Subba’s Serendipitous moments

September 20, 2009

U.S. Federal government to use the cloud and the App Store

Vivek Kundra — the Federal CIO and who is actively promoting the innovation agenda announced Apps.Gov. It includes a variety of business applications, hosting and social applications all housed in a cloud.

All the federal agencies will be able to buy the cloud computing applications and services and this will surely bring the cost of IT services in the federal budget. It is also a very innovative way of standardizing applications.

What Apps.Gov also ensures is that the government enjoys the same benefits that technology changes and pricing models have to offer to the consumer. The government also can reduce the cost of IT infrastructure like building data centers a, servers, storage. Some applications may even be free.

I do not know how he is going to handle the privacy and security issues, but I guess given the size of the federal IT budget, many vendors will come forward to build the standards needed for the Government to be their customer. Google has already responded by announcing that it would dedicate a part of its computing infrastructure to serve the federal government.

Sure, other vendors will follow.

All in all, this is a great initiative and something that other Governments should also consider.

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September 1, 2009

Microsoft Windows under siege.

Operating systems wars have been skirmishes. They haven’t produced any major upsets. Microsoft dominates the OS completely and despite the Linux aficionados, Microsoft’s strong hold remained unchallenged especially at the low to medium end servers and in desktops. It is a different story in the mobile space though.

But things are slowly changing and my sense is that in the next couple of years, Microsoft will face more heat compared to anything that it has ever faced on the server front.

Microsoft will have to increasingly contend with VMWare which has bolstered its arsenal with its acquisition of Springsource – maker of open-source software development tools which can analyze and optimize the application performance. This could allow VMWare to undermine the Windows operating system.

Despite all the talk about the huge growth of virtualization, the untapped market is still large. Currently virtualization has been done mostly at the data centers (which is where the complexity is and where the cost savings are) and even there the current estimate is that less than 25% of the servers are virtualized. This creates a big opportunity. It is no surprise that Cisco wants a piece of this market and it is targeting them with its Unified Computing system.

Well, there’s a desktop market and a notebook market and it will require a different approach to tackle this market. Currently the focus seems to be on the servers.

Microsoft cannot afford to ignore this market. In fact it announced Hyper V Virtual machine as part of its Windows Server 2008 and it is likely that it will offer several enhancements in time to come. Moreover, Microsoft can afford to give its Hyper V free. With other contenders like Citrix Xen, Virtual Iron remaining in the fringes, it is going to be a battle between Microsoft and VMWare. And again, this battle is not just one of functionality or product features, but increasingly fought on a business model.

In some way, it could very well resemble the browser wars of the nineties.

But from Microsoft’s standpoint the battle for the OS has another contender. Google with its web based software for office and productivity applications is also undermining the Windows operating system.

The early impact on Microsoft is here to see. However it is too early to announce the demise of Windows.

So, the skirmishes are over and the battle is being fought on many fronts.

August 2, 2009

IBM girds itself against Cisco.

A few months back I wrote about Cisco’s game changing play and in the process declaring war on IBM and HP. I also indicated that an imminent realignment of alliances is likely. I have been following the subsequent developments with a lot of interest and here’s an update.

I have not seen HP do much in terms of launching an offensive to Cisco’s play. Either they do not believe in Cisco’s ability to build a carrier class digital IT infrastructure or they are tied up with other myriad issues.

IBM on the other hand has upped the ante with a series of moves. It entered into a fairly strong relationship with Juniper Networks. While IBM did mention that it was also bolstering its relationship with Cisco, for the discerning eye it was just PRspeak.

Brocade’s Fibre Channel over Ethernet (FCoE) will be offered as the IBM Converged Switch B32 and 10Gb Converged. This will strengthen the OEM agreement Brocade with IBM earlier this year to resell Brocade’s Foundry switches.

