Has the global DaaS market finally reached a tipping point? (Hint: we believe the answer is yes)
Written by Venture Partner, Shawn Chance
When I joined OV last year as a Venture Partner, there were a few obvious areas for me to focus on, given my history. One of these areas is desktop virtualization and cybersecurity.
I’m not a career investor — I’ve spent the last 15 years working in both startups and large tech companies. In one of those roles, I sold biometric authentication solutions into regulated industries and witnessed firsthand the impact that virtualization was having across the enterprise. Hearing CISO after CISO discuss their hopes for (but also challenges with) desktop virtualization made me curious about emerging companies in the space -to see if there were any teams out there taking novel approaches to move beyond legacy virtual desktop infrastructure’s (VDI) challenges. And it was through that process that I ended up meeting Paul Vallée of Tehama (more on that in a minute).
The desktop virtualization market has a long and rich history of public and private companies who have tried, through various approaches, to move operating systems from the endpoint to public or private clouds. It also has a history of many false starts.
On-premise VDI started gaining traction in the early 2000’s and is still a part of the End User Computing (EUC) stack in many large enterprises. VDI has historically been chastised for being hard to manage and for requiring significant investment in hardware, software and people. The obvious solution has always been to move it to the cloud — however we learned over time that this offsets only a portion of the problem.
Desktops as a Service (DaaS) emerged around 2010 and was widely heralded as the holy grail of EUC: the customer pays a (low) monthly fee for a fully functional desktop in the cloud that can be accessed from any connected device. The DaaS market has been slow to mature however for a variety of reasons.
First, the licensing of prevalent operating systems such as Windows 10 did not cater well to simple and rapid DaaS deployment. Second, the quality of the end user experience often suffered from latency, due to Internet connectivity or proximity to data stored in the cloud. Third, corporate IT integration typically required additional components which diluted DaaS’ value proposition (agile, quick and painless). Lastly, the total cost of ownership (TCO) has historically been on par with but not necessarily less expensive than issuing new laptops, decreasing the IT buyer’s motivation to make a change.
In an indication that DaaS was perhaps about to have its day in the sun, a report published at the end of 2019 by Gartner suggested that Desktops as a Service was one of “rapid growth through 2023, growing to $2.6 billion with a compound annual growth rate of 58.8%”. The report also highlighted that “the key to its success will be the perception of early adopters between 2019 and 2021”.
No one knew then that in early 2020, COVID-19 would create a spark that would accelerate the critical necessity for secure, remote work, by businesses all over the world, almost overnight.
In many ways, the global mandate to work from home came at a time when four other key areas had also reached a tipping point:
1. Public cloud maturity (particularly Azure and AWS), including more attractive/affordable pricing, faster compute and transfer speeds
2. Microsoft and Amazon’s push into DaaS solutions (MSFT Windows Virtual Desktop, Amazon Workspaces)
3. Ever-rising cybersecurity concerns around compromised endpoints and
4. Ever-evolving data compliance mandates and regulations (GDPR, CCPA…)
As obvious as it sounds, long-before talk of lockdown emerged, it was clear to us that winners would emerge in the space with products that could satisfy both end-users and corporate IT requirements to deliver desktops simply, securely and flexibly.
Given how noisy this space is, we thought carefully about the elements of a business that would make an attractive investment from our perspective. Tehama ticked some important boxes:
- It has a differentiated approach that delivers specific value for a large number of customers by doing more than simply moving a desktop to the public cloud
- It has addressed highest-level security and compliance issues from the outset, rather than as an add-on or afterthought
- It has a modern technology stack that is unencumbered by legacy technology ‘baggage’
- It has a team with deep understanding of enterprise customers’ IT environments, their challenges and business realities
And just as important as all of this was the founder, Paul Vallée. In early stage investing, much of what we do is about backing the person, or people, not just the business. Paul is a pioneer of remote work. He has built and sold a successful global IT business. He knows the space inside out and has a reputation for excellence. Paul is also a visionary leader who has proven his ability to grow strong teams and create value for customers, time and time again. As a serial entrepreneur, he’s a consummate “student of the game” and someone who I very much look forward to collaborating with.
If there’s one thing we have all learned from COVID-19, it’s that a large percentage of the world wasn’t ready to work remotely. I believe that one of the lasting (and positive) impacts of this self-isolation/remote working period will be a more general acceptance and adoption of remote work. Companies who can help enterprises achieve the required security and compliance posture while keeping users connected and productive should enjoy tailwinds from this — even long after we’ve gone back to “the new normal”.