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Progress Software has pledged to invest heavily in R&D for Chef Software once its $220 million acquisition bid closes, but the two companies must close a significant gap to catch up with hot IT automation trends.
Progress has its origins in a fourth-generation computing language launched in 1981, now called OpenEdge. Most of the company's revenues are still tied to its OpenEdge products, but it has amassed a total of 24 acquisitions since 2001, and seven in the IT automation and DevOps space since 2014.
These include Telerik, which created a .NET UI/UX developer tool that includes the open source Fiddler debugging tool; Kinvey, maker of a low-code app dev platform; and Ipswitch for managed file transfer. Progress also sells network monitoring tools WhatsUp Gold and iMacros, acquired with Ipswitch.
However, most of Progress' revenue is linked to OpenEdge, according to the company's 2019 10-K filing with the SEC, and CEO Yogesh Gupta acknowledges the company is perceived as a legacy player.
"Progress is a 40-year-old software company, and I don't know how many of those exist on this planet," Gupta said. Microsoft and Oracle are roughly the same age, but "people only talk about companies that were founded this century -- there are few like us."
Progress Software spends more than 20% of its revenue on research and development. That compares favorably to larger companies such as Oracle, which spent 15% of revenue on R&D in its fiscal year ended May 31. Gupta said Progress plans to increase R&D investment to help develop Chef products, though he declined to specify a direction for that development ahead of the acquisition's close, which is expected in 30 days. He also declined to say which, if any, of Chef's existing employees will join Progress.
Progress has experience working with open source communities through its Fiddler software, and Chef's open source licensing update two years ago was a part of its appeal as an acquisition target, he said.
Innovation or maintenance mode?
Chef customers will almost assuredly receive continued strong support from Progress, and Chef's existing business will be sustained for the foreseeable future, Forrester Research analyst Charles Betz said. But in the long run, it's an open question whether Progress and Chef will be able to establish fresh appeal in IT automation, Betz said.
"They're about a $400 million company [based on last year's revenues of $397.6 million] and they paid $220 million for Chef," he said. "The question is how much R&D Progress will be able to sustain."
For now, the deal looks like "an old-school custodial buy," similar to those made by other legacy companies such as CA, Betz said.
"They aggregate smaller firms, do the financial engineering and maintain the business, but big innovation is off the table," he said.
Chef Software also faced the Innovator's Dilemma over the last five years, as containers and Kubernetes ushered in concepts such as immutable infrastructure that made the company's original Configuration management differentiation somewhat obsolete.
Charles BetzAnalyst, Forrester Research
The company began to expand its portfolio in response to that trend in 2015, but newer products such as Chef Automate and Chef Habitat have struggled to capture market buzz similar to rival open source projects, which include Google's Tekton and Netflix's Spinnaker. In fact, some Chef customers have found that an ideal use for Chef Habitat is to update legacy applications but have said it hasn't been as good a fit for newer cloud-native apps.
Furthermore, HashiCorp's Terraform also overshadows Chef in infrastructure as code, a layer below configuration management. Chef's InSpec policy as code tool has found some popularity in the last few years, largely among existing Chef customers.
There's plenty of legacy infrastructure and legacy applications that will remain for many years to come, Betz added, but they don't necessarily need much innovation at this point.
"History is playing itself out here," Betz said. "This seems like a tech generation moving into legacy, including the devices that needed configuration management and the software that managed them."