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7investing founder Simon Erickson chats with NREL data architect Matthew Eash about several of the most promising opportunities emerging in cloud computing, such as cloud-based databases, enterprise search, and cybersecurity. This is a must-watch for anyone investing in the cloud!
May 4, 2020 – By Simon Erickson
Cloud computing has been one of the stock market’s best-performing sectors in recent years. Rather than building out their own IT infrastructure, companies are hiring cloud service providers for the computing, storage, and networking they need to expand their web-based businesses. On top of that cloud-based infrastructure, companies are building “software as a service” solutions, which are catching on quickly and disrupting industries.
But within the vast realm of cloud computing, certain opportunities are emerging as the most lucrative. Cloud-based databases, enterprise search, and cybersecurity are all extremely scalable activities which are winning share in markets that are worth tens of billions of dollars. For investors, finding the right companies within this space could be extremely profitable.
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To help us find those winning companies, 7investing brought in a cloud computing expert. Matthew Eash is a data architect for the National Renewable Energy Laboratory. A software developer for decades, he has embraced learning about the technical details of the cloud in order to discover its most promising companies.
In an exclusive interview with 7investing, Matthew describes why companies are undergoing a “digital transformation” and why cloud computing is so important. He explains the market opportunity for several cloud-based applications, as well as the companies who are most likely to benefit from them.
Matthew also participates in a “lightning round”, where he shares his thoughts about several cloud-relevant topics.
0:00 – Introduction
0:50 – Digital transformations and why cloud computing is important
2:14 – Cloud based databases and MongoDB (MDB)
5:53 – The app economy and open source developers
8:09 – Enterprise search and Elastic (ESTC)
12:56 – Observability & monitoring and how companies are differentiated
15:17 – Identity management and Okta (OKTA)
23:45 – Cloud-based cybersecurity and CrowdStrike (CRWD)
27:57 – Lightning round! Containers, acquisitions, and the open source future
33:44 – What should investors interested in cloud computing be watching?
Publicly-traded companies mentioned in this interview include Alphabet, Amazon, CrowdStrike, DataDog, Elastic, FireEye, Microsoft, MongoDB, Netflix, New Relic, Okta, PagerDuty, and Zscaler. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.
This interview was originally recorded on April 30, 2020.
Simon Erickson: Hi everyone! I’m 7investing founder Simon Erickson. And here today, we’re talking about the digital transformation, specifically about cloud computing. And I brought in a cloud computing expert with me. Matthew Eash is a data architect for the National Renewable Energy Laboratory based out in Raleigh, North Carolina. Matthew, thanks very much for joining me here this afternoon!
Matthew Eash: Hi. Great to see you again, Simon.
Simon Erickson: Matthew, I’ve gone to the Cloud Expo for several years now. And back, even in 2009, they said that cloud computing was not going to be just a trend, but an “umbrella under which everything else could fall”.
Something like that is such a big statement. Especially when you see that every company now, in your own words, “is becoming a technology company themselves”.
And we’ve really seen cloud computing catching on. A whole bunch of different opportunities. We’re going to talk about those too.
[00:00:50] But can you kind of start us off at the 10,000 foot level? What does it mean to have a digital transformation? How important is cloud computing in the IT world today?
Matthew Eash: I mean, it’s the new wave. Cloud computing really enabled a lot of tool sets to be built for specific enterprise services and that’s really launched the next wave of transformation.
So the first wave was all the infrastructure. It’s nice you can host all your things in the cloud. That gives you some immediate benefits. You can control your costs. You don’t have idle, bare metal equipment sitting around in your own data centers. You have to plan for your most capacity. And so, you know, there’s a lot when you own your own infrastructure. There’s a lot of idle capacity.
And so, you can tailor your cloud, spend exactly what you need at any given moment and then scale it instantly. And so, that has enabled a lot of tools to be built for the enterprise services. And those I’m finding are very focused tools. So they’ve picked their niche. Whether it’s an HR package. Whether it’s business operations. Whether it’s business spend platforms. And so there’s a lot of enterprise tooling coming about that is really exciting and seems very at the forefront of where we are as an investor, as it seems. It’s just beginning.
[00:02:14] Simon Erickson: And there’s definitely companies of all sizes really adapting to that. Evolving their strategies and bringing everything to the cloud too. Public cloud, private cloud, hybrid cloud. Whatever it might be.
