Between the Lines of the OpenAI Drama

Declouding: Will Curiosity Inspire Action?

Has cloud migration hit its peak?

For the past two decades, movement to the cloud has been a defining trend in the IT industry. But this year, some larger companies have decided they’ve had enough with the high costs and technical lock-in that typically characterize deals with major cloud providers like AWS, Google Cloud, and Microsoft Azure. More and more companies are exploring the possibility of “declouding,” or migrating back to data centers and on-premises systems.

A new MGI Research note, Declouding: Will Curiosity Inspire Action?, explores the declouding phenomenon, the factors that led to its recent uptick inpopularity, and the headwinds and tailwinds that may steer the trend toward more mainstream adoption.

Get the research note to find the answers to questions like:

• Is cost the only factor affecting interest in moving off-cloud?
• Will AI impact the investigations into declouding?
• Is declouding a real threat, or a bluff designed to bring down high costs associated with technology increasingly viewed as a table-stakes requirement?
• Can cloud providers rein in their disgruntled customers and start a new trend of “cloud re-migration”?
• And more!

Download the research note here.

Between the Lines of the OpenAI Drama

Despite oversaturating the press, coverage of OpenAI’s boardroom drama largely missed three key points.

1) Microsoft CEO Satya Nadella deserves credit for taking decisive action to preserve Microsoft’s reliance on OpenAI as the heart of its AI strategy. If it wasn’t obvious before, it now is – Microsoft is all-in with OpenAI, and can’t afford for it to fail.

• Not least because of Microsoft’s $10 billion investment in the company, although it is unclear how much equity is in thatarrangement. One suspects that cloud computing services are provided in kind as a part of the deal.
• Further, Microsoft’s 49% stake shields it from IP-protection liability – making Nadella’s moves all the more critical.
• Not only did Nadella bring Sam Altman back to OpenAI, he managed to arrange a behind-the-scenes replacement of the OpenAI board.

Which brings us to the second point:

2) OpenAI’s unconventional governance structure was unlikely to succeed. It was aspirational at best, and unworkable in practicality – as the last ten days demonstrated.

• Regulation of AI, and generative AI in particular, is unresolved and neither a single for-profit (or not-for-profit) board of directors is going to manage the task.
• The newly convened board includes, without irony, a director who was resigned from the presidency of Harvard due to provocative statements regarding the aptitude of women.

3) Third, the entire episode underscores the critical nature of vendor risk management. Microsoft could not (and cannot) afford to have OpenAI go under.

• The $10 billion investment pales in comparison to the strategic bet Microsoft has placed on the company and its people.
• Users and investors in AI models and solutions such as ChatGPT will be wise to avoid the kind of risks Microsoft faced with its single-supplier strategy. And to be clear, the risk of dealing with OpenAI, for better or for worse, is not eliminated.
• The OpenAI team has now publicly stated its willingness to leave in an instant, potentially crippling the technology and its customers.

The bottom line | Managing vendor risk is an ongoing activity. The OpenAI drama is a good reminder to monitor the entirety of a vendor’s operations (finances, management, et al) on a continuous basis. This has been an ongoing focus of MGI 360 Ratings of technology suppliers.

How Big Is the CPQ Market?

We’re getting ready to publish our latest MGI Research Total Addressable Market (TAM) Forecast, focusing on the size, growth trajectory, and market drivers shaping the Configure-Price-Quote (CPQ) market.

CPQ, a mini-suite of related capabilities that enable precise product configuration, accurate pricing, and rapid quote presentation, is gaining broader adoption by companies of all sizes. Primary CPQ growth drivers include:

• CRM and billing software vendors selling into small and midsize enterprises, making quoting tools accessible to more companies than ever before.
• CPQ’s value proposition makes it attractive in all economic cycles. In growth periods, CPQ makes sales more productive and increases deal sizes. In downturns, CPQ improves margins and drives sales and production efficiencies. It promises a better customer experience regardless of the macro-economic conditions.
• Growing focus on reducing revenue leakage helps drive CPQ adoption. Regardless of industry, tighter alignment of quoting, pricing, and the entire quote-to-cash process helps reduce revenue leakage by 3-5% in most organizations.
• AI/ML technologies have real potential for creative disruption and acceleration of user adoption in CPQ.

Early insights | Here are a few takeaways from the report:

• The cloud-based CPQ market is forecast to grow at a CAGR of 16% over the five-year period spanning 2022-2026. The CAGR for cloud-based + on-premises CPQ spend combined is growing much slower at an estimated 11%.
• Large companies (>$1B in yearly revenues) are expected to contribute well above 50% of CPQ spend.
• The three industries that will spend the most on CPQ software between 2022-2026 are Industrial Machinery, Automobile Manufacturers, and Technology Hardware, Storage & Peripherals.
• The US, Japan, and South Korea (at a distant third) will be the three top- spending countries in the CPQ market.
• Less than half of the spend in CPQ will be driven by a shift to subscription, while companies with a huge or meaningful impact from the Internet of Things (IoT) are expected to contribute more than three-quarters of the CPQ TAM.

Who should care | CPQ buyers, sellers, and investors who are seeking to understand the cross-currents affecting growth in their industry. Sales leaders, marketing execs, product managers, and boards of directors will be able to use the data in this report to set territories, allocate quotas, target specific companies and industries, make product roadmap decisions, and set growth objectives.

Software Valuation and M&A Outlook

Join MGI Research for a webinar on Thursday, November 30 at 8am PT / 11am ET for a deep dive into what’s driving software valuations today and into 2024.

Topics will include:

• An overview of SaaS valuations and their underlying drivers (e.g., profitability vs. short-term growth).
• The recent hyperfocus on profitability has companies wary of making dilutive acquisitions. With that in mind, will M&A activity accelerate in 2024? Are cash-laden corporate buyers coming back into the game?
• Analysis of EV/Rev multiples and growth rates
• Evaluation of software companies’ valuation multiples, 52-week performance, revenue growth, and EBITDA margin by growth quartile
• And more!

Register for the free webinar here. We’ll see you then!