(Mark Palmer is president and CEO of StreamBase Systems)
This week, Microsoft announced they will enter the technology space inhabited by my company, StreamBase. Naturally, I got a flurry of questions, ranging from: "Is Microsoft's entrance going to crush your business?" to "Could Microsoft entering your market be validating?"
The question behind these questions is: "How can a company with less than 100 people compete with Microsoft?"
First let's start with some background: what is complex event processing, or CEP? CEP is an enterprise software technology - big companies buy it to do big things. CEP is kind of like a database, but turned on its head for real-time decision-making. For example, Orbitz uses CEP to monitor their business in real time - when there's a problem, Orbitz knows about it in milliseconds, which means they can do something about it before its too late. And they can change the logic for detecting and responding to problems on the fly. Databases, in contrast to CEP, are designed to help a company look at what already happened, not what's happening now. Clearly the database is an essential tool that can inform future decisions. But knowing what's happening now helps identify and therefore seize business opportunities that exist for just a short time, like fixing your problem on Orbitz before you leave and go to Travelocity. CEP is increasingly becoming a critical tool for the enterprise.
The most extreme, and common, use of CEP is in the capital markets - firms like Deutsche Bank, JP Morgan, and RBC use CEP to automate their trading decisions. The financial markets produce millions of events every second, and opportunities to make money last, in some cases, for minutes, or, in some cases, for milliseconds. The systems that identify and exploit those opportunities are under constant development. In trading, rapid development and instant action aren't luxuries; they directly impact revenue and competitive differentiation.
So, can Microsoft dominate CEP? In his groundbreaking book Intrapreneuring, Gifford Pinchot researched the success and failures of innovative efforts in large U.S. corporations. At a macro level, he found that big companies, statistically, are terrible at innovation:
You might think that larger organizations would be stodgy in thinking up new ideas, but, because of a wealth of management talent, would be very good at executing them. It turns out, however, that just the reverse is true: our large organizations are producing large numbers of good ideas but generally are unable to implement them."
This, of course, is why the venture capital industry is alive and well - innovation naturally comes from small firms. However, Pinchot went on to describe that when big companies act like little companies, they can innovate. But they must create small groups, accept and expect failure, let these groups be autonomous, hire different kinds of people, compensate them differently, manage them differently, and get close to customers. All these attributes fly in the face of traditional big company culture.
But Microsoft has pulled off innovation before - are they doing it here according to Pinchot's findings? It's a CEOs job to watch for competitive threats, and I see no evidence to suggest Microsoft is approaching CEP in a way that portends success. Nimble moves by Microsoft could include: recruit top visionary CEP engineers (they haven't); create a small, independent group (they didn't - the product is coming from the SQL server group, which has hundreds of engineers); get out and talk to customers directly and co-develop with visionary partners (we see no evidence of this); recruit and empower entrepreneurs and empower them to break down corporate structures (Microsoft didn't do this either).
So the physics that would make an entrepreneur worry just aren't there at Microsoft's CEP effort.
Which leads me to my current answer: the fact that Microsoft is trying to get into CEP is a big, important endorsement for CEP. And since we think we have the best CEP product available (as many others who have evaluated us have found), we invite the competition. If Microsoft's endorsement makes corporations more aware of CEP, it's better for StreamBase.