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.