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I've been remiss in blogging of late, largely due to navigating the rough seas created by Larry Ellison's Oracle. You see, as an owner of an IT solution provider, I've been grappling with sustaining a once thriving and profitable business that's dangerously too-tightly-coupled to Oracle now that it owns Sun Microsystems.
Shame on me for taking Larry & Co. at their word during Oracle's January 27, 2010 unveiling of their new systems strategy post Sun acquisition. This was the Redwood Shores event where they emphatically stated to all the major analysts they would grow Sun to profitability rather than cut it to profitability. And would reinvigorate the Sun brand to prevent further defection of Sun's customer base.
It seems illogical now that someone as pragmatic as I would forget one of Larry Ellison's famously published truisms -- "We can't be successful if we don't lie to customers".
Both customers and partners alike can speak volumes on Oracle's strong-arm tactics and willingness to lie to close a multimillion dollar deal. Yet, as much as the company is universally feared and loathed, the money keeps rolling into the Oracle coffers.
That's because those evil geniuses at Oracle realized more than a decade ago that once a customer is running its core business functions on Oracle software, the cost of exit is extremely high -- so high, that it's nearly impossible to exit from Oracle's stranglehold.
You may not like it, but Oracle proves that it pays to lie!
Being one of the Sun faithful for nearly 20 years, my title for this blog plays off a phrase that's not only near and dear to me, but has a long history at Sun -- "All the Wood Behind One Arrow".
In 1989, CEO Scott McNealy coined the phase when he made a radical decision to consolidate Sun's products on a single processor architecture -- not Intel, not Motorola, but it's own SPARC chip. In fact, Sun even aired a short-lived TV commercial around the esoteric phrase that showed an arrow flying through the air, hitting a bulls eye pinned to a sturdy tree trunk followed by a voice-over of the key phrase.
For over a decade, Sun's scrappy CEO, innovative engineers, and specialized sales force went the distance, hitting their targets, as they defiantly focused on making SPARC/Solaris platforms the "gold standard" for engineering and enterprise IT departments alike. Like Sun's TV commercial, Sun's $200 Billion market cap at the height of the dot.com bubble was short-lived. After the bubble burst, Sun's valuation and market share steadily declined, as the 'cheap' revolution overtook the 'solid gold kit' era on which Sun had bet its entire business.
McNealy's successor, Jonathan Schwartz, invoked the "All the Wood Behind One Arrow" phrase on several occasions during his CEO tenure in hopes of reinvigorating Sun's fortunes, first as a software company (SunONE), and two years later, as a systems company (Sun + StorageTek). We know how that turned out.
So in 2010, with Sun now under the stewardship of Oracle, we know the Sun and Java brands, as well as the many engineering innovations will live on. But it's a good bet you won't hear Larry Ellison invoke any of the McNealy mantras, circa 1989 - 2000. After all, Larry has made it clear he wants to model Oracle + Sun after T.J. Watson Jr.'s IBM of the 1960's. This is the future "gold standard" Larry envisions.
Since I'm too young to remember the IBM of the 1960's, I'll poignantly think of the Oracle + Sun strategy as "All the Wood Behind Application to Disk".
On the heals of what appeared to be a "green light" Monday from the EU bureaucrats on it's $7.4 billion acquisition of Sun Microsystems, Oracle reported better-than-expected second quarter sales and profit Thursday.
According to a Jeffries & Co. analyst, there appears to be a recovering market for corporate software and the second quarter for Oracle was a turning point that signals enterprise spending on software is really starting to improve.
As a one-time employee and continued supporter of Sun Microsystems, a company among the leading technology innovators in the business, I hope this week's news is a good omen for Sun. If Ellison is correct in his September statement that Sun has been losing $100 million a month, employees, shareholders and customers alike will be well served under an Oracle change in control early next year.
As Reuters first reported last Friday, VMware, Cisco and EMC officially announced a special coalition on Tuesday under a new VCE moniker "Virtual Computing Environment".
The new VCE comprises four key components: pre-configured and tested product bundles called Vblocks; a joint direct sales and support organization headed by its own yet-to-be hired CEO; a new joint system integrator ecosystem, and a joint venture services and integration company called Acadia that counts Cisco, EMC, VMware, and Intel as investors.
This coalition is the lastest example of an increasing trend toward consolidation and vertical integration among the large enterprise IT vendors; however, what is unprecedented, is the degree to which it not only excludes, but flat out snubs all three of the VCE's existing OEM partners. Clearly, VMware is taking the biggest risk since HP alone sells 36% of all virtualized servers worldwide.
Furthermore, it's a mystery why BMC Software, a strategic partner and participant in Cisco's major UCS announcement last March, was snubbed. Perhaps it was so EMC CEO, Joe Tucci, could boast about his company's new management stack called Ionix during Tuesday's announcement. Or perhaps it was BMC Software that wouldn't join the "Coalition of the Willing", at the expense of alienating some of it's most strategic and profitable partnerships in Dell, Deloitte, IBM, Microsoft, Oracle, SAP, and Sun Microsystems.
I suspect customers will be taking a "wait and see" stance to this announcement. But judging by the public statements from Dell and NetApp, and HP's converged infrastructure architecture and products announcement today, most of the large IT vendors are viewing the VCE coalition in the context of an all out war.
Since August, rumors have been swirling around the VCE (VMware, Cisco, EMC) alliance companies that a data center joint venture (code named Alpine) was imminent. Fast forward to October 30th when Reuters reported that VCE was preparing to announce a new line of networking, computing, and storage products dubbed "vBlock" to better compete against IBM and HP.
Although officials from all three companies have declined comments, several industry trades have reported the rumor appears a good bet and that it will likely be announced ahead of Cisco's Q1FY2010 financial results due after market close on Wednesday.