And let’s talk about the different layers of the software stack, like you just mentioned. In terms of opportunities, one that we’re starting to see a lot moving to the cloud is databases. We’ve traditionally gotten use to these on-site relational database. Highly proprietary. Code was all within the company. You saw companies like Oracle kind of own this space for the last 40 years. But we’re starting to see new forms of databases that are cloud-based. Could you talk a little bit about this one, Matthew?
Matthew Eash: It’s funny you mention Oracle. They’re just starting to catch up. They had some big news this week, where Zoom has picked Oracle to provide some of their cloud services. So Oracle is finally catching up with cloud services. But really, AWS and Microsoft and Google are really the top three cloud platforms. What the SaaS tooling that I’m referring to, there are a lot of different focuses for that SaaS tooling.
And so what you’re talking about are for software application companies. There’s a lot of tooling out there for how to manage their development process, how to host their services, and how to store their data. And so that is one wave of this, as opposed to some of the other ones I was talking about before, which is more enterprise services: HR, Salesforce, marketing side of things.
So with developer tooling, you’ve got a lot of really interesting ones. Twilio is doing communications. MongoDB is doing NoSQL databases. And so, if you’re going to host your own infrastructure with Mongo, they can help provide enterprise support for self-managed instances of their database. And it’s an open source database. But in addition to that, they’ve got a SaaS service where you can buy managed database clusters in the cloud provider of your choice — in AWS or Azure or Google — and they’ll run everything for you.
And so that really offloads a lot of the IT spend and maintenance that’s required to maintain these things. And you can just hand this to your developers and they can be off and running and be creating profitable services immediately.
And Elastic is another one. So MongoDB is the leader in NoSQL. Elastic is the leader in search. They too, have enterprise support, if you want to manage your infrastructure yourself or your cluster, but also provide Elastic Cloud. And even a third option, where you can drop Elastic Cloud — it’s an Elastic Cloud Enterprise — right on your own Kubernetes cluster and be your own SaaS provider for your team. You could be spinning up clusters as needed.
So really interesting tangent those companies are taking. They made an open source package to store your data and perform some kind of critical operations on it. For MongoDB and NoSQL, you can just store anything in it. For Elasticsearch, it’s more about search. So they’re a search engine and you can be throwing content in and providing search interfaces over it. As well as their bread and butter, which is observability and monitoring. You can throw all your metrics in it and have vision into your infrastructure as well.
Simon Erickson: Let’s double-click on Elastic in a minute. But first, let’s touch a little bit more on Mongo. I’d like to look at the bigger trend going on, and why it’s going on right now.
[00:05:53] You said “developers” a lot of times and “open source”. Is this the reason why we’re starting to see these new types of databases? The general purpose, document databases that have been downloaded tens of millions of times? Because you’re starting to see so many more software applications and developers out there, that want something that’s easier to use than the traditional databases?
Matthew Eash: Yes! So the trend is “the app economy”. And so there’s apps for everything at this point. And you’ve got to store the data and perform operations on that data. And so, MongoDB in particular, is really trying to focus on all aspects of that. They’ve got their traditional MongoDB deployed, NoSQL database engine. They’ve got their hosted version called Atlas. They’ve done some acquisitions in this space and have purchased a company that has a mobile version of a database. So this would be a version of the database that lives directly on your mobile device: a tablet or iPhone or iPad. And then can sync to a master database hosted elsewhere. There’s a lot of combinations of how you as a developer can approach how to store your data and use your data. And Mongo’s really addressing all of those.
And then beyond that, they have also spun up some more enterprise-facing SaaS services. They’re going to start providing what they call Atlas Data Lake. I think they’re directly competing with Amazon there. It’s very similar and akin to S3 and the Athena Service in Amazon, which allows you to search over S3 in a database-like format. So their Data Lake is something that they want you to throw all your data into this data lake and provide search capabilities over it. So a very interesting approach.
And really, three-prong for Mongo DB. They’ve got 1) their enterprise support and supporting their core database. They’ve got 2) hosted, managed instances that they can provide as a SaaS service. And then now they’ve got 3) enterprise-facing, not developer facing, SaaS services for search needs in the enterprise. And then Elastic’s doing a very, very similar path.
[00:08:09] Simon Erickson: And can we touch a little bit more on Elastic, then? Because I know Elastic is doing a bunch of different things, right? They’ve got a zillion different products and a zillion different directions they’re going in.
