Cloudera – What Would You Say, You Do Here?

About one year ago, we highlighted 14 big data companies worth $1 billion or more. At the top of that list was Cloudera. In our article last week on data science and predictive analytics startups, we speculated that the data theme was heating up because a data company called Alteryx (NYSE:AYX) had a successful IPO. Now that Cloudera announced their plans for a “big data IPO” over the weekend, we want to take a deeper look and try to figure out what it is they actually do.

This isn’t the first big data IPO. According to the pundits over at CNBC, big data’s “first IPO” was back in 2013 when a company called  Tableau (NYSE:DATA) software filed for an IPO that raised $254 million giving them a market cap of around $4 billion (about the same as Cloudera’s pre-IPO valuation today). Since that IPO, shares of DATA have returned -2% compared to an S&P 500 return of +44% so nothing to write home about there. What does Tableau do? They provide a data analytics platform and corresponding tools that lets you learn from your big data. So what does Cloudera do that’s different from Tableau? Starting with the very first sentence of the S-1 filing, Cloudera starts to emit the type of techno-babble that makes you want to pull a Peter Pan off the nearest high rise:

Cloudera empowers organizations to become data-driven enterprises in the newly hyperconnected world.

That tells us absolutely nothing. Why is it so goldarn hard for IT companies to explain what they do in simple English? As the Bobs would say, “Cloudera, what would you say, you do here“?

Founded in 2008, Cloudera has taken in over $1 BILLION in funding with the most notable round being a $740 million investment from Intel which represents about a 22% ownership. With backing from a whole slew of notable investors including Google Ventures, the present day valuation of Cloudera is around $4.1 billion or about the same as Tableau. The second sentence of their S-1 provides just a bit more clarity on what it is Cloudera actually does:

We have developed the leading modern platform for data management, machine learning, and advanced analytics.

Pretty much every single data science company we talked about before could say this same exact thing. This still doesn’t tell us what makes Cloudera, Cloudera. We had one of our on-staff PHDs tear through the S-1 filing and pull out the key facts so we can explain what Cloudera does so simply that even an MBA can understand their business. Here goes.

Cloudera and Hadoop

Remember how we talked about open source software? Essentially, it’s software that is free to use and developed by a community so it grows much faster because everyone collaborates instead of developing in isolation. So there is this very popular open source software called Hadoop and people use it for storing and processing big data. A whole bunch of smart software dudes liked Hadoop so they went and started a company called Cloudera and brought with them the dude who actually wrote the Hadoop software back in 2004. His name was Doug Cutting and he named the product “Hadoop” after a stuffed toy elephant that belonged to his son. What this group of smart dudes decided to do was this.

Since Hadoop is open source software, they decided to take it and create a commercial product with it using what they called a “Hybrid Open Source Software” or HOSS model. What this meant is that they could continue developing the software in open source but also build a commercial product around it at the same. “Wouldn’t that piss some people off” you might ask? No, because Cloudera donates 50% of all their engineering activities back to the open source community. With around 1,500 employees, that’s a lot of engineering work that the community gets for free. And get this. Remember that really smart dude they brought with them who wrote Hadoop? He used to be the Chairman of the Apache Software Foundation which is the non-profit group that owns Hadoop. This means that Cloudera has all the connections they could ever want at the Apache Foundation which they incidentally provide monetary support to as well. Clever eh? Now, here’s a cool looking diagram that doesn’t really tell you anything:

Cloudera and Intel

One thing that makes Cloudera unique in the world of big data startups is the massive investment of $740 million they took in from Intel (NASDAQ:INTC) who now owns around 22% of their company. Here’s what some Intel bigwig has to say about their investment in Cloudera:

In 2000, Intel saw Linux coming and invested heavily in Red Hat; in 2005 we saw virtualization happening and invested in VMware; in 2008 we started investing heavily in hyper-scale computing. We think big data and Hadoop will dwarf all of them.

Intel is actually optimizing their chips at the silicon level to enable better performance for “Cloudera on Intel Architecture”. Both of the companies have aligned their roadmaps and Hadoop engineering teams so that they are both working towards the same goals. Intel is a $172 billion industry leader in chips, so a good friend to have on your side. In addition to Intel, Cloudera has also partnered with Microsoft, Amazon, and Google so that they can offer their big data solutions via any cloud provider. Before we go on, here’s another diagram that looks cool but doesn’t really tell us anything:

Cloudera’s Target Market

Cloudera defines a potential universe of customers which they call the Global 8,000. This collection of firms represent their target customers who generate the biggest data (think 80/20 rule here). Of those 8,000 firms, Cloudera sells to about 500 of them (or about 6.25%). That’s a whole lot of potential clients left to grab. This is why they are burning whatever cash it takes to get these customers on board before someone else does. Remember, the person who actually controls the big data can then start to learn from that big data. You can imagine them approaching any one of their existing clients and saying “let us train our AI algorithms using your “anonymized” big data sets and we’ll give you a break on your next subscription renewal with us”. This is where they could look to shore up their predictive analytics offering with any one of the 10 data science firms we talked about last week.

At this point, we haven’t even touched on the financial aspects of the S-1 so we’ll summarize that by saying they’re losing a lot of money and revenues are growing fast. That’s to be expected. Cloudera is moving as quick as they can to secure as many firms under their umbrella as possible after which they can then expand their offerings and start selling them more cool stuff. Given the popularity of Hadoop, they should be able to do lots of bolt-on acquisitions as well.

Cloudera plans to trade on the NYSE under the ticker “CLDR”.

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