Denis Murphy of Anaeko: Cloud is a hugely tranformational wave in technology
Gary: Denis, tell us about your career so far.
Denis: I had been a Software Development Manager in an Oracle environment and back in 1990 I did an MBA. My reason for doing that was that I wanted to be CEO of a start-up company in the new start-up wave that was happening at the time in Dublin. What had happened in the South was that you had a wave of Foreign Direct Investment and then you had experienced managers and engineers coming out of those companies and doing start ups and I wanted to get into that environment. So, I had a technical background and I thought that an MBA would give me the necessary business skills to transition to the start up environment.
I graduated in 1992 from the Smurfit Business School and joined Aldiscon, a very exciting Irish company who were the market leaders in the text messaging infrastructure market for mobile operators. Then in May 1996 I moved to Northern Ireland to head up Aldiscon’s subsidiary here. Initially we did outsourced software development for companies like Ericsson and Aldiscon. And Northern Ireland was very interesting at that stage because it was quite unexploited in terms of outside companies setting up here. We were able to grow the company pretty aggressively to over 200 people over a short number of years because of the availability of talented engineers locally.
My agenda in coming North was to identify and exploit product opportunities because, of course, product companies are many times more valuable than professional services companies. We had a strategy of growing the core competencies necessary to develop products for telecoms operators and we eventually focussed on WAP…that was very suitable for our skills set. We developed the world’s first WAP gateway & implemented that in 1999 at Sonera in Finland.
That was an interesting time…Richard McConnell and I were invited to Finland for the launch of the product and we were picked up at the airport by a stretch limo and then taken to this big auditorium in downtown Helsinki and when we walked in we knew there was something different going on…to our minds a WAP gateway was just a protocol converter, but there was a huge buzz around WAP. And, I remember phoning my chairman Gilbert Little after the event & saying…”there’s something really weird going on here!” We went on to win a number of major accounts across Europe and were on the verge of closing a worldwide deal with Vodafone when we were approached by Phone.com which had IPO’ed and had a market cap of a number of billion at that stage.
So we sold the business for $250 million – just the product business…and we spun off the professional services business into Aepona, which is now a hugely successful company here in Belfast. I brought 115 of the APiON staff into Phone.com Belfast which then became Openwave. Openwave then went on acquisition frenzy – they acquired something like 16 companies. And after the sale I had a two year earn-out.
But while in Openwave, I was an angel investor in a number of companies, and then in January 2002 when I came out of Openwave, I started Mobile Cohesion with Richard McConnell, who had been working in the States and came back home to join the team. We put together a world-class team there…I sourced people from Ericsson, Nokia and we raised money from Accel Partners and Cross Atlantic, two of the top American venture capital firms. The team was really superb. And we founded the company around… enabling mobile operators to broker out telecoms capability to third parties, and our product Hydra was a gateway that would allow that to happen. We called the product category “third party relationship management”. This allowed mobile operators to put service level agreements in place with service providers through our B2B gateway, where they would sell telecoms capability, whether it’s SMS or MMS, or even subscriber and service data to third parties.
Now, despite having a world class team, the smartest venture capital and, you know, solving a real problem, we were too early for the market. Now almost 10 years after we started the company the market is finally happening. This is being driven by what’s happened with Apple and the iPhone. iPhone apps don’t use any capability for the mobile network. They are what is called “over the top” services. Apple has their own end-to-end application environment that’s hugely successful. This has really focussed the operators on trying to not to be disintermediated.
So, anyway, I suppose there are some key learnings…the Mobile Cohesion story and the original APiON story. In APiON, we were on the right side of the wave. We weren’t backed by venture capital and we didn’t have a hugely experienced team, but we were riding a wave…we were in a really hot area. And here the shareholders were the major winners and not venture capitalists. So one of the things I learned was that you should really get your company as far as possible through bootstrapping. And then you really have to be on the right side of the wave to make money.
Gary: That’s not always that obvious, I guess? As an entrepreneur, you’re looking for something new, and how do you know whether it’s going to be the new wave? Because sometime there are a few false dawns in technology, aren’t there?