From previous things that I’ve read from you though, Matthew, you’ve kind of shown that they’ve got three pillars that they’re building around, right? They’ve got enterprise search. They’ve got observability. They’ve got security.
Is this kind of a more focused Elastic, would you say? Or how do you consider Elastic as an investment and a business?
Matthew Eash: Very interesting company. And one I know a lot about. And just from my use as a developer. It does seem at first glance that they’re a little scattered in their market approach. It’s very simple and they’ve gotten their marketing under control a little bit and much more focused approach at their product line right now.
Exactly what you said. Three pillars that they’re striving for, really three verticals. So they’ve got a core stack that they’ve created called the Elastic Stack. And that has the core Elasticsearch database, Kibana, which is a visualization and dashboard tool over it. And then a lot of other tooling about how to ingest data into Elasticsearch.
But they’ve figured ways to take that core and focus on specific market verticals. So the easy one right off the gate is observability, which is monitoring your own infrastructure. And so, you can monitor logs, metrics. You can monitor your applications in real time. It’s called APM: “Application Performance Monitoring.” All of that goes under that “observability” banner. And so, that approach is more geared towards IT and developers. So they can be watching their infrastructure and the services that run on it and have complete vision into their own stacks of software and hardware services.
Beyond that, they have gotten into enterprise search. That’s kind of through an acquisition of a subsidiary called Swifttype that was built on the core open source Elasticsearch product. But they’ve adopted it and it’s enterprise search.
And again, it kind of has three directions that they’re focused on there. It’s workforce search. So, like I was describing with Mongo, they want to sit over the workforce. And everything that the workforce uses, they want to provide a search interface. So it is your Gmail accounts, your office documents, your JIRA tickets. All of that, you can have a search interface over, geared and secured per user so that you can basically have a giant search engine over your entire company’s knowledge. So really exciting product.
And then more traditionally, they have search interfaces where you can type in the web content, such as if you’re e-commerce or a publisher, you can be putting your published content into a search interface as well. And so those are all managed, SaaS, enterprise-facing services that are more geared for actual enterprise users, not for developers. Now, any developer could build that themselves within the Elastic stack themselves.
And then the third pillar is security. So heavy use case of Elastic was already as a SIEM, which is a dashboard into all your security metrics. So your network traffic and your services. This is already something you may have already hooked up on that observability pillar for IT and developers to look at. Now you can have cybersecurity and the specific ways they want to look and deal with the data, looking at that same core data in Elastic. But more from the cybersecurity perspective.
And then Elastic, in addition to all that, has purchased an endpoint protection cybersecurity provider called Endgame. And now they’re in that space as well. They’re directly trying to protect the devices from malware. And so they’re taking a really interesting approach. But they vary, from a marketing angle, it seems a little scattered at first.
But it is really those three core pillars — observability, enterprise search, and security– that they’re revolving around and selling into.
And that’s really where they get competition. They don’t have competition so much with the core product. They are the name in search. Just like Mongo is the name in NoSQL. But now that they’re spinning into verticals, that’s where they get competition with DataDog, Crowdstrike, and some other SaaS providers we might talk about.
[00:12:56] Simon Erickson: Let’s talk about those next.
Because like you said, you’ve got kind of a core that’s built around the data and then you’ve got a search that’s a layer on top of that. And you’ve got different applications that can build on top of that. You mentioned observability. A lot of people are also calling that “monitoring”. There is an interesting statistic from Gartner that the average minute of corporate downtime — so for larger corporations, every minute that your website is down — is costing you $5,600. So that rounds out to over $300,000 per hour. Obviously, downtime is incredibly valuable to prevent.
And so you’re starting to see, as you’ve mentioned, application performance monitoring, IT infrastructure monitoring, everything is being monitored all the time to try to keep that downtime from happening as much as possible.
And just as you mentioned, Matthew, there’s so many competitors in this space too, right? We’ve got New Relic. We’ve got DataDog. We’ve got Splunk. We’ve got PagerDuty. We’ve got a zillion others.
Is there a way that you think about differentiating the competition in this space that makes sense, from an investing perspective?
Matthew Eash: Absolutely. From an investor perspective, especially if you’re not technical, aren’t hands on with those products — and I am not; I am a technologist and an investor, but I’m not hands on with Crowdstrike’s product or DataDog versus New Relic — and so I don’t know those distinctions.
