Hortonworks: Making Big Data Pay Off Takes Time

The biggest problem facing modern data centers with respect to software is integration — blending new methodologies and technologies with existing assets and methods.  Now Hortonworks, one of the first commercial ventures to have sprung forth from the rise of Hadoop and “big data,” seems to be feeling the sting of data center integration as well.  During the company’s quarterly earnings call last week, executives with the one big data firm that’s publicly traded were compelled by analysts to explain a shortfall in billings for the quarter as symptomatic of the nature of the business they’re in: specifically, driving architectural change in the data portion of the data center.

“We’re clearly seeing the market accelerate from adopting the use cases that Hadoop enables them to bring inside and into the enterprise that they’ve never been able to do before,” said Hortonworks CEO Rob Bearden [our thanks to Seeking Alpha for the transcript], “and they’re clearly in the phase of adopting Hadoop to bring and consolidate their not only traditional but the new. . . data sources.”

So the customers are certainly there, in other words — that’s not the problem.  And open source, Bearden continued, helps enterprises to choose Hortonworks, by virtue of the ability for customers to directly perceive where they can apply Hadoop architecture to their existing data warehouses and data stores.  That’s not the problem, either.

But the data-in-motion market is starting to open up, Bearden told another analyst.  “it’s very big transformation projects that [enterprises] are enabling that are very strategic to their business models, which generates a very large market.  And sometimes the sales cycles are a bit longer than more simplistic platforms.  And so we’re balancing how we sell into that environment into the adjustments that we’ve made in current quarter.”

Procuring an open source big data platform is not a retail process, where the enterprise takes the shrink-wrapped box home and plugs it in.  The sales cycle involves leading the enterprise through the integration process.  And as Hortonworks’ VP of corporate strategy, Shaun Connolly, pointed out during the same call, other players in the market, including Hortonworks’ own partners, have managed to increase the number of steps involved in the integration process.

“Many of our customers have a higher approach to their ways of connecting their data,” said Connolly.  “And so we have solutions across that gamut.  In particular, we’re in the market today with [Microsoft] Azure HDInsight.  We power that solution.  At [Amazon AWS] Summit, we demonstrated the work that we’re doing around AWS, and we even saw Google demonstrating some of their capabilities on stage at Hadoop Summit.  So there’s definitely interest there.

“From our perspective, there’s additional workloads, he continued.  “And from an enterprise class capabilities of security and governance and consistent enterprise experience, I think we’re pretty well positioned to sort of monetize both sides of that.”

The company is poised to reap the benefits from a growing variety of integration points, as Connolly characterizes it.  But then there’s the danger, as CEO Bearden pointed out (to his credit, with full transparency), of attaining “too think a territory coverage.”

On the one hand, it’s a good thing that customers feel willing to commit to multi-year relationships with Hortonworks, Bearden explained at one point.  It’s just that it causes an undesirable side-effect on paper:  Annual contract value (ACV) declines as you add more annuals, if you will, to the equation, leading to what he called “a longer tail, obviously, on the revenue recognition.”

So the challenge for the first wave of big data providers — including for private firms such as Cloudera and MapR as well — is to encourage these necessary, long-term relationships with customers, while finding new ways to monetize those relationships closer to the front end of the proverbial elephant.  On the NASDAQ exchange Friday, trading in Hortonworks (HDP) stock was sharply lower at the opening, though recovered throughout the day, losing just over 22% to close at USD$9.84 per share.