Vahe Kuzoyan, co-founder of ServiceTitan
Photo: ServiceTitan

Plumbers need cloud software, too

Protocol Enterprise

Hello and welcome to Protocol Enterprise! Today: why a sharp focus on a vertical market is a winning playbook for SaaS companies right now, a look at a new enterprise networking startup, and remember Mike Bloomberg?

The rise of vertical SaaS

There’s an age-old idea in the software business that if you want to be big, you have to build a company that can meet the needs of every enterprise.

But a litany of vertical software companies, from Veeva and Procore to Toast and ServiceTitan, are turning that thesis on its head by relentlessly focusing on niche industries — and winning.

Vertical SaaS companies have often been overlooked by investors because an industry-specific focus was viewed as limiting by venture capitalists obsessed with growth.

  • “The orthodoxy at that time was, you draw a box around a category of software and then you do really well in that category and then you go try to sell it to as many customers as you can,” said Vahe Kuzoyan, co-founder of ServiceTitan, which builds software for plumbers, electricians, and other trade businesses.

But investors missed the true value of industry-specific software.

  • “What [investors] missed is that you can capture significant market share in [a] vertical much more so than in any horizontal industry,” said Talia Goldberg, a partner at Bessemer Venture Partners.
  • In the CRM space, for example, Salesforce is dominating the market with about 30% market share. But “in vertical software you can credibly get to 50% plus market share,” she said.

Now vendors such as Salesforce, Microsoft, and Google are following suit.

  • All three cloud giants have launched industry-focused cloud products in areas such as health care, manufacturing, or financial services.
  • “I think it's very telling,” said ServiceTitan’s Kuzoyan. “To me it's actually reinforced the broader thesis that the future is vertical.”

It’s still early in the vertical software market, but the potential is enormous.

  • Several vertical SaaS companies have already gone public: Veeva at $2 billion back in 2013, Procore at $8.5 billion last year, then Toast at $20 billion a few months later.
  • Others like ServiceTitan could be next: The company confidentially filed for an IPO earlier this year, according to Insider.
  • “I think the opportunities and the breadth of opportunities for vertical software companies is just as large as it is for any horizontal SaaS company today. There’s no real difference,” said Bessemer’s Goldberg.

The big platform players can do a lot of things, but as the saying goes, if you’re a jack of all trades, you’re a master of none.

Read the full story here.

— Aisha Counts (email | twitter)

A MESSAGE FROM AUTOMATION ANYWHERE

Today, we expect instant results from our every action, from calling an Uber to ordering a t-shirt. Companies can no longer afford to not adopt technologies like automation. We are now living in the Automation Economy – a new world that requires agility and a complete reimagining of how we work.

Learn more

Bustle in your hedgerow

An open-source software startup called Hedgehog emerged out of stealth this week with the tagline “SONiC Simplified.”

SONiC is an open-source network operating system based on Linux that runs on 100-plus switches from major hardware vendors – Cisco, Arista, Juniper, and Nvidia among them – and application-specific integrated circuits, or ASICs. Originally developed by Microsoft and now under the direction of the Linux Foundation, SONiC was designed to meet the requirements of hyperscalers’ cloud data centers.

CEO Marc Austin and CTO Mike Dvorkin, both Cisco veterans, co-founded Hedgehog with Josh Saul. They want to make SONiC accessible for mainstream adoption and make it easier to deploy cloud-native applications in fully automated, low-cost infrastructure.

“[Hyperscalers] have teams of hundreds of people that can automate that sort of stuff, but the enterprises can't afford to do that,” Saul, Hedgehog’s vice president of marketing, told Protocol. “There's a great opportunity for enterprises to save money by using SONiC and using the disaggregated hardware stack, but it's challenging, because the tools haven't existed so far.”

But Hedgehog, with its open network fabric technology for the distributed cloud, is developing an enterprise-ready SONiC solution that frees enterprises from a particular vendor while addressing supply-chain constraints for SONiC-enabled networking equipment.

“What we're aiming to do is to create that turnkey experience — open hardware, open-source software — so that you can consider any piece of hardware, any piece of software that is cloud-native, Kubernetes-enabled, and you should be able to turn this on in your data center, in your colocation, or even in your edge use case with little friction,” Saul said.

Hedgehog is optimized for data-intensive applications such as AI/ML, off-cloud Kubernetes, and edge use cases. Its product is in early field testing.

“Everything these days is born in the cloud, but what a lot of people realize is that the cloud doesn't fit all of their needs,” Saul said. “There is really not a good physical networking solution that is designed specifically for the needs of Kubernetes workloads. There's got to be a better solution to that. Why can't we have an open-source, open platform that isn't proprietary and doesn't make me sticky with any particular vendor?”

— Donna Goodison (email | twitter)

Mike Bloomberg in defense tech spotlight Monday

Former New York City mayor and failed 2016 Democratic presidential candidate Mike Bloomberg has been out of the spotlight for some time, but Monday is his day to shine. That’s when the Defense Innovation Board, the Pentagon’s group tasked with advising Defense Department officials on integrating tech into their operations, will hold its first meeting with Bloomberg at the helm.

The DIB has been shrouded in mystery since Bloomberg was named chair in February, during which time its members have been unknown to the public. Members will be announced at Monday’s meeting, a Defense Secretary spokesperson told Protocol.

When Bloomberg was named to lead the group in February, he emphasized the importance of U.S. military partnerships with private sector tech to “capitalize on its own first-mover advantages.” He wrote, “Rest assured, our rivals are racing to catch up with us — and overtake us.”

The primary rival, of course, is China, as indicated by the Biden administration’s recent restrictions on sales of important semiconductor hardware and software in the hopes of hindering the country’s ability to advance AI developments.

AI and quantum software investor and former Google CEO Eric Schmidt first led the DIB from 2016 through 2020. When Schmidt left his DIB post in 2020, he touted the group’s push for the Pentagon to speed up its software acquisition and implementation practices, as well as the Defense Department’s creation of the Joint Artificial Intelligence Center, which led integration of AI-related work at the DoD.

Several AI tech companies serving everyday business customers already have contracts with the JAIC, including C3.ai, DataRobot, Figure Eight Federal, Scale AI, Veritone, CrowdAI, Image Matters, and Arthur. JAIC operations have shifted to the new Chief Digital and Artificial Intelligence Office, headed by Craig Martell, former head of machine learning at Lyft, Dropbox, and LinkedIn.

Previous voting members of the DIB included Meta’s chief business officer Marne Levine and Eric Lander, the former director of the White House Office of Science and Technology Policy who resigned from his role in February amid reports that he created a toxic work environment for colleagues there. POLITICO later reported that Lander and other OSTP staff had been paid by Schmidt’s tech talent nonprofit Schmidt Futures.

— Kate Kaye (email | twitter)

Around the enterprise

Nutanix appears to be on the market, according to The Wall Street Journal, as the sun appears to set on the “hyperconverged infrastructure” space given the embrace of hybrid cloud strategies by all the major players.

The University of Washington’s already-storied computer science school introduced a new program focused squarely on cloud computing.

A MESSAGE FROM AUTOMATION ANYWHERE

Today, we expect instant results from our every action, from calling an Uber to ordering a t-shirt. Companies can no longer afford to not adopt technologies like automation. We are now living in the Automation Economy – a new world that requires agility and a complete reimagining of how we work.

Learn more

Thanks for reading — see you Monday!

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