All I can do is look at the numbers. And it’s all in execution and performance of the company. You look at who’s got the customer growth. Where are the customers going? And where are they having success?
Looking at the net renewal rates. Are the customers growing? Are they spending more each year? And then, is revenue growth then following that trend?
And profitability is important, but it’s not my anywhere near the top of my lead right now. I’m interested in those hypergrowth companies that are massing all those customers. And with the leverage that they inherently have as a cloud-native solution, the profits will come.
So keep amassing those customers. Keep spending as much as you can to continue the revenue growth. And as long as margins are not completely worsening and the operating income — as long as they’re starting to uptrend and you can see where that leverage is starting to be applied — those are the companies I’m most interested in.
[00:15:17] Simon Erickson: Yeah, that definitely makes it a lot of sense to see where the money’s going.
Another space that we mentioned just a bit here was cybersecurity. Cybersecurity is fascinating because, just some top line statistics: 160 million e-mails are being sent every minute. MIT said last year that the average organization is triggering 3.2 billion potential cyber security events a month. But only 31 of them are actual threats. So there’s a lot of signal going on out there, and deciphering the noise from that.
But cybersecurity has been an industry that’s been consolidating, right? I mean, you’ve started to see some really, really big vendors out there. Fortinet. Check Point. Even the FireEye’s of the world. They’ve tried to get bigger and get more information and monitor more things to protect companies.
But we’re also seeing a shift in the type of protection itself. So, next generation firewalls, versus now that everything’s moving to the cloud — more cloud-based platforms.
One company that that I know that you’re a big fan of, Matthew, that is maybe not considered specifically a cybersecurity company but they are addressing these kinds of issues is Okta. Can you talk a little bit about Okta and what it is that you really are intrigued about with this company?
Matthew Eash: Yeah. Let me let me back up one thing. I’m very intrigued by this whole cybersecurity wave. As you mentioned at the top: every company is a technology company now. OK. So you’ve got a workforce. You’ve got devices. You’ve got laptops. You’ve got phones or tablets out in the field. So you have to maintain all that infrastructure. So every company is now a tech company. It’s not just the software companies anymore.
And so there are a lot of products being built all around. And this is where I’m most interested as an investor, because they cross-apply to really every enterprise. Every enterprise needs cybersecurity. Every enterprise needs monitoring of some kind.
And so, cybersecurity in particular is a very interesting one. And I try to find the companies that are honed into a very specific purpose and task. And then, of course, with all the global pandemic going on right now, the workforce is becoming more and more scattered. And so this is becoming more and more critical.
So it happens to be a trending situation with multiple variables right now. But the move to the cloud was accelerating it. The app economy was accelerating it. Remote workforce was accelerating it. And now the pandemic is making it absolutely critical. So, as far as investments go, it’s a very interesting space to be in.
But as you said, there’s a lot of players. There’s a lot of competition. And so, again, I look for the execution.
But the reason I like these cloud-native providers versus the behemoths, I’ll call them, that may have been providing an on-premise firewall and they’re trying to pivot into the cloud. They’re playing catch up. Because these cloud-native ones have some specific strengths.
One of which is that they have vision over their entire customer base at once. So they can see their entire network of all their customers at once.
So a company like Okta and CrowdStrike has an inherent advantage because they are looking at millions of data points. Whereas any company trying to provide an on-premise secure solution is only looking at their data. Not the rest. So I kind of call that “looking at your own island of data.” And when you’re looking at an island of data, you’re trying to solve only your cybersecurity needs and not keeping the big picture. You have no vision into the big picture. Whether the neighboring company is getting hacked. Or other people in your data center. You’re constantly playing a reactive game, that way.
This new wave of cybersecurity SaaS providers have an inherent advantage. They can see the entirety of their entire customer base at once.
Because of that, and because it’s a cloud solution and a SaaS provider, they can react immediately. And so if they identify a threat, they can block that threat across their entire customer base instantly. And if you’re dealing with some kind of on-premise solution or something that needs to be updated very frequently with new signatures of threats, they can’t keep up. They’re always going to be reactive. And these new solutions can be a lot more proactive this way.
So very interesting paradigm that’s emerged in cloud security and cybersecurity because of the cloud. And as we’re seeing now, another important one is that they can scale immediately. If CrowdStrike has to double or triple their customers in response to today’s changing world, they can do that instantly.
