Tectonic shifts: HP Plus 3Com versus Cisco Plus EMC

Just when it looked clear where the markets were lining up around data center automation and cloud computing, things change. I guess that is what makes this industry so very interesting.  The proposed acquisition by HP of 3Com is a direct challenge to Cisco’s network management franchise. However, the implications of this move go further than what meets the eye.  It also pits HP in a direct path against EMC with its Cisco partnership. And to make things even more interesting, it also puts these two companies in a competitive three way race against IBM and its cloud/data center automation strategy. And of course, it doesn’t stop there. A myriad of emerging companies like Google and Amazon want a larger share of the enterprise market for cloud services. Companies like Unisys and CSC that has focused on the outsourced secure data centers are getting into the act.

I don’t think that we will see a single winner — no matter what any one of these companies will tell you.  The winners in this market shift will be those companies can build a compelling platform and a compelling value proposition for a partner ecosystem.  The truth about the cloud is that it is not simply a network or a data center. It is a new way of providing services of all sorts that can support changing customer workloads in a secure and predictable manner.

In light of this, what does this say for HP’s plans to acquire 3Com? If we assume that the network infrastructure is a key component of an emerging cloud and data center strategy, HP is making a calculated risk in acquiring more assets in this market.  The company that has found that its ProCurve networking division has begun gaining traction. HP ProCurve Networking is the networking division of HP.  The division includes network switches, wireless access points, WAN routers, and Access Control servers and software.   ProCurve competes directly with Cisco in the networking switch market. When HP had a tight partnership with Cisco, the company de-emphasized the networking. However, once Cisco started to move into the server market, the handcuffs came off. The 3Com acquisition takes the competitive play to a new level. 3Com has a variety of good pieces of technology that HP could leverage within ProCurve. Even more significantly, it picks up a strong security product called TippingPoint, a 3Com acquisition. TippingPoint fills a critical hole in HP’s security offering. TippingPoint, offers network security offerings including intrusion prevention and a product that inspects network packets.  The former 3Com subsidiary has also established a database of security threats based a network of external researchers.

But I think that one of the most important reasons that HP bought 3Com is its strong relationships in the Chinese market. In fiscal year 2008 half of 3Com’s revenue came from its H3C joint venture with Chinese vendor, Huawei Technology. Therefore, it is not surprising that HP would have paid a premium to gain a foothold in this lucrative market. If HP is smart, it will do a good job leveraging the many software assets to build out both its networking assets as well as beefing up its software organization. In reality, HP is much more comfortable in the hardware market. Therefore, adding networking as a core competency makes sense. It will also bolster its position as a player in the high end data center market and in the private cloud space.

Cisco, on the other hand, is coming from the network and moving agressively into the cloud and the data center market.  The company has purchased a position with VMWare and has established a tight partnership with EMC as a go to market strategy.  For Cisco, it gives the company credibility and access to customers outside of its traditional markets. For EMC, the Cisco relationship strengthens its networking play.  But an even bigger value for the relationship is to present a bigger footprint to customers as they move to take on HP, IBM, and the assortment of other players who all want to win.  The Cisco/EMC/VMware play is to focus on the private cloud.  In their view a private cloud is very similar to a private, preconfigured data center.  It can be a compelling value proposition to a customer that needs a data center fast without having to deal with a lot of moving parts.  The real question from a cloud computing perspective is the key question: is this really a cloud?

It was inevitable that this quiet market dominated by Google and Amazon would heat up as the cloud becomes a real market force.  But I don’t expect that HP or Cisco/EMC will have a free run. They are being joined by IBM and Microsoft — among others. The impact could be better options for customers and prices that invariably will fall. The key to success for all of these players will be how well they manage what will be an increasingly heterogeneous, federated, and highly distributed hardware and software world. Management comes in many flavors: management of these highly distributed services and management of the workloads.

What are the unanticipated consequences of Cloud Computing- Part I

Maybe I am just obsessed with cloud computing these days. I guess that after spending more than 18 months researching the topic for our forthcoming book, Cloud Computing for Dummies, I can be excused for my obsession.  Now that I am able to take a step back from the noise of the market, I have been thinking about what this will mean in the next ten years. Consequences of technology adoption are never what we expect. For example, in the late 1970s and early 1980s no one could imagine why anyone would want a personal computer. In fact, the only application people could imagine for a PC was a way to store recipes (I am not making this up). Keep in mind that this was before the first PC-based spreadsheet was designed by Dan Bricklin and Bob Franston(That’s them in the picture) . No one in those days could have predicted that everyone from a CEO to a three year old child would own a personal computer and its use would change the way we conduct business.  (I never did find a recipe storing application).