The battle for data centers will invariably shift to the cloud. And the shift may even be quicker than one can envisage. And the first vendor that are able to demonstrate that data can be moved from one cloud to another without a hitch, has a significant advantage. With the agreements with Juniper and Brocade, IBM seems to have a strong advantage over Cisco.

It looks like an interesting battle ahead between IBM and Cisco. To me, it looks like HP is still being hesitant.

April 20, 2009

Oracle acquires Sun — Unexpected and interesting

Oracle announced that it is going to acquire Sun for $9.50 in cash valuing Sun at about $7.5 billion or $5.6 billion net of Sun’s cash and debt.

The deal comes after talks between IBM and Sun failed. I had analyzed why the IBM may not really need Sun here and here. IBM had offered $9.40 per share. Oracle’s offer is a 40% premium over Sun’s closing price.

However this acquisition by Oracle is both unexpected and very interesting. Sun’s software assets could become better strategic assets to Oracle than Sun’s server or storage business. After Sun acquired MySQL , the relationship between Oracle and Sun had soured. Oracle had acquired Innobase to neutralize MySQL but it hadn’t made much headway. Of course Java could become the pivot of Oracle’s middleware strategy.

The open source database angle becomes interesting. Having MySQL in its stable gives Oracle access to its huge developer base and web applications market. Will Oracle kill MySQL to protect the Oracle 11g cloud margins or milk it for whatever it is worth before allowing it to die in neglect will be interesting to watch.

Sun has a large installed base and becomes an immediate target market for Oracle to target with its applications.

Since Sun’s manufacturing is already outsourced, there’s nothing much left for Oracle to do. It can sell whatever is left in the hardware business — the storage, server and any other chip business to either HP or Dell.

Oracle now fine tunes the database performance on Solaris and sells a combo. HP and others will feel the impact.

Oracle gets the scale and muscle to attack IBM.

On the overall, there seems to be a better strategic fit between Oracle and Sun, than Oracle and IBM. Both companies also have a strong feisty culture and hyper competitive spirits so integrating them could be easier.

What is also interesting is that Sun’s board approved the deal quickly and unanimously after just scoffing IBM’s deal which was just 10 cents less per share.

April 6, 2009

IBM — Sun deal fails?

Filed under: Business,Competition,Model — Subbaraman Iyer @ 11:35 am
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IBM withdrew its $7 billion offer for Sun reports the NY Times which reports that Sun believed the offer was too low and the offer was rejected by the Sun Board. The Wall Street however is not so categorical about the rejection and believes the deal will go through.

I wrote earlier that IBM doesn’t need Sun. It is Sun that needs IBM. Sun has been in the market for a long time courting probable suitors.

The failure of the deal will hurt Sun more than anyone. Customers will be wary of purchasing Sun gear. Moreover the management will be questioned about their commitment to a go-it-alone strategy. Hence Sun may accept the lower price offered by IBM. Sun doesn’t have much choices left.

My assessment is that Sun’s problems may actually worsen after the failure of the talks. IBM comes out unscathed.

March 19, 2009

Does IBM need Sun?

Filed under: Business,Competition — Subbaraman Iyer @ 8:49 pm
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No sooner had I finished posting my blog post on Cisco’s Unified Computing strategy and its implications, I saw that IBM is in talks to acquire Sun for $6.5 billion.  Sun has over $2.5 billion in cash, so the entire Sun business is valued at $4 billion.

I had expected a spate of acquisitions to happen, but not so soon. Not IBM acquiring Sun. My take was that it would be either EMC or Dell or HP acquiring Sun.

Here’s my analysis assuming that the news is for real and that it is not one of those rumor balloons:

  1. IBM gets more share in a shrinking UNIX server market. IBM is already doing a good job with Linux (IBM’s overall market server market share is 31%) and doesn’t need the extra 10% market share coming from Sun. I have already said here that with Cisco entering the server space the already low margins could even get lower. So, IBM with a server margin (around 10%) buying Sun for just the servers doesn’t make compelling logic.