So very exciting all around in this space. And I’m interested in a couple of different names. The first one you said is Okta. They are an identity provider. They are everything to do with authentication, authorization, and single sign-on. And so they provide an immediate place all your workforce can go to log in once and have access to all the other SaaS tooling that is provided.
And so they’re very interesting and one of my most exciting companies that I own. Because they’re on so many different trends right now. They’re in the cloud trend and app economy trend. But as more and more SaaS providers show up and as tooling continues to expand from here, Okta only benefits from here. Because all of those will integrate into Okta’s integration network. And they will provide capabilities for all the workforce to log into those services.
So they only continue to grow under this environment. But Okta also has a second half, which is not only do they provide workforce authentication services, they provide customer authentication services. So they all still live in that space that Mongo and Elastic live in. They are a developer tool so that if you are a software company and have your own — you’re creating your own SaaS platform or your own mobile app — they can provide the user authentication. And you don’t have to dedicate resources to figuring out cybersecurity and have to maintain all those incredibly high standards of cybersecurity. You can offload all of that to Okta. They’ve got the experts. You don’t need to maintain that. You can focus on your core expertise. I’m going to build this software that does this thing. Not “how are my users going to access it?”
So incredibly strong company and incredibly sticky company. They are deeply-embedded in someone like Adobe and Adobe Cloud. Every user of Adobe Cloud goes through an Okta interface in order for authentication.
Simon Erickson: And Matthew, if I might also add to that, too. You mentioned that Okta’s very penetrated already at the workforce level. They’re already very penetrated at the customer level, doing business with those.
But I’ve heard you mention an even more intriguing idea, too. Which is the consumer level. Right? So we have an identity that we need to protect ourselves as well. Whether it’s online voting. Whether it’s health care, now going into the cloud and be more out there.
Do you think there’s an opportunity for Okta to expand even farther into a consumer platform?
Matthew Eash: Yes. So they’ve created the platform. The approach is an enterprise-facing approach with workforce or customers. But yes, they can clearly pivot that platform in other directions. And it’s just interesting that at Oktane20, they were greatly discussing consumer-facing. And you see it emerging already. DocuSign is another SaaS provider company and they’re creating something called Agreement Cloud. That’s exactly where a consumer-facing identity management system that Okta could tie into that. And so you’re sure you’re signing a contract with someone and it’s that person. That’s really where Okta could start playing very easily.
So optionality. There’s so many different directions they could go from here. They’re strong as a company right now. It’s a very exciting company.
[00:23:45] Simon Erickson: And Crowdstrike, too. I believe I heard you mention CrowdStrike too. As I understand it, endpoint protection, right? There’s a whole lot more devices out there. CrowdStrike – at least the last numbers I looked – was growing revenue, at least subscription revenue, 90% a year. And their free cash flow margin is already at 34 percent. That’s incredible for an investor like me to see something like that!
What’s the special sauce with CrowdStrike? What is something about this company that you really like?
Matthew Eash: It all goes back to what I was saying about the strength of the cloud.
So CrowdStrike’s mantra is that “we’re crowdsourced security.” And that goes back to what I was saying at the beginning. Customers are no longer their own island. Anything that’s occurring, any attack that’s occurring across the CrowdStrike network can be seen by CrowdStrike and acted upon. So it could be preventing an attack to thousands of customers at once with a simple fix. Or simple response.
And so, it’s that crowdsourced knowledge that’s really their strength. But also, the scale they immediately get. And so they were having phenomenal performance. It’s one of my top holdings going into the last earnings. They’re having phenomenal performance. Knocking it out of the park and having complete tailwinds. And then, enter the pandemic, where you have the workforce scattering further. And they become more critical.
So cybersecurity, there’s a lot of different angles to cybersecurity. Okta was identity. Okta is all about identifying you’re the person who you are. And once that identity is established, then you can have access to all the tooling and internal sites or whatever’s hooked up through the Okta network.
However, you’ll also need to protect your network traffic. And so this is the traffic from my device to somewhere else. So Okta partially does that. They control your authentication and authorization to use things. But they’re not protecting the traffic as it goes from my device to a server.
And then, you need to protect the devices themselves. And that’s where CrowdStrike comes into play. And so I’ve actually got companies across all those those areas of cybersecurity I’m interested in. Okta for identity. CrowdStrike for endpoint protection. And Zscaler for the network traffic between devices.
