Software Managing Software — The Next Big Opportunity for Software Investors?

I have been having some very lively conversations with friends and co-investors regarding new opportunities for software investors. Overall, it looks pretty bleak. There is a real dearth of exciting packaged application vertical opportunities (there are some out there, but it isn’t my place to disclose those) at the moment and most investors that I know aren’t as interested in software that plays in niches they don’t understand. I do think, however, that this theme of “software managing software” is important for a number of reasons and we are seeing early evidence of movement in the space.

Before I get too far into this, I will disclose that I have an investment in ArcSight, a company in the information security space that has developed software that shares some of the characteristics identified in this article. Okay, back to writing.

So what do I mean by “software managing software” as an opportunity? I am talking specifically about software systems that operate as systems management applications or “air traffic control systems” that monitor, report on, and manage other applications.

There are two things going on in the world of software that are really going to make this move a necessity:

Software Environments are Becoming Very Complicated -In almost every major software category (supply chain, custom enterprise applications, ERP, storage, CRM, DBMS, etc.) the amount of integration “glue” that has been applied to link systems has created tremendous challenges in terms of managing these software environments. Trying to manage these meta-systems as discrete components is very challenging and there are tremendous cost-savings associated with a more centralized management framework.

Human in the Loop is Becoming More Difficult – Enterprises are increasing the use of software to automate processes. Many organizations are inclined to keep a human being in the loop to supervise the software application environment. There comes a point in time, however, at which the number of processes to manage with humans in the loop outstrips an organizations resources.

There is one early example of this trend in action — the early steps in the(eventual) move toward on-demand computing and virtualization. It doesn’t seem feasible to have a human in the loop making manual decisions about which computing resources to bring online when and how to balance loads across various applications. This is a task that is more appropriately handled by a software solution. The benefit here is clear — a software application can handle the complexity associated with resource allocation, throughput, and availability better than any human or group of humans could do in real-time. In addition to the benefit in terms of asset utilization, there is an added benefit associated with more efficient use of headcount.

Sensor Networks – As we move toward a world where sensors (RFID or your favorite type of radio) abound, software to manage the nodes in the network, the communication among nodes, and the reporting from the network to other data stores becomes critically important.

Web Services – There are lots of companies trying to tackle the web services market opportunity. There are a handful of companies who have identified the market opportunity for managing and directing the complex environments that will emerge when it is easier to connect applications together. Being the “software director” for web services sounds like a good place to be, provided that web services unfolds as many have predicted it will.

Wi-Fi Networking – Wi-Fi networks are a mess. Before corporate IT managers will roll the technology out in an organized and planned way they will need tools to support the management and administration of Wi-Fi networks.

These systems management, or “software managing software” require a lot of knowledge of customer operating environments and a software engineering and architecture team that can build a platform that can grow and accomodate changing customer preferences. Needless to say, these are not easy projects to do. But who wouldn’t want to own a software franchise like an HP Open View or IBM Tivoli?

You can always email me at charles@charleshudson.net or post directly to the blog.