The same logic can be applied to the Internet. While the Internet has been used 40 years ago by researchers, it was not a commercially viable option until the mid-1990s. In the early days of the Internet it was a sophisticated communications technology with a command line interface. Once the browser came along, businesses tended to use it to share price lists, marketing materials, and job postings. There were certainly message boards but only for the real techies. There were environments such as The Well which was the first online community used primarily by academics and wild-eyed researchers.

In that context, I was thinking about what we might expect to happen with cloud computing? There is a lot to say, so I decided to break this into two parts — each one will have three consequences. Here are today’s top three:

1. Cloud computing will begin to change the way we think of an application. To be truly useful to large groups of individuals and businesses requires economies of scale in terms of massively scaled workloads. The only way to accomplish this is either to cherry pick a few big workloads (like email) or to branch out. That branching out is inevitable and will mean that vendors with cloud offerings with componentize their software offerings into modular services that can be mixed and matched with other services.

2. The prices that vendors will charge for cloud computing services will drop dramatically over the next few years. As prices drop it will become a lot more economically viable to substitute on premise environment for the cloud environment. Today this is not the case; large companies supporting thousands of users in an application environment cannot justify the movement to a cloud platform. What if the costs drop to the point where the economics (with the right workloads) favor cloud based services? When this happens there will be a tipping point that we might not even notice for a few years. But I predict that it will happen. We are already seeing Amazon dropping prices for its EC2 environment based on the competitive threat from Microsoft Azure services announcement.

3. The cloud will change the way we manage data. The traditional way we think about data neatly stored in specific databases to handle a specific business problem will inevitably change.  This won’t be an overnight change but it will happen. Data will increasingly be seen as a reusable resource that can be used in lots of different situations. There will continue to be strategic line of business applications but they will be more systems of record that keep track of the final result of actions that take place dynamically in the cloud. The value of data is not in its tight packaging as we have been used to for decades but it the flexibility to move, transform, and leverage data. The watch word for data in this new model will be Trusted Data in the Cloud.

I would love to know what you think of my top three choices; send me your comments and I will add them to my list for tomorrow.

As we deal with the cloud hype it is too easy to be dismissive and cynical. But we always treat complicated new trends that way — until one day they become the normal way of business and life.

My Top Eleven Predictions for 2009 (I bet you thought there would be only ten)

