Big Data Takes Turn as Market Darling

When Splunk went public a year ago, the era of big data as a stand-alone market opportunity made its biggest splash. After a rash of deals from social media darlings that had dominated and then disappointed in the IPO market, Splunk spoke to a different way to mine the data revolution for investment profits.

This month, Seattle-based Tableau Software, a data analysis firm, filed to go public. And it's already off to a fast start. Tableau, whose clients include Nike and DuPont, has more than tripled its revenues in the past few years. And the company's all-star team includes co-founder Pat Hanrahan, who developed Pixar's award winning movie technology.

The white-hot world of big data is fast becoming an attractive investment market. Some $2.5 billion of venture capital cash is being funneled into big data start-ups, according to IDC, and that means more IPOs will be on the way.

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The engine behind big data is M2M—machine to machine—the type of data Splunk collects and analyzes. It's expected to represent 42 percent of all data by 2020, versus just 11 percent in 2005, according to an IDC report. As new data is filtered from sensors placed in sources as diverse as smartphones, refrigerators and home heating systems, as well as through social media, a 15-fold expansion in M2M is expected by 2020, according to IDC.

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In fact, awash in new and increasing flows of information, the world of gigabytes and terabytes is beginning to look like an antiquated scale for conceiving of information. Data is now being conceived in zettabytes – or a data unit that is equal to 1,000,000,000,000,000,000,000 bytes. Companies are turning to upstarts like Tableau that can store, filter and harness large data sets. "Big data is one of the few emerging growth opportunities in enterprise technology today," said Brian Marshall, an analyst at ISI Group.

Companies can now make decisions in real time to increase sales and productivity, but that's just the bare bones of big data analysis. When it comes to market impact, big data is now being talked about in bold language. Omnipresent, and with information being logged and harnessed faster than ever, big data will come to decide the fate of companies, many experts say.

"Data has become a currency," said Dan Vesset, vice president for IDC's business analytics and big data research. "It's the primary weapon for getting more customers."

Despite the buzz and exponential demand, investors would be wise to remember that it's still early for big data as a market opportunity. Many new big data companies are relatively untested and jockeying for position, said Daniel Ives, senior analyst at FBR Capital Markets. These include companies that are carving out varying parts of the big data pie, including CommVault, Tibco Software, NetApp, Fusion-io and Teradata, which was spun off from NCR in 2007.

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"There's not much meat on the bone today," Ives said, adding that one-size-fits-all big data applications haven't been developed yet.

The upshot, as Ives sees it, is that big data will soon experience a wave of consolidation, likely in the next six to nine months, and that means that the current landscape of darlings will include winners and losers. "A lot of people are trying to figure out who will be the winner," said Ives, "and the jury is still out."

"The start-up analytics community is mind boggling," said Jeff Kelly, Wikibon's lead big data analyst. "Plenty won't be around in a year or two."

There are a number of ways to take a more conservative approach to staying on top of the big data trend, from industrials like Honeywell that make machine-generated data sensors for products including medical equipment to monitor patient airflow, to hardware and software companies.

Storage is a good tech niche through which to play the big data theme. Storage is forecast to have 50 percent compounded annual growth through 2016, according to a recently released IDC forecast, compared with 31 percent for analytics. "It has the brightest future," Vesset said.

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ISI's Marshall agrees, rating storage kingpin EMC a strong buy, and noting that it's one of the few large-cap tech companies that will see double-digit growth for the next three to five years. Currently, 60 percent of EMC's revenues come from big data, Marshall said, adding, "And the company keeps getting better and better."

EMC is already playing a big role in big data consolidation, pumping up its big data business with acquisitions. In 2010, it acquired data warehouse and analytics player Greenplum, which now serves as the bedrock for EMC's big data push, and last year, EMC gobbled up Pivotal Labs, which helps companies build faster big data applications. In March, both companies were merged into a new venture called Pivotal that has a $1 billion revenue target, and which some analysts believe will be the next giant in data analytics.

Storage innovation is occurring at the level of start-ups, too. Ashish Nadkarni, research director for IDC's storage systems and big data, said start-ups are using multiple models for storing lots of data and making it more cost effective. He pointed to Cloudian and Basho as good examples. More investment opportunities are expected to hit the market as these storage innovation upstarts go public, analysts say.

The biggest names in tech, like Oracle and IBM, are far from sitting out the big data trend. IBM has gobbled up 35 analytics companies since 2005. And the company forecasts it will generate $20 billion in revenue in 2015 by analyzing business data. IBM has also pledged to invest $100 million in big data research. "Large vendors like IBM still have the deepest and broadest analytics in the market," Kelly said.

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IBM is likely to play a continued role in the consolidation of niche big data players. Ives pointed to Nice Systems, an analytics company that also helps detect fraud. Niche companies like Nice are ripe for a takeover from an Oracle or IBM-scale company.

The bottom line on big data is that well before a zettabyte becomes antiquated terminology, tech investors should start viewing big data as a major investment trend.