Open systems companies, IPOing here we come. Aivars Lode avantce
Horton Hears a Hadoop: Tech IPO Shows the Future of Databases
Hortonworks, a Data-Platform Maker Founded Three Years Ago, Files to Go Public
By Elizabeth Dwoskin and Deborah Gage
If Big Data becomes a mainstream for business any time soon, it may be due in part to free software with an unusual name.
The software known as Hadoop took a step toward that future Monday with a filing for an initial public offering by Hortonworks Inc., a company valued at $1.8 billion and founded a little more than three years ago by Yahoo Inc. engineers and backed investors Benchmark, Index Ventures, Teradata Corp. andHewlett-Packard Co.
Yahoo is the top outside investor, holding 19.6% of company shares, and it is also a significant customer, according to the filing. Hortonworks’ filing laid out its goal to transform the way companies store and process data, a market expected to be worth $32 billion dollars in three years, according to IDC.
Hortonworks declined to comment on its IPO.
Both Hortonworks and its better capitalized, venture-backed rival, Cloudera, are riding the exponentially growing wave of data. Both companies have staked their business on Hadoop, an especially efficient open-source approach to storing and searching through large amounts of information.
Hadoop isn’t an acronym, but the name of a toy elephant of the child of the Yahoo engineer who founded Cloudera.
Hortonworks’ business model is more dependent than others’ on open-source software—meaning the software itself is free, but the company charges for regular updates and other services. Rival companies maintain some open-source software but sell proprietary add-ons as well as services.
Today, many large U.S. enterprises are producing more data than they can manage and keeping more than they used to discard. Thanks to a large marketing push by Hortonworks and its rivals, Hadoop is catching on as a relatively inexpensive way to house the information for future uses. The technology ultimately could be used for large-scale data mining, such as optimizing supply chains or targeting advertisements.
However, many companies lured by that promise have found the technology difficult to use. David Gleason, an executive of Bank of New York Mellon who has tested Hadoop, said in a recent interview the technology wasn’t “ready for prime-time.”
Hortonworks and Cloudera are trying to overcome that challenge by integrating Hadoop with more familiar technologies, including those from Microsoft Corp. and Teradata, a traditional data warehouse.
The biggest challenge to Hortonworks may be Cloudera’s partnership with Intel Corp. In May, Intel invested $740 million in Cloudera, which has raised more than $1 billion at a valuation of about $4.1 billion. Intel is integrating Hadoop into its chip sets. Similar to Intel’s previous investments in open-source software vendors VMware Inc. and Red Hat Inc., the bet is that in a few years, this will be a commonplace technology.
Hortonworks’ IPO filing shows both the opportunity and the challenges. The company’s revenue has more than doubled in the past year, while operating expenses and losses also have roughly doubled.
For the nine months ended Sept. 30, revenue was nearly $33.4 million, compared with nearly $16 million for that same period in 2013. But losses were also substantial and growing—$86.7 million in the first nine months compared with $48.4 million in 2013.
Eric Baldeschwieler, a Hortonworks co-founder who was the company’s CTO until he departed last year, acknowledged it was still early days. However, signs in the market were positive, he said. “We’ve seen companies move from pedestrian use cases at small scale to exciting use cases at a large scale,” he said.
Cloudera CEO Tom Reilly said in an interview that his company wasn’t yet ready for an IPO, although its revenues and customer numbers were double those of Hortonworks, which said it had just under 300 customers, including partners. Cloudera was also losing money, but at a lower rate, he said. “We would like to be a public company, and we will do it on our time,” he said.
Unlike Hortonworks, which received a sizable portion of its revenue from its partnership with Microsoft, Cloudera’s revenue came entirely from paying clients, Riley said.
Another Hortonworks rival, MapR, has said it would go public next year.