What a difference a year makes. The past year was filled with a lot of interesting innovations and market shifts. For example, Software as a Service went from being something for small companies or departments within large ones to a mainstream option.  Real customers are beginning to solve real business problems with service oriented architecture.  The latest hype is around Cloud Computing – afterall, the software industry seems to need hype to survive. As we look forward into 2009, it is going to be a very different and difficult year but one that will be full of some surprising twists and turns.  Here are my top predictions for the coming year.
One. Software as a Service (SaaS) goes mainstream. It isn’t just for small companies anymore. While this has been happening slowly and steadily, it is rapidly becoming mainstream because with the dramatic cuts in capital budgets companies are going to fulfill their needs with SaaS.  While companies like SalesForce.com have been the successful pioneers, the big guys (like IBM, Oracle, Microsoft, and HP) are going to make a major push for dominance and strong partner ecosystems.
Two. Tough economic times favor the big and stable technology companies. Yes, these companies will trim expenses and cut back like everyone else. However, customers will be less willing to bet the farm on emerging startups with cool technology. The only way emerging companies will survive is to do what I call “follow the pain”. In other words, come up with compelling technology that solves really tough problems that others can’t do. They need to fill the white space that the big vendors have not filled yet. The best option for emerging companies is to use this time when people will be hiding under their beds to get aggressive and show value to customers and prospects. It is best to shout when everyone else is quiet. You will be heard!
Three.  The Service Oriented Architecture market enters the post hype phase. This is actually good news. We have had in-depth discussions with almost 30 companies for the second edition of SOA for Dummies (coming out December 19th). They are all finding business benefit from the transition. They are all view SOA as a journey – not a project.  So, there will be less noise in the market but more good work getting done.
Four. Service Management gets hot. This has long been an important area whether companies were looking at automating data centers or managing process tied to business metrics.  So, what is different? Companies are starting to seriously plan a service management strategy tied both to customer experience and satisfaction. They are tying this objective to their physical assets, their IT environment, and their business process across the company. There will be vendor consolidation and a lot of innovation in this area.
Five. The desktop takes a beating in a tough economy. When times get tough companies look for ways to cut back and I expect that the desktop will be an area where companies will delay replacement of existing PCs. They will make do with what they have or they will expand their virtualization implementation.
Six. The Cloud grows more serious. Cloud computing has actually been around since early time sharing days if we are to be honest with each other.  However, there is a difference is the emerging technologies like multi-tenancy that make this approach to shared resources different. Just as companies are moving to SaaS because of economic reasons, companies will move to Clouds with the same goal – decreasing capital expenditures.  Companies will start to have to gain an understanding of the impact of trusting a third party provider. Performance, scalability, predictability, and security are not guaranteed just because some company offers a cloud. Service management of the cloud will become a key success factors. And there will be plenty of problems to go around next year.
Seven. There will be tech companies that fail in 2009. Not all companies will make it through this financial crisis.  Even large companies with cash will be potentially on the failure list.  I predict that Sun Microsystems, for example, will fail to remain intact.  I expect that company will be broken apart.  It could be that the hardware assets could be sold to its partner Fujitsu while pieces of software could be sold off as well.  It is hard to see how a company without a well-crafted software strategy and execution model can remain financially viable. Similarly, companies without a focus on the consumer market will have a tough time in the coming year.
Eight. Open Source will soar in this tight market. Open Source companies are in a good position in this type of market—with a caveat.  There is a danger for customers to simply adopt an open source solution unless there is a strong commercial support structure behind it. Companies that offer commercial open source will emerge as strong players.
Nine.  Software goes vertical. I am not talking about packaged software. I anticipate that more and more companies will begin to package everything based on a solutions focus. Even middleware, data management, security, and process management will be packaged so that customers will spend less time building and more time configuring. This will have an impact in the next decade on the way systems integrators will make (or not make) money.
Ten. Appliances become a software platform of choice for customers. Hardware appliances have been around for a number of years and are growing in acceptance and capability.  This trend will accelerate in the coming year.  The most common solutions used with appliances include security, storage, and data warehousing. The appliance platform will expand dramatically this coming year.  More software solutions will be sold with prepackaged solutions to make the acceptance rate for complex enterprise software easier.

Eleven. Companies will spend money on anticipation management. Companies must be able to use their information resources to understand where things are going. Being able to anticipate trends and customer needs is critical.  Therefore, one of the bright spots this coming year will be the need to spend money getting a handle on data.  Companies will need to understand not just what happened last year but where they should invest for the future. They cannot do this without understanding their data.

The bottom line is that 2009 will be a complicated year for software.  There will be many companies without a compelling solution to customer pain will and should fail. The market favors safe companies. As in any down market, some companies will focus on avoiding any risk and waiting. The smart companies – both providers and users of software will take advantage of the rough market to plan for innovation and success when things improve – and they always do.

Top 10 Predictions: Innovation, ROI, Cloud Computing and more…

I love the end of the year. I get to sneak out of the office for a few days and stay off of airplanes. I also have a chance to look ahead to the new year. I like making predictions. Sometimes, I am years ahead of the market; other times I am able to hit the nail on the head. So, for what it is worth, here are my top ten predictions for 2008 (Hey, how did that happen? What happened to 2007? I thought it just started!)

1. There will be two hot buzzwords this year: innovation and ROI. Companies want to find ways to leverage the technology they have invested in, to do things in totally new ways. At the same time, companies are nervous about investing in technology. They want assurances that there will be a return on their investment — quickly. So, you will see a lot of discussion of both issues. But here is one prediction that I guarantee: most of the proof about innovation and ROI will be fluffy and devoid of any real meat!

2. Here come the clouds! I think that cloud computing, one of the latest versions of virtualization, will become one of the hottest trends of 2008. Any infrastructure company you can name will come up with a cloud computing strategy. No single leader will emerge in 2008 but you won’t be able to move without bumping into the hype.

3. Software as a Service goes mainstream. Sure, SalesForce.com has been the industry darling over the past few years. There can be no doubt that SalesForce CEO Marc Benioff’s imaginative adventure hit the bulls-eye. But I expect that in 2008 there will be numerous mainstream, innovative approaches to Software as a Service. We already saw SAP announce SAP By Design as its entry into the SaaS market. Expect a lot more from mainstream players. Now add a social networking twist and things really get interesting.

4. The world gets more virtual. VMWare’s spectacular IPO made the rest of the market wakeup and smell the roses. Maybe there is money in this virtualization stuff after all. There will be three virtualization market segments: client, server, and application. I can’t decide which one I think is more important. How about all three!

5. More vendors will make more acquisitions (that’s another one you can take to the bank). Yes, Oracle will certainly make more acquisitions, but I don’ t think that BEA will be in the mix. Nor will HP buy BEA. However, I do predict that BEA will probably go private. I predict that HP will buy more software companies, especially in the data management area. IBM will continue its buying especially in software — more companies in what they call information management, more in systems management, and in the collaboration space. I expect to see more action from EMC as well primarily in management and security. The list is too long for this entry but stay tuned, it is going to be a very, very busy year.

6. So, I didn’t mention Microsoft yet. This is the year when Microsoft’s server/enterprise business will get the respect it deserves. Therefore, I expect to see Microsoft continue to make small but strategic acquisitions that will fit into the forthcoming Oslo strategy. I would expect to see Microsoft look for information management picks (among others). However, I don’t expect that Microsoft will be buying big, traditional software companies. I expect that Microsoft will make interesting acquisitions in web collaboration, social networking, and advertising.

7. Online goes off-line. Companies like Zoho are starting to gain traction because they can provide both online services combined with offline usage. Being able to continue working when you can’t get connectivity is the tipping point for these collaboration offerings to challenge Microsoft in the office and collaboration space.

8. This is the year that Service Oriented Architectures (SOA) moves from IT strategy to business strategy. Therefore, SOA will officially move out of the hype cycle and into mainstream. CEOs and CIOs have bought into the importance of consistent business oriented services. Therefore, expect that customers will get down to serious business of moving out of pilots into slow, deliberate implementations. This doesn’t make for splashy headlines but it does make business sense.

9. Google will continue to move into any market that leverages the advertising revenue model — including collaboration software and various cloud computing options. No surprise there. I do not expect that Google will make a bid for the traditional enterprise applications. I do expect to see a strengthening partnership with IBM.

10. Partner ecosystems will reach a new level of intensity this year. Enterprise software leaders will be working hard to make sure the most popular emerging players support their platforms. They will be joined in the mix by Software as a Service players who are trying to build up their arsenal of partners. Emerging players will live or die by their ability to sign the best partnerships. At the same time, enterprise software leaders are upping the requirements for participation. The bottom line is: what’s in it for me?

11. I know I promised 10 predictions but I have to add one more. There will be at least a few trends that will come out of the blue. But that is what makes things interesting!

 

Should the SaaS customer beware and be educated?

I had a long talk the other day with a customer who had just decided to implement SAP’s Business by Design hosted solution. The company (it wouldn’t be fair to him to name the company) is about $150 million in revenue and made the decision to move away from a home grew, inefficient system and migrate to Software as a Service (SaaS). He was excited for several reasons: he would need fewer people in the IT organization, he would buy fewer new servers, he didn’t have to worry about the details. He was reassured that the Business by Design product was called a Service Oriented Architecture based offering.

Now, I am a professional troublemaker, so I asked him the type of questions that I ask my clients about the longer term implications of buying software (even if it is hosted). Here are the questions that I asked him:

1. How do you know that the product is based on SOA?

2. Where is your data? What is the underlying database for your company’s data. How do you know that your data is clean? How often is that data backed up and where it is backed up?

3. Do you actually own your data? Is it available to you on a regular basis? If you take your data can you move it to another platform if you need to?

4. How easy it is to integrate the SaaS platform with either existing software you plan to ocntinue to use or new software?

5. If you should outgrow the platform what are your options?

6. What if you suddenly decide to take the software in house? Can you do this with the same company?

7. Do you have an internal person who understands the software well? If not, you may just have to take the vendor’s word that the software does the job you expect.

Now, don’t get me wrong. I like the SaaS model a lot. It is a very important trend that will be a lynch pin of many small and large companies strategies for many years to come. However, SaaS is not someone else’s problem. It is the customer’s problem to be on guard and educated. Ignorance and trust can sometime be dangerous bed fellows.