  2. Maybe IBM is eyeing Sun’s MySQL database! It makes sense, but IBM has its own DB2 and it also has Informix. So, adding MySQL to their product portfolio makes limited sense.

  3. Java may be the crown jewel in Sun’s assets, but it hasn’t made money for Sun. I wonder how IBM will make it sing.

  4. The rest of Sun’s products —  storage, SOA stack, professional services none of them are compelling enough.

  5. No compelling next generation chip architectures from Sun.

Clearly there’s little strategic fit from a technology standpoint or from a marketing standpoint for IBM to acquire Sun.

Maybe there are some new initiatives from Sun in the cloud computing space. But Sun has not been investing in any kind of cutting edge architecture for a long time.

One possible reason for this rumor balloon to gain credence is that this move could thwart other vendors like HP, Dell or  a Cisco to acquire Sun. It doesn’t make any sense, because they could enter the bidding fray themselves. My own thinking is that a Dell or a Cisco may have a better fit with Sun’s products, channels and even culture.

Some analysts seem to believe that after acquiring Sun, IBM may sell the hardware and license the Solaris business to Fujitsu. This seems too far fetched to me.

Most importantly, Sun doesn’t offer any great networking product or technology — something that IBM needs to counter Cisco’s Unified Computing proposition.

So, I will be surprised if this deal goes through. But in the world of M&A, value perception is entirely different and a lot lies in the eyes of the beholder.

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March 18, 2009

Cisco declares war on IBM and HP

Filed under: Business,Competition — Subbaraman Iyer @ 4:26 pm
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Early this week, Cisco announced a major initiative which has the potential to shake up the overall server, storage markets completely.

Cisco announced a blade server ( Unified Computing system) that combines computing, storage and networking into a single layer all being managed by a specialized software being offered by BMC. It is increasingly becoming clear that virtualization is the primary driver.

This is a game changing play.

First, it puts Cisco directly in competition with their established partners like IBM and HP who have a lot of stake in the server and storage segments. Till now IBM and HP (especially with the EDS acquisition)  held the keys to the data center and now they will face a frontal attack from Cisco. My own view is that Dell may be least affected as they cater to the low end of the server segments. So, Cisco is up against their own partners and this partnership with IBM and HP is at risk.

Clearly Cisco which has not had a legacy in the data centre equipment of services business has created a new value proposition of building an “intelligent and carrier class digital” IT infrastructure. It would be difficult to ignore this value proposition as new data centers emerge.

There is an entirely new market opening up for mega data centers — the ones owned by Google, Amazon, Facebook etc. This market is poised to grow at over 30% over the next 3-5 years as digital data grows and as many companies go through the M&A process. My own estimate is  that one of every 5 servers (medium to high end) sold finds itself in a data center. So, Cisco is clearly addressing a potentially huge market.

But will this new customers accept Cisco’s proposition? Clearly Cisco is trying to own everything in the data center and many data center managers would resist lock in.

Apart from the fact that Cisco would treading into an unknown territory, the dynamics of competition makes the play interesting:

Cisco’s gross margins in the routing/switching market is around 62% while the typical server markets fetch close to 22%. Assuming the bundling (computing, storage and networking) finds acceptance, Cisco’s margins for this business may be around 40%. Hence this may lower the overall profitability. How Cisco manages their margins in this business would be interesting to watch.

HP emboldened by the success of ProCurve is likely to take a more aggressive stance. IBM will have to figure out how to fill the gaps in their product line up.

Both IBM and HP are likely to make a slew of acquisitions and companies like Juniper and Brocade make interesting candidates. Should any of these occur, Cisco might end up acquiring VMWare completely (currently it owns 2%) or might even attempt to acquire EMC to bolster its position.

Now, everyone is waiting for IBM and HP to come up with competing announcements. The battle for the data center is beginning and promises to be long drawn. Cisco would also need to make a lot of investments in getting their partner network ready and some of the Cisco partners also have relationships with IBM and HP.

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