So with CrowdStrike, it’s an agent that gets installed on your devices. This could be laptops. It could be servers, whether on-premise or in the cloud. This could be services that are running somewhere in the cloud. Your mobile devices scattered across your workforce.
And so this is protecting attacks to that device. The old method was “I’m going to install an antivirus agent and malware detector.” But now it’s so much more. And it’s not just this. Again, you’re not your own island. The old method was that I had Norton antivirus on my laptop. And if it saw something, it would try to respond to it. But it would automatically download updates every so often to be able to recognize those signatures.
CrowdStrike can be way more proactive in what they’re looking for and block some content that they see on any device across their entire network. They can block that all at once. And so CrowdStrike is all about endpoint protection.
And then you get into something like Zscaler, where they’re all about the traffic. And you start seeing partnerships between those two companies, CrowdStrike and Zscaler are working together in a partnership to protect both at once. So you can get both of those services and they bundle together and interoperate together where it’s almost giving you end to end protection. I’m protected in the traffic that’s going to a device. The device itself is protected. And then I’m protected with the outgoing traffic from that same device.
So interesting combinations are starting to happen from from all these disparate companies.
Simon Erickson: Definitely a need for it everywhere. Especially right now with with so many employees working remotely.
Matthew Eash: Exactly.
[00:27:57] Simon Erickson: Matthew, I’ve got the lightning round for you here. Not lightning, necessarily, that you have to answer in a matter of seconds. Please take as long as you like. But you haven’t seen these questions yet. So I’m totally springing them on you, and I’d love to hear your answers to them.
The first one is kind of about Netflix. Because Netflix was one of the earliest adopters in this move to microservices and containers. And now you’re starting to hear a lot of people talk about Kubernetes and these orchestration automation systems to manage all of this stuff.
What is the impact, do you think, that containers are going to have on IT and the software world?
Matthew Eash: Oh, from a developer standpoint, it’s changing everything.
You can now more tightly control your entire service. Everything it needs. The service itself and any ancillary softwares that come along with it. The database that it runs on. All these things can be containerized.
And it just gives you a very straightforward path to deployment. A very repeatable path to deployment. But once things are containerized, you’re moving away from the concerns about the infrastructure that it’s running on. So you don’t have to maintain any hardware. That’s done separately.
Containers can live anywhere. So I could be running a container on my on-premise hardware. I could be running it out in the cloud. You can have a lot of flexibility with then what system it’s running on. You can be scaling them up and down as needed, if the load suddenly starts spiking. You can spawn up several more and then load can be distributed across them.
So containers are incredibly powerful. And Netflix was really at the forefront of that. I’ve always been very interested in them. And up until recently had been a very long time owner. And I always loved them because they erased a lot of investment mistakes for me [laughs]. Held them for a very long time. So I had a lot of success with Netflix,
But they’ve always been very fascinating from a developer standpoint. They’ve always been a little bit bleeding-edge in how to use cloud platforms. Obviously, they were pretty tightly integrated with AWS for the longest time. They used to have a software I was always intrigued by called Chaos Monkey. Chaos Monkey would go around their entire network of services and turn something off. And they could measure the impact of what turning one thing off could do. And so, would the rest of their services flow around that that failure as intended? Or would something detrimental happen? Really interesting software concept. So I’ve always been intrigued by them.
Simon Erickson: OK, second question for you, Matthew in the lightning here is we’ve started to see some “mega-acquisitions” in the last couple of years. Which might not be, culturally, natural fits for a lot of people to digest. We saw IBM buy RedHat. We saw Microsoft buy GitHub.
I mean, a lot of people would think of these as cultural clashes at the times of the acquisitions. Just on the way that the business was being done before then.
So is open source the future of software? And if it is, how are companies making money off of this?
Matthew Eash: Wow, that’s a way harder question!
I love open source and I’m an open source developer and using open source tools quite extensively.
Certainly, yes. Companies have been formed around those open source packages. And that’s great for everyone involved. Because it gives you someone to pay for enterprise support if you’re using that package. And then also encourages active development of that open source package. It’s not just thrown out there and kind of stranded. It’s got active development. It’s fixing issues. It’s evolving from there. So I’ve always liked the open source paradigm.
Is it the best investment? That’s an “iffier” question. And not necessarily.
I’ve actually stayed away from those companies because I don’t think they’re the best investments. Like Cloudera, I stayed away from. I didn’t think that their approach — including what Hortonworks was doing, and then they all merged together because neither of them could really do it well — I don’t think you can just form a company over open source and expect everything to be rosy.
Where I’m excited about MongoDB and Elastic’s approach is that they’ve built SaaS services over it. So those are the hosted, managed instances they’ll run for you. So they built a SaaS service or acquired it (in the case of MongoDB), built a SaaS platform where they can host it for you and take away the difficulties of managing it. But then from there, what I’m most excited about, is the optionality that brings them. Where they could be spitting out enterprise services based on their core. And both MongoDB and Elastic are doing that with the enterprise search being the core focus between both of them. They’re really focusing on providing that as a SaaS service to enterprises. Every enterprise, not just development focused ones. And that’s where it starts to get exciting as an investor.
Simon Erickson: Sure. So the open source model: get developers interested first and foremost. And then start adding on applications or layers to that, that they consider to be valuable. One of which being convenience [which is] very high on the list.
Matthew Eash: Again, from an investor standpoint, it’s not the open source nature that interests me most. It’s that they’ve developed such a strong core package that everyone is interested as an open core package. It’s those SaaS services they’re starting to provide over it that are most interesting to me. Kind of pivoting away from, I guess, what you call the standard approach that’s been tried by others before.
[00:33:44] Simon Erickson: Well, it’s definitely an interesting space. And my very last question for you, Matthew, is our audience here at 7investing are individual investors. Cloud computing has been a fantastic segment of the market to invest in, in recent years.
What are a couple of things that we should be thinking about and paying attention to, in cloud or digital transformation or all the things that you live on a daily basis? What are a couple of things we should be we should really be paying attention to in this space, from an investment perspective?
Matthew Eash: We certainly talked about cybersecurity. That’s always pretty interesting and cross-applies to most enterprises. Not just development focused ones.
Edge networks. Certainly, 5G and IOT are very hot topics. Where the cloud combines with them is where I’m most interested. And so edge networks are definitely a fascinating subject. I know Fastly was a selection in 7investing. Fastly and CloudFlare are two of the major names there.
So what an edge network is, is they have set up multiple data centers around the globe. And they’re providing the security and transport between those data centers. And so they can set up a data center in Hong Kong, a data center in San Francisco, and the traffic between them is very incredibly secure. Incredibly fast. Incredibly performant.
They’ve built a variety of services off of these edge networks. They can provide denial of service attack because they’re sitting over your website. And so they’re interpreting all the traffic into your website and can block problematic ones. They are a CDN, which is “Content delivery network”. Which means they can distribute your content across the globe. So that a user in Hong Kong and a user in San Francisco are talking to servers that are near them instead of everyone talking to your server in San Francisco across the globe. And so that inherently makes your applications a lot more performant and responsive.
But CloudFlare, in particular, I’m extremely excited about and own. Because they are starting to take cybersecurity a lot more seriously and starting to leverage that edge network that they’ve built for other purposes into security. In particular, they’ve mirrored what Zscaler does and they’re now able to sit as a layer between your workforce and the SaaS tooling that they talk to.
And so, outgoing traffic from your workforce to SaaS providers can be protected. It’s called a Secure Web Gateway. Kind of an advanced firewall, Next Gen Firewall. But also the traffic into your services can be protected. Which would be like a zero trust security paradigm, exactly like Zscaler does. CloudFlare has now leveraged its entire edge network to do the same thing.
And so it’s an interesting space. And every time you hear about net neutrality and the fast lane of the Internet; companies are already providing that. That’s what CloudFlare and Fastly do. I can be paying them to assure that I, as an enterprise, have a fast connection to some service. In this case, let’s say Office 365.
Simon Erickson: So definitely a lot of exciting stuff to talk about there. Matthew just mentioned a couple of them. Software as a service is still a very important topic. Cybersecurity is still very important. Edge computing is a very important topic, too.
Matthew Eash, once again, is a data architect of the National Renewable Energy Laboratory. Matthew, thank you very much for the time here with 7investing this afternoon!
Matthew Eash: Oh, thank you, Simon. I could talk about this stuff all day! Very interested in it all. From the technology perspective, but also as an investment.
Simon Erickson: Well, we’ll certainly have you back again. Thanks again for the time.
And thank you for tuning in. We are here to empower you to invest in your future. We are 7investing!
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