out the traditional vendor.
The transition to the Cloud has also created fertile ground for a whole host of small vendors to introduce various flavors of SaaS-based functionality, architected from the ground up, stealing pieces of the market from the legacy enterprise application software vendors.
One example of a smaller vendor is Cvent. It has tediously built a SaaS-based solution for event and meeting planners to efficiently find venues to host internal and external meetings at scale including customer conferences, marketing events, or internal sales meetings. The solution makes it easy to shop for different venues to match the meeting requirements with the facilities available while at the same time providing a valuable source of potential customers for the venues themselves, which can range from hotels to auditoriums to ballparks and museums.
Enterprise data security
High profile credit card breaches at retailers including Target, Home Depot and Neiman Marcus, as well as online sites like eBay have put the spotlight on how vulnerable the payment information and personal data of US consumers have become to an increasingly sophisticated hacker community. These attacks, known as Advanced Persistent Threats, or APT, are designed to behave in complex ways that trick traditional perimeter and endpoint security solutions. Some have been known to enter, execute and exit a corporate network totally undetected.
Security breaches present significant business risk, as these events become front-page headlines for days on end. Data breaches can compromise a company's reputation with existing and potential customers. This often translates directly into lower sales and higher expenses, and can even cost the CIO or CEO his or her job.
Within this arena, we believe Palo Alto Networks has emerged as one of the leading technology providers with a broad and effective product set, spanning next-generation firewalls, advanced persistent threat protection, and endpoint solutions.
That has opened the door for a new class of security technology that can better recognize potential threats and even proactively isolate them to see how they operate before they enter a company's internal network. Right now, spending is so robust for these solutions that many firms are reaping the rewards of higher security spending.
Our two takeaways
- It’s just as important to be aware of which companies are threatened by the movement of IT to the Cloud as it is to seek out those who can build prosperous businesses from it.
- An emerging tidal wave of demand for next-generation security solutions makes this a fertile area of investment, and there can be numerous "winners" in this space for the foreseeable future.
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.