Denis: Yeah, well…I always look where the venture capital is going. You cannot raise money now in our traditional area of selling to mobile operators. If you look at that market, there is huge consolidation…maybe 10, 15 major mobile companies in the world and they don’t buy from small Northern Ireland companies, that’s for sure. When I started back in 1992, there were maybe 4, 5 mobile operators in each country you could sell to. So now that huge consolidation has happened, it’s really difficult for small companies to compete in that space. And then look at the whole eco system… all the suppliers of equipment have also consolidated. Nortel’s not here anymore, Nokia and Siemens have merged their network business, Lucent and Alcatel have merged; even in the professional service space, CMG and Logica came together. And, then the industry has transformed completely – it’s moved from a products focus to a services focus. Now mobile operators are outsourcing the management of their networks and IT to companies like Nokia, Ericsson and IBM. So the whole dynamic has changed.
Gary: So for a small company with some hardware or software technology, they just can’t go to a Vodafone or a Nokia and say, here’s a great bit of technology you should have…that’s now just too hard?
Denis: Because the networks are run by people like Ericsson or the IT systems outsourced to IBM. And there is very little innovation and the emphasis is on reducing costs. So unless you have something that is very deep in the network, it’s virtually impossible for a company to make money out of this space. The whole dynamic’s changed and that market is done and dusted.
When I sold Mobile Cohesion, I came into Mobility Data Systems (MDS) which was trying solve the data integration challenge for mobile operators and allow them to exploit the mobile advertising wave. But because of the whole negativity around the mobile operator space, the four of us who were angel investors in MDS decided this was no longer a good space to be and we realized that VCs had no appetite for a product that was being sold to mobile operators. So then we had to reposition the company. We wanted an area that was hot, where there was a lot of VC activity, where there was good exit values for companies…we looked at connected health, smartgrid, open government data…and though a process of elimination we moved the company into the Cloud space with a focus on service management for Cloud systems.
Cloud is a hugely transformational wave in technology. Because you’re moving to a utility model where there are very low barriers to entry and you pay as you use. So it means there is rampant innovation in this space. The business models have changed pretty fundamentally. You’re moving from a licence to a subscription model and also the ways of selling and implementing Cloud systems have changed dramatically from the traditional on-premise licence model. Selling has moved to an inside selling model and an Internet delivery model where you don’t put expensive resources on customers sites to sell or implement systems. So it means that this is a much more capital efficient model and hence much more attractive to investors and entrepreneurs.
Cloud is soaking up huge amounts of venture capital, because there are a huge amount of really interesting problems to be solved. This is leading to innovation frenzy.
Also large companies are starting to use Cloud – this makes things different as large companies have huge IT budgets. The way big companies will use the Cloud is that they will still use their own data centres, but they will use service providers at different levels in the Cloud stack for different sorts of cloud services.
Gary: So that’s what Anaeko is doing? And how is that going?
Denis: Anaeko is an IT Service Management (ITSM) company specializing in IT Process Automation (ITSM) Service Level Management. Currently we’re in an R&D cycle. We have an on-premise, licensed version of our SLM product and we’re now developing a SaaS version of that product.
Large corporates are becoming promiscuous in terms of using different Cloud service providers. But there is a real problem in connecting these service providers, putting together commercial contracts, monitoring the performance and then basically, if you like, punishing people who don’t meet service levels! It is this area of relationship management for Cloud service providers that we’re focusing on.
Gary: So what sort of timescales would you put on Cloud becoming ubiquitous and the normal way of consuming computer services?
Denis: I really think we’re near a tipping point. Large companies are beginning to use Cloud services and Gartner estimates that these companies will spend £112bn on Cloud services over the next 5 years. Companies like Workday, Salesforce.com and ecommerce applications are all Cloud-based. This trend will only accelerate going forward.
Gary: If that’s the case, beyond what Anaeko are doing, what about the rest of the technology industry in Northern Ireland? Are we moving fast enough?
