Historically, developers and IT operations have not worked cohesively together. There is inherent friction because devs are conditioned to release frequent new features and applications, which have negative effects on IT ops' primary objectives of stability and performance.
The emergence of cloud computing exacerbated this misalignment. Initially, devs were way more productive but frustrated because time-to-market was slow by having to wait for ops to provision infrastructure. Then, abstractions like containers, serverless, and IaC (Infrastructure as Code) arrived, giving devs the freedom to access infrastructure by themselves. This shifted the frustrations to the ops side, who usually have to remediate the consequences of incorrect configurations and/or poor security practice.
As one can probably infer, the scalability of public clouds combined with different agendas creates ample complexity. Ultimately, this leads to a loss of control, higher costs, more vulnerabilities, and suboptimal business outcomes.
DevOps was the philosophical approach that materialised to address the complexity and have devs and ops work more effectively together.
One of the key components is to have a separation of environments - for development, for testing, and for production. This may seem anti-cooperative, but the decoupling allows devs to code and test at speed without being held back by ops. To ensure separate environments don't cause a bigger divide, another key component, a CI/CD (Continuous Integration, Continuous Delivery) framework, is leveraged across teams.
CI/CD provides a pipeline connecting all the stages, from development through to production, of an application's lifecycle. It also facilitates transparency, collaboration, and speedy iteration, thus enabling dev and ops to seamlessly work together with well-aligned objectives.
The environment separation combined with the end-to-end visibility, allows DevOps teams to practice what DevOps is fundamentally about - release new and updated software at high-velocity, high-quality, and with a high level of security.
Previously, these three objectives were considered to be locked in a trilemma - it not being possible to achieve two of them without degrading the other. The little and often principle of DevOps ushered in a new paradigm in which all three can be achieved in tandem. Smaller but higher frequency deployments also means troubleshooting is easier and recoveries are faster.
While some are yet to start and others have already completed, most orgs operating in the cloud have some extent of a DevOps transition in motion. The reason many experience a halt in progress, is because building the required tooling in-house is really hard to do.
Ideally, an org aiming to implement DevOps needs to create high-quality software to realise the CI/CD framework. Though, it's unlikely they will have the necessary talent to build this. The company can hire specialist DevOps engineers but salaries are expensive. Even then, there are various costly overheads in maintaining the DevOps infrastructure. Plus, each dev and ops engineer has their own favourite toolset which needs to be integrated into the CI/CD. Then, there are cultural issues that need consideration.
The above lays a firm foundation for SaaS DevOps vendors to prosper. Such vendors live and breath DevOps, taking in daily learnings from thousands of teams using their software, aiming to implement their ideal DevOps. They have designed highly cost-effective software that seamlessly connects to CI/CD pipelines to enable smooth coordination across devs and ops. The empowerment allows DevOps teams to take a feature, update, or an entire application, from inception to production, multiple times faster and with high quality and safety.
With the notion that competition across all industries has become increasingly digitalised, it's clear that SaaS DevOps vendors can deliver huge amounts of value. In essence, the quicker that companies can bring new and better online experiences to market, the better chance they have of growing market share and profits.
If we say the hyperscalers were the major value generators during the 2010s, we think that leading DevOps names have the potential to emulate similar successes throughout the 2020s. Cloud computing delivers business agility and scalability, but now the value creation comes from better management of the ensuing complexity. DevOps vendors can abstract away much of the complexities, allowing DevOps teams to safely bring high-quality applications to market faster.
We like DevOps vendors that have a dual bottom-up and top-down strategy; momentum within the developer communities, but also a GTM targeting executive IT decision makers. GitLab, HashiCorp, and Snyk, are three vendors that fit this description.
GitLab has the continuous improvement support from its open-source root, is highly interoperable with numerous third-party software, but also provides a complete end-to-end DevOps toolchain.
HashiCorp is also closely connected to the open-source community, but is more focused on the infrastructure aspects of DevOps, something becoming increasingly complex as orgs deploy across multi-cloud environments.
Snyk is still private, probably aiming for an IPO when the markets recover somewhat, and focuses on enabling teams to build shift-left security into their DevOps processes.
The three companies have attractive gross margins, indicative of their favourable unit economics. Similar to the work coordination vendors, these vendors are continually using the software that they provide to their customers. Over other types of software players, this gives them a significant advantage for keeping customers happy with the product and for generating internal efficiencies.
For institutional investors (public and private), on request, we can do tailored research for your requirements. For all types of investors, here are individual reports you can purchase related to DevOps:
The Evolution of DevOps (October 2022) - Free
Cloud, SaaS, & DevOps: Part 1 & Part 2 (September/October 2022)
Part 2: GitLab - Huge Potential Value Generator (October 2022)
Part 1: GitLab - Huge Potential Value Generator (October 2022)
HashiCorp (coming soon)
Snyk (coming soon)
Tailored research - price negotiable