The joint venture would allow the companies to appear as one from a customer perspective, but be backed by the credibility and balance sheets of Cisco and EMC. It remains to be seen whether the three separate companies can pull off a neutral position with their existing technology, OEM, and channel partners. Judging by the recent announcements from Dell and IBM partnering with Juniper Networks, the bigger, more strategic partners will increasingly hedge their bets by establishing partnerships with VMware, Cisco, and EMC competitors.
It's interesting that two of the most acquisitive companies in the industry would do a joint venture rather than a traditional merger. But with Cisco's $133 billion market capitalization, and EMC and VMware's combined $49 billion valuation, neither can easily afford to buy the other; however, they can ill-afford to allienate their existing >10% revenue partners either.
Both Sun Microsystems Chairman and co-founder Scott McNealy and Oracle CEO and founder Larry Ellison took the stage to deliver keynotes that kicked off Oracle OpenWorld last night.
In keeping with the industry's fascination with stacks, McNealy made the case for why Oracle is keen on Sun's technology. According to McNealy in his keynote address,
"If you think about the Sun technology that we're bringing to the party here, it's the data center. It's the servers, the storage, the networking, the infrastructure software, all the pieces, all of the executable environment within the cloud, the data center, the distributed computing environment, whatever else you want to say, and then you bring in the database, and the applications and ERP and middleware capabilities and developer tool capabilities of Oracle, and you have a very nice data center. A very robust, very scalable... enterprise data center."
Like the other big players in the enterprise IT market, IBM, HP, and Cisco (via its VCE alliance), Sun-Oracle recognizes the power of owning all the pieces of the end-to-end stack. There are clear advantages in a company being able to offer its customers fully integrated cross-domain bundles and be a one-stop shop to the enterprise data center. One of the biggest advantages is having a sticky reason for customers to want and value you that's not based on price.
Clearly, the major vendors are seeing a shift among enterprise customers toward a focus on higher level application value and services rather than a focus on specific technologies and products at the bits and bytes level. This shift is partly due to the economic downturn and the pressure on IT to cut costs and add tangible value to the business.
When it comes to the single integrated stack concept, analysts say they've seen this movie before. Back in the dotcom era, a lot of industry pundits talked about the "God box" in the networking space. It was basically a big, intelligent network switch that functioned as a router, switch, PBX, VPN, and firewall integrated within a single device. In the end, no customers wanted to go there. For the networking vendors, it was sufficient to articulate the vision as part of their corporate strategy, and have the majority of the individual components within their product portfolio.
Time will tell whether the integrated stack concept is a remake of this movie. For now, we're watching industry consolidation in action and having a fascination with stacks.
Shares of Brocade Communications jumped nearly 19% today due to a report in the Wall Street Journal the company has put itself up for sale. Based on today's closing price, Brocade has a market capitalization of $3.8 Billion, which is a relatively low multiple for a company that holds a strong market position in the data center LAN and SAN switching segments to ride the next wave in the transition to a converged network.
Not surprisingly, the WSJ report included speculation on the potential buyers, siting HP and Oracle as the most likely suitors. IMHO, Oracle is a very unlikely suitor given it's preoccupation with the Sun Microsystems acquisition, and the unlikelihood Larry Ellison wants to own a LAN and SAN hardware business.
HP, however, could gain a lot from the acquisition of Brocade's business, particularly in light of its heightened competition and bitter rivalry with Cisco Systems since the networking behemoth entered the market for blade servers this Spring. Let's take a closer look at the various dynamics at work that make an HP-Brocade marriage a good bet:
- With the trend toward IT industry consolidation heating up, many of the large, enterprise IT vendors are finding it cheaper and less risky to buy and control their own destiny than build R&D and/or forge partnerships with companies that might one day be their fiercest competitor... Precisely what happened to HP when it once enjoyed being a 10% customer for Cisco as a reseller of its switches and routers, only to later become its biggest target in the server market.
- There is a large push towards a converged IT infrastructure to deliver more agility and less complexity to IT operations. The converged network (aka Unified Fabric) is a big piece of this vision, bringing together IP, Ethernet, Fibre Channel, CNAs and switch ports. When it comes to networking, Cisco is in a position of strength, both in market share and driving the standards bodies. The only other networking and storage interconnect company with great technology and the FC installed base to compete with Cisco is Brocade.
- Although HP has recently beefed up its networking business with its own ProCurve line of Ethernet switches, it's rarely deployed in the core of the network, and to date, HP has yet to articulate a comprehensive roadmap or a compelling story around FCoE or DCB to its enterprise customers who are keenly interested in hearing about its converged network vision.
- HP ProCurve could be repositioned for the access and aggregation layers of the network while Brocade's Foundry Ethernet/IP switches could be positioned in the core along with its FC Directors and FCoE convergence products so there would be very little product overlap and the merged technologies would be a genuine challenger to Cisco.
One of the potential areas of concern would be around the impact to Brocade's OEM business should HP acquire Brocade. Reportedly, IBM is a 15%-20% revenue customer for Brocade and EMC is a 10% customer. Worst case scenario, it could mean a 25 -30% hit to revenue if the IBM and EMC OEM business went away entirely. Perhaps EMC could funnel all its FC switching business to Cisco in retaliation, but that would be unlikely given Brocade's FC installed base. As for IBM, they have multiple reseller agreements, including Brocade, Cisco, and Juniper, and they are currently supporting Juniper's development of an FCoE switch, so a change in control with respect to Brocade probably wouldn't make much of a difference.
In summary, I think HP and Brocade would be a terrific match. It would be great for the two companies as well as the industry, and it would certainly give Cisco a force to be reconned with in its quest for domination of the data center.