Denis: There is a huge move to the Cloud even here in NI. I am involved in the Whisple initiative which has an objective of developing a Cloud services broker infrastructure here in Northern Ireland. The original idea came from a conversation I had 2 years ago with Sinclair Stockman, a former CIO of BT. His view was that computing would move to Cloud services hubs that would be regionally based and these hubs would be connected by low latency high bandwidth pipes. He felt that if we moved quickly we could become a regional hub for Cloud services. It has taken a bit of time to get the initiative up & running, but it’s there now and will become a real driver for this region to move to Cloud. A lot of companies are already delivering their service through SaaS – that will accelerate over the next time period. Whisple has the potential to be a real powerful driver of innovation in the Cloud space here.
Gary: What are the big challenges facing NI technology companies in being successful in this space?
Denis: We have outstanding technology. But it’s always the ability to sell and deliver solutions into a worldwide market – that’s the biggest challenge.
Gary: So how do companies overcome that?
Denis: The best way to do that is to raise a properly sized funding round and hire the people who can do it for you! There has been some good work done here in terms of Venture Capital funding. We now have small funds from E-Synergy, Clarendon, and Crescent…but still there aren’t enough VC funds to support what we want to do as a region. So that’s one of the biggest challenges – how do we get a big increase in the amount of venture capital available to the region?
Gary: You said earlier, that when you’re starting a new company, you’re looking for where the smart money’s already going…very often, what tends to happen is a good engineer spots a really neat piece of technology that they can develop and they develop that and then they look for a market for it and then they look for someone to fund it. Fundamentally that’s a flawed model?
Denis: Well, unless they’re really lucky, you know? And hit one of the “hot” areas. If you want to make money from technology, you need to be in a space where you can raise money and where the exit prices are interesting. Look at Lagan…it’s just such an outstanding company…it deserved a much better multiple than they got when the company was sold…but it had an enterprise model tag and it didn’t get the valuations that it deserved. But then you look at Cloud companies, they exit for between 5 and 8 times sales. It is much easier for a VC to invest in the cloud space because the potential returns are so good.
Gary: Denis, in hearing your story, in NI terms, your pathway, your experience in starting and selling technology companies, there are not too many others who have that sort of experience…
Denis: Well, actually, there is starting to be a cadre of people with that sort of experience…Brian Baird is an outstanding example, selling Meridio and now with Replify, which is in the Cloud space; Des Speed’s another, selling Lagan and now leading I-Path. So that sort of thing is beginning to happen here but we need a lot more experienced management teams to commercially exploit the innovations coming out of NI.
Gary: And that’s the model of course you get all the time in the US, in Silicon Valley, isn’t it?
Denis: Yes, but…I also chair the organizing committee of the venture capital forum and looking at the young companies coming through – fabulous technology, but they don’t have the strength of management teams that will allow them to raise money. It is a sort of chicken and egg scenario. That’s probably the biggest challenge we have here in Northern Ireland. Raising enough money to fund proper management or having the management teams that will be able to raise large funding rounds from top tier VC’s. And there’s a challenge as to whether you can get some of the best entrepreneurs to come here and base their businesses here.
Gary: Now that we’re talking about management teams, let me ask you about business leadership. What are the key qualities of a business leader?
Denis: I’d say…the ability to see opportunities and to chase after them. And that means raising money and the ability to attract other key management team members. There’s a virtuous circle – having an idea that’s strong enough to attract capital, and then the capital attracts a top management team.
Gary: So the implication here is that a leader has got to realize that they cannot be good at absolutely everything?
Denis: Absolutely. You need to be aware of your own strengths and weaknesses so that you have an appropriately structured management team.
Gary: OK – so strengths and weaknesses. What is it that Denis Murphy is really good at and how did you get good at it?
Denis: Because of experience, I guess I’m good at spotting opportunities; I have very strong relationships in the VC community, and I’m really good at assembling a team around a proposition, raising funding and getting the product to market and getting some early customers. So what excites me is the early-stage stuff. You need to be a category-defining CEO – where you define a new product for a new market. So it’s this – early stage phase – that I really I like to do.
Gary: Is that sort of CEO born made? Can you replicate that sort of person?
Denis: Well you need to have certain characteristics. You need to be a born optimist; you need to be able to deal with ambiguity; to be able to sell a vision; and motivate people to join. Those are fundamental skills. And be able to build trust, to have strong relationships. It’s taken me since 1992 to build these sorts of relationships in all these domains and that is what allows me to do what I do.