DevOps Digital Transformation Turns Companies Into Software Companies | Investor’s Business Daily

The name sounds like a crack squad straight out of an action thriller, but “DevOps” is no such thing. Instead of a group of elite paratroopers, the phrase refers to more down-to-earth corporate tech efforts to transform at least part of themselves into software companies.

Information technology departments at countless firms – both tech and nontech – are under the gun trying to gain the upper hand on rivals. So everyone from Nike ( NKE) to General Electric ( GE) is striving to develop proprietary software to gain a competitive edge. And their IT departments feel the heat to make the process faster and more efficient.

That’s where “DevOps” enters the picture. The name comes from streamlining software development – the act of writing computer code – with IT operations. These teams test, deploy and monitor new applications or platforms, now a necessary part of many companies’ operations.

“Almost all companies need to be software companies today,” Jay Lyman, analyst at tech consultant 451 Research, said in an interview. “If you’re going to compete, you’re going to need to be able to iterate software.”

While the movement reaps huge change, it’s also providing opportunity for traditional software makers rushing to help – and cash in. They offer DevOps automation, collaboration and application management tools. For investors in traditional software companies, there’s a broad range of DevOps players to watch. Included are several public corporations and a horde of startups.

The public companies include Atlassian ( TEAM), Splunk ( SPLK), New Relic ( NEWR), PagerDuty ( PD), Appian ( APPN). ServiceNow ( NOW) is a newcomer to DevOps. And networking icon Cisco Systems ( CSCO) pushed into the DevOps market when it acquired AppDynamics for $3.9 billion in 2017.

There’s also a roster of DevOps startups that one day could go public. They include names like CloudBees, Datadog, Dynatrace, JFrog, testing firm Tricentis, and HashiCorp.

Top Management Makes DevOps A Priority

Wall Street analysts have released a flurry of reports on the emerging DevOps market. Lyman says companies in finance, telecom, manufacturing and other sectors need DevOps tools and services. They’re needed to speed up software development.

“The big thing we’re seeing now is the top-down adoption of DevOps,” he added. “When it began 10 years ago, DevOps was sort of a grassroots development movement limited to the realm of technologists. Today we see management and leadership heavily involved in DevOps purchasing and planning.”

Lyman went on to say: “There’s a real attachment of DevOps to digital transformation – how do we modernize, how do we move faster and respond to market changes, global events or new data that comes out?”

Many companies focus on making new apps available for customers in the internet cloud. That way they can be updated frequently. Cloud computing service providers such as Amazon Web Services, part of Amazon ( AMZN), Microsoft ( MSFT) and Alphabet‘s ( GOOGL) Google are making DevOps tools and services available to their customers.

Microsoft in 2018 acquired GitHub for $7.5 billion in stock. San Francisco-based GitHub provides a platform for developers to host and review code, and manage open source projects.

DevOps Market Seen Tripling For Software Companies

Wall Street analysts are bullish on the DevOps opportunity. In a recent report, Cowen & Co. estimated the DevOps market will triple to $24 billion by 2023 from $7.9 billion last year.

Cowen analyst J. Derrick Wood says DevOps helps companies speed up software deployment by automating highly manual processes.

“DevOps methodologies introduce a radically different way to build, update and deploy software,” Wood said in a report to clients. “The most digital-leaning companies today leverage DevOps to make hundreds of updates per day, a dramatic change from the common quarterly release cycles.”

Morgan Stanley projects a $50 billion market for DevOps and related services by 2022.

Morgan Stanley analyst Sanjit Singh sees DevOps as a “seamless collaboration between development and IT teams and end-to-end automation of the software delivery pipeline.”

“Traditional approaches to software development and the tools that support it are too rigid and time-consuming for the current digital era,” he added.

DevOps Vulnerability Concerns

There is a concern, however, that by developing software quickly, there could be some vulnerability.

“With DevOps, the developers are responsible for building applications and deploying them quickly on the cloud,” William Blair analyst Jonathan Ho told IBD. “That opens the apps up to more potential breaches.”

But Ho says that points to an opportunity for cybersecurity firms such as CyberArk Software ( CYBR) in DevOps.

Market research firm Gartner estimates that 80% of IT organizations will adopt DevOps initiatives by 2021. That’s up from 41% in 2017. “DevOps is not a single tool; it’s a cultural change,” Gartner analyst Laurie Wurster told IBD.

The Cowen report says Atlassian, New Relic, and Splunk are among the best-positioned DevOps providers. Atlassian sells project-management and collaborative software for software developers and IT department.

Splunk provides software that helps organizations correlate, analyze, and monitor data in real time. New Relic’s cloud-based tools enable organizations to collect and analyze massive amounts of software data.

No One-Stop Shop

Analysts say no company provides a complete range of DevOps tools. No company can span code building, testing, deployment in live environments and application monitoring. That may be changing, though.

“There is no doubt that competition is increasing in the DevOps suite broadly,” Baird analyst Rob Oliver said in a note.

Furthermore, there’s speculation Cisco could broaden its DevOps by acquiring HashiCorp. Cisco already owns AppDynamics, which provides cloud-based tools that measure and analyze the performance of business critical applications.

Cowen describes HashiCorp as “a rapidly emerging infrastructure vendor.” It can manage “elastic infrastructure for next-gen applications,” Cowen said. Tools include multicloud provisioning, resource scheduling and identity management.

Follow Reinhardt Krause on Twitter @reinhardtk_tech.

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