Why Intel Is Investing in Cloudera

Learn why is Intel investing in Cloudera, a leading company in the market for big data solutions.

Mar 31, 2014 at 12:00PM
In the past few years, there's been a tremendous increase in the size and flow of data that enterprises handle. To take advantage of this, several big-data platforms have been released, providing analytics, storage, privacy, security, and other solutions. As the amount of information that enterprises need to handle continues increasing, demand for big-data solutions is set to rise. This could benefit several big-data start-ups, which may enjoy bigger valuations based on their high growth prospects.
Aware of the positive environment for big-data companies, the world's largest semiconductor manufacturer, Intel (NASDAQ:INTC), has decided to invest in Cloudera, a market leader and early mover in the promising field of big-data solutions. According to Intel, this deal is the single largest data-center technology investment in its history. The investment comes after the start-up announced it raised $160 million from T. Rowe Price, Google Ventures, and other investors. Note that Intel's investment in Cloudera comes only a year after the chipmaker unveiled its own big-data solutions project. Why is Intel investing in Cloudera and abandoning the idea of developing its own big-data business?

The investment
Intel's investment in Cloudera is said to be big enough to make the chipmaker the company's single largest strategic shareholder. The semiconductor company will have a seat on the board of directors of Cloudera, which could go public this year in order to benefit from the favorable IPO environment in U.S. markets. Intel will also promote Cloudera's products, which means the chipmaker will abandon its original project of developing and selling its customized big-data platform.
Hadoop is the future of big data
By replacing its own big-data project with Cloudera's solutions, Intel may be indirectly recognizing that Cloudera's main product, Hadoop for enterprises, is the future of big data. Hadoop, an open-source project originally developed by Yahoo, has quickly become one of the most popular frameworks for handling big data, due to its flexibility -- any programming language can be used with Hadoop -- robustness, and compatibility with high-performance computing environments. Using a creative algorithm, Hadoop is able to take advantage of huge clusters of computers to produce fast results for queries on big data sets by breaking them into parts. 
Cloudera, an active contributor to Hadoop's development, believed that Hadoop was the future of big data from a very early stage. By creating the first enterprise offering from Hadoop -- which at the beginning was only used by Internet giants such as Google, Facebook, and Yahoo! (NASDAQ:YHOO) -- Cloudera brought one of the most efficient platforms for handling big data to banks, hospitals, utilities, and retailers.
Open source is a must
Note that like Red Hat, Cloudera is committed to continue developing Hadoop as open-source software. The company generates revenue by selling Cloudera Manager, a subscription-based Hadoop support service. It also provides Cloudera Enterprise, a Hadoop-based platform that combines the basic version of Hadoop with a number of other open-source apps for big data.
By investing in Cloudera, Intel could benefit from capital gains, as the company is expected to soon go public. More important, Intel could sell its high-end Xeon server processors together with Cloudera's big-data solutions, in order to improve sales performance. The company's focus on server solutions -- both at the software and hardware level -- are a way to cope with poor sales related to chips for personal computers.

Cloudera faces fierce competition from players such as Hortonworks and MapR. Each of them have different approaches to monetizing Hadoop. Hortonworks, founded with $23 million from Yahoo! and Benchmark Capital, has developed its own Hadoop distribution, called Hortonworks Data Platform. Surprisingly, the Yahoo!-backed company made its version available by free download. Instead of selling its product directly to enterprises, the company makes money through annual subscription services and educational services. Annual subscriptions make up roughly 70% of Hortonworks' total revenue.
Final Foolish takeaway
Intel just became the single largest strategic shareholder in Cloudera. As an early mover and important contributor to the Hadoop open-source project, Cloudera is a market leader in big data. By experimenting with several cross-selling opportunities, like selling hardware optimized for Cloudera's big-data solutions, Intel's strategic investment in Cloudera could allow the chipmaker to improve sales from its server division. 
Editor's Note: The article originally stated Hadoop was created by Google. That's incorrect, Hadoop was originally created by Yahoo. This article has been corrected and The Motley Fool apologizes for the error.

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Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Intel and Yahoo!. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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