ESG attended Canonical’s Analyst Day 2019 last week in New York, which featured its management team, including CEO Mark Shuttleworth, as well as customer speakers from BT and partner Atos for an audience of ~60 industry analysts and bankers. Major messages were focused on its vision for both open architecture and open applications, its financial independence, competitive position and growth in enterprise from a license, maintenance, and managed services perspective.
Highlights beyond the embedded and IoT business – targeting the enterprise with a full stack
Profitable growth and financial independence
Key messages focused on the fact that the company is profitable and that it has not had to raise capital externally despite having planned for it. After trimming expenses and pruning product lines in 2018, it is seeing increased momentum in especially the enterprise portion of the business and is eyeing an IPO, potentially in 2020.
Competitive Displacement in the Enterprise segment
There was significant mention of its GTM success with Ubuntu complemented with MaaS/JuJu, as an alternative to Red Hat/IBM and VMW, citing examples where large enterprises favored Canonical given lower pricing and/or perceived lock-in risk versus its larger competitors. BT’s chief architect Neil McRae spoke to this, as well as ATOS’ VP of Cloud, Bob Seddhig. Given the rising trend in workloads shifting to the (hybrid) cloud, and adoption of Kubernetes as the prevailing open-source container-orchestration system, it is plausible to assume there is an increasing number of mature enterprise customers desiring more (open source) options to meet their goals, incl. cost reduction.
Public Cloud GTM
On the public cloud side, Canonical announced resale partnerships with Microsoft Azure, Google Cloud Platform, as well as AWS, projected to fuel a large portion of revenue by 2022. In addition, there was mention of expanded relations with Global System Integrators; partner Atos illustrated the relation with both Google and Canonical with a GKE and OpenStack based ‘Open Hybrid Cloud’ reference architecture allowing customers to ‘develop once, deploy anywhere’; i.e., organizations can start on-premises in private clouds, and over time and at their pace, scale workloads out from Hybrid to full Public Cloud without major code changes. Both BT and Atos architectures on display were Ubuntu OpenStack based, and leverage Cinder, Ceph, Swift, Nova, and Keystone.
Bare metal and Service Modeling
Growth in MaaS (bare Metal as a Service, governed by service modelling layer JuJu) was cited, illustrated with a customer use case featuring financial services giant Barclays running MaaS in five different data centers, allowing it to shift apps and workloads in a fully automated environment. BT and Atos have deployed Canonical MaaS, and touted reliability and high degree of automation as differentiators. Beyond the data center, MaaS was also positioned in the context of Edge Clusters, although no customer examples were cited.
Although somewhat to the surprise of its CEO, the company said it witnessed solid growth with its Boot-stack (Build, Operate, Train & Transition) managed service offering for OpenStack-based private clouds which are mostly delivered remotely. Despite roughly half of their enterprise customer base favoring Canonical to provide this service vs. managing their private clouds internally, the company envisages transitioning to a fully automated service, and it doesn’t seek to compete with other services providers.
Clearly Canonical is concentrating on the open infrastructure/open application portion of the enterprise market, and with its claims of being the most widely distributed open source Linux in the cloud, it is evident that its financial future is best served targeting enterprises favoring OpenStack. Consequently, it faces well established goliaths such as VMW and RH/IBM and thus will benefit by informing its addressable market with a greater degree of takeout use cases, and/or account expansions leveraging its full stack with a more comprehensive cost advantage breakdown for deployments at scale. It already has a growing enterprise user base, and with the increasing appeal of OpenStack for cost conscious, hybrid-cloud-centric global enterprises and the growing adoption of containers plus desire for application portability, it may potentially be well positioned for an IPO to accelerate its growth.