Originally posted @ Gigaom Research 10/13/2014
One thing is for sure, we can expect to see much more of cloud consolidation and disruption happening in the IT space over the coming months and years. Recently, Cisco, EMC, HP and IBM have all acquired startups from the cloud space. And each of these acquisitions was disruptive in their own way.
Cloud, in theory, should not be that disruptive. However, the essence of cloud actually presents a compelling disruptive story that is intoxicating to those whom fully understand the potential. That being said, enterprise IT organizations will leverage a combination of traditional IT services and cloud-based solutions.
Not surprisingly, the recent cloud acquisitions sit closest to the current state of the traditional enterprise. Key to this strategy is to 1) expand the portfolio by offering new solutions and 2) evolve the enterprise (and provider) toward a cloud-based strategy.
For those keeping score, Cisco acquired Metacloud. EMC acquired Cloudscaling. HP acquired Eucalyptus. And IBM acquired SoftLayer. Based on the momentum, one could look toward IBM to make the next move. On the other side, with Cisco, EMC and HP going after private cloud solutions, there is a position to take that it is these three to watch. An additional factor to consider is that a startup may have a great solution, but not enough runway (money) to keep them afloat until the market is ready to adopt. Watch for more of these situations, as the overall IT market takes longer to adopt disruptive solutions such as cloud-based solutions.
Shifting the incumbents
Regardless of who moves first, second, third or fourth, the act of acquiring cloud-based solutions will create a shift in the provider’s overall strategy. For the enterprise CIO, one key to watch will be momentum among the cloud startups. Which solutions are up-and-coming and getting quite a bit of attention by early adopters? Two that come to mