How Private Equity is Mandating Change
Enterprise software companies and ISVs have demonstrated incredible resilience during the pandemic with the deployment of playbooks designed to adapt and accelerate recovery. These software companies are evolving by realigning their product portfolio to meet future customer demand, offloading unprofitable assets, and driving their digital transformation initiatives. Software companies across the world are accelerating product development by leveraging digital capabilities such as Artificial Intelligence (AI), Machine Learning (ML), automation (RPA and Low Code/ No Code), Big Data and analytics, and Cloud-native technologies to deliver best in class customer experiences and efficient maintenance.
Eager for growth, private equity (PE)- owned software companies are leading this trend. With fresh fund infusions through primary/secondary buyouts or recapitalization they are mandating product innovations, modernizing existing product suites, expanding platforms to include new products and scaling engineering, product and GTM teams. For example, one of the focuses of software companies has been building AI capabilities into existing products as well as new developments of AI/ML-enabled products to drive product acceleration. Incidentally, AI companies raised a record $33B in equity funding in 2020. As commercial applications of AI and automation scale rapidly, enterprise software companies are looking to overhaul to become digital-first.
With deep change management experience, PE firms traditionally deploy a distinct set of value levers across growth, cost and product strategies for enterprise software companies to generate higher returns. Zinnov has investigated over 100 PE software exits on the different value creation levers they applied to unlock value from their enterprise software investments. Revenue Enhancement was found to be pivotal in unlocking value, used in a greater number of deals compared to other levers, such as working capital and cost optimization, capital efficiency and tax optimization. Digging deeper, product acceleration (in portfolio expansion and modernization) takes a comparatively low time to create an impact in unlocking value, while being easy to medium in ease of execution, when compared to the other drivers of revenue enhancement.
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Putting the Two Pillars of Modernization into Action
5 minute read
In real-life application of product modernization, there are two pillars that are deeply intertwined as shown above: the hyper-scaler multi-cloud pillar and the monolith-to-microservices pillar.
First and foremost, the modernization process starts with cloud adoption. This cloud-first approach is what enables microservices—you cannot transition to microservices without adopting a cloud—and makes use of the cloud’s ability to deliver elastic computing on a pay-per-use basis. Whether you choose to adapt to one cloud or multiple clouds depends upon many different criteria, which in the interest of brevity will be left to other sources to discuss.
The next element is cloud-client architecture and microservices. Microservices must be designed into cloud-native architecture, since they talk to each other through an event bus—but they need to be configured so that you don’t have multiple services waiting for each other, which would stall the microservices indefinitely.
A prime example of this is Netflix. When you are playing a movie in your browser, Netflix has many factors to consider regarding the client architecture: What is the screen size the content is being served to? What is the throughput of the connection? How many pixels need to be sent, and how many frames are needed to create a consistent delivery that takes these variables into account? Cloud-client architecture is what allows these elastic resources to be allocated moment to moment to meet the client’s needs.
This architecture also leverages a number of microservices-specific databases in a scalable persistence store, ensuring each microservice can query the database it needs without impacting the relationships between any other microservice and its database.
Once the new modernized code is developed and tested, it is time to deploy, which is accomplished through a development, security, and operations (DevSecOps) model. To make the most of the cloud, DevSecOps must be cloud native, because when implementing something in the cloud, it needs to be in line with how that cloud works, as far as creating or killing an image, etc.
Second, within a given application, DevSecOps needs to ensure the different features come in at the right time, as in the Netflix example cited above. Indeed, Netflix might have four or five or even 20 releases in any given day, none of which are observable to any of the userbase.
All of these various components required to make the transition from monolithic to microservices and cloud enablement are highly interrelated and cannot be accomplished in isolation.
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Final thoughts on the Software Modernization Journey
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Challenging Assumptions and Misconceptions
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Challenging Common Assumptions and Misconceptions about Modernized Product Development
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Challenging Assumptions and Misconceptions
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Re-imagine software products
Leverage our expertise in next-gen MACH software architectures to modernize your software products quickly.
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Rejuvenate mature products
Focus on improving revenue, efficiency and customer delight with our intelligent sustenance engineering framework.
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Re-group with our experts
Schedule a discussion with our modernization and sustenance experts who can help you chart a path forward.
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Next steps
Re-imagine software products
Leverage our expertise in next-gen MACH software architectures to modernize your software products quickly.
Learn More
Rejuvenate mature products
Focus on improving revenue, efficiency and customer delight with our intelligent sustenance engineering framework.
Learn More
Re-group with our experts
Schedule a discussion with our modernization and sustenance experts who can help you chart a path forward.
Contact Us