Is the Big Data Shakeout Coming in 2013?

Is the inevitable Big Data shakeout coming?  If you are an enterprise customer, how do you prepare for this? What strategies do you adopt to take advantage of the situation?

The Big Data ecosystem is exploding with exciting start-ups, new divisions and new initiatives from established vendors.  Everyone wants to be the vendor/platform of choice in assisting firms deal with the data deluge (Data growth curve: Terabytes -> Petabytes -> Exabytes -> Zettabytes -> Yottabytes -> Brontobytes -> Geopbytes), translate data to information to insight, etc.

In both U.S and Europe, several billion dollars of venture money has been invested in the past three years alone in over 300+ firms.  In the MongoDB space alone – a small market of less than 100M total revenue right now, over $2 Billion is said to have been invested in the past few years.

An interesting sampling of start-up vendors and the amount of venture capital each has raised, including lead investors is listed at Wikibon here.  This list includes only Big Data pure-plays delivering products and/or services in one of the following markets: Hadoop, NoSQL, Next Generation (MPP) Data Warehousing, predictive analytics and/or advanced data visualization.

A narrow slice of the Big Data Market but illustrates the vibrant big data startup activity taking place. This list doesn’t include all the Social Intelligence and Analytics firms that are living off Facebook or Twitter data that represent a different slice of Big Data.  Several hundred firms easily in that segment alone.

The temporal clustering of major innovations under the banner of big data is definitely one of the catalysts for the next wave of innovation and economic growth.  We have seen this pattern before where advances in technology have combined to bring about a series of coordinated technological transformations that are correlated with waves of investment and business efficiency. (Joseph Schumpeter’s studied these business cycle patterns in the 1930s. These were later labeled creative destruction in innovation management circles.)

Most recently we saw this innovation pattern in the late 1990s around e-commerce.  Thousands of new companies were created, bought, and merged during the 1997 – 2000. At the end of the cycle we saw a massive creative destruction period with a washout that lasted from late 2000 to end of 2003.

My hypothesis is that in 2013 we are going to see a similar shakeout pattern around Big Data and Social Intelligence/Analytics.  The evidence… we have too many startup companies chasing customers.  Most of the projects are low-cost ($100K or less) or free pilots.  Enterprise customers who are innovative are piloting technologies to understand the business value but are having a hard time moving these into production deployments.

The shakeout will start slowly but will pickup pace towards the end of this year.  The catalyst for creative destruction is always the same – lack of next round of funding, lack of enterprise customers,  declining valuations that prompt investors to pull back, and finally big established firms like Oracle, SAP and others moving to protect their turf by creating fear, uncertainty and doubt.

So what does this mean if you are a Big Data startup firm?  It means managing your funding aggressively and making sure it lasts till you get paying customers.  A simply analogy – a car with gas in the tank will win always against another car that is running out of gas.

What does this mean if you are an enterprise customer?  Create a roadmap and continuously learn. If you are in the experimental mode, it’s ok to do several pilots. But make sure you are learning something and bringing this knowledge back into the organization.  I see a lot of companies that are doing interesting pilots but have no plans to assimilate, scale or leverage the insights.  So lot of effort is wasted.

Birth and death of firms is a natural phenon in entrepreneurship.  The survivors in Big Data will be those that are actively planning for the impending shakeout and acquiring assets – customers, technology, IP, patents — from the weaker players.

Big Data Start-up Ecosystem

Innovation in Big Data – Hadoop, NoSQL, Next Generation (MPP) Data Warehousing, predictive analytics and/or advanced data visualization… How many of these will survive?

Consolidation via mergers/acquisitions has already started.  Vertica (HP),  Kitenga (Dell), Salesforce.com (Buddymedia, Radian6), Oracle (Vitrue), EMC (Greenplum), IBM (too many to name).

If you know of other firms that should be added to this list…