Innovation is alive and well in Silicon Valley. It may not seem that way with all this talk of another tech bubble but there are changes underway that have the potential to alter the tech industry and all major economies. Wave after wave of new technologies are emerging, being developed and brought to market by young companies headed by visionary leaders.

The high-tech giants, which for many years have dominated the space, are being disrupted at an unprecedented pace by more agile companies unburdened by a legacy market share or existing customer base that needs to be protected. The cycle of creative destruction has compressed significantly, as evidenced by the average lifespan of S&P 500 companies declining 50 years over the past century.

One arena that is undergoing rapid innovation is the enterprise data center. The dominant companies in the data center – the likes of IBM, HP, Dell, EMC, NetApp and Cisco – have been slow to innovate, resulting in pent-up demand for more powerful and lower-cost solutions.

For example, the typical response to the increasing demand for storage was simply to throw more hardware at the problem. And for many years that was not an issue. After all the average hard drive price per gigabyte has fallen from around US$430,000 in 1980 to just $0.05 in 2013.

Buying more storage was not a problem for most businesses. That’s why the status quo has remained unchallenged for so many years. Big storage vendors like EMC and NetApp operate with margins of 60 to 70% on what is basically commoditized hardware. While that worked very well for a long time it also meant the industry was ripe for innovation and disruption.

Access to capital
Nutanix is one company shaking up the enterprise data storage market. The company was founded in 2009 by Dheeraj Pandey, who previously worked at Aster Data (now Teradata) and Oracle. Like so many other disruptors in Silicon Valley he saw that there was a gap in the market, specifically within the storage arena. Companies were increasingly demanding simpler, more scalable, higher performing and lower cost storage solutions.

To put in context the degree of success the company has achieved in a short period of time, Nutanix announced in May it had grown 80% quarter-on-quarter and achieved an annualized run-rate of over $80m after only six quarters of selling. Those figures eclipse all other storage, networking and infrastructure startups since the heady days of the early 2000s.

One of the reasons for this impressive wave of innovation sweeping through Silicon Valley is access to venture capital. As the economic crisis that started in 2007 began to ease off, investment companies were happy to start opening their wallets once more. Nutanix pulled in $72m of investment in three rounds from top-tier VCs, including Lightspeed Venture Partners, Khosla Ventures and Battery Ventures.

In fact, according to Dow Jones Venture Source, investment in technology companies for Q3 2013 totalled $8.1bn. This represented a 2% increase on the previous quarter and a 4% increase on the same quarter in 2012. Startups like Uber, MongoDB and Palantir raised money during the quarter from a variety of VCs like Google Ventures and Sequoia Capital. Similar figures from PricewaterhouseCoopers revealed that for Q3 2013 the software industry pulled in $3.6bn, exceeding $3bn for the first time in 12 years.

IPOs signal healthy market
Another sign of the shifting landscape in Silicon Valley is the number of successful IPOs that have taken place in the past few years. Away from the headline grabbers such as Facebook and Twitter there have been many successful public offerings that are representative of the confidence many young technology companies are generating with investors.

Splunk is a great example of this trend. Its IPO shows renewed faith in companies that are tackling modern technology challenges – big data, in this case. Splunk’s IPO priced at $17 per share before climbing to a high of $31.75 per share that day. It has been steadily climbing since then and is now trading at $69.

What all these companies have in common is an ability to innovate and move fast, something the traditional Silicon Valley giants simply cannot match. This changing of the guard has repeated itself many times in the technology industry and we are at the beginning of another major transition period. Dell, HP, IBM, EMC, NetApp, Cisco and other companies of their caliber are struggling to grow revenue due to their sheer size and reliance on existing legacy products that are being rendered increasingly uncompetitive by the upstart companies.

It’s the way the industry is going. We can expect more VC money flowing in and more IPOs. As the bigger, traditional companies continue to struggle we will see more of their visionary leaders depart to create their own start-ups, aided by a rapidly evolving industry that is continually creating new multi-billion dollar opportunities. 

It’s an exciting time and behind the headlines there are some truly innovative companies and products. The data center, for example, has been crying out for a fresh approach. With VCs once again opening their wallets to offer the financial support, advice and opportunities start-ups need, it will not be too long before the next generation of technology leaders emerges.

This article first appeared in FOCUS 33, along with other predictions for 2014. To read the digital edition, click here. You can also read more about Nutanix’ latest funding round, in which it raised US$101m, here.

The opinions expressed in the article above are those of the author and do not reflect those of DatacenterDynamics, its employers or affiliates.