Flow of Capital Says: “Software? Yes; Hardware? No Thanks.”

Follow the money to forecast the future for IT infrastructure.
Follow the money to forecast the future.

If you’re trying to figure out where things are going in the IT infrastructure world, money is likely a better harbinger than chatter.

A few years ago there was a boom in hardware investment. A number of storage companies sprouted up and plenty of other gear manufacturers as well. Infrastructure investments funded a lot of now-well-established providers of hardware that are still out there competing for business, as well as some that didn’t catch on.

But the focus of investors’ interest has changed. Instead of equipment, gear, and the tangible, investment money is now largely supporting new ideas and business concepts of various software providers.

Capital’s drift away from hardware is understandable. With large, successful companies sharing their infrastructure strategies with projects like the Open Compute Project, Open Stack, and a focus on software-defined everything, there is too much information available for a private equity firm to think they’re getting any significant edge with a hardware play.

With the investment world focused on ideas, private money is largely fueling new software companies right now. As a result, the established hardware leaders servicing the data center industry may not be threatened with disruptive new providers in the next few years, unlike the software world where new solutions providers will continue to challenge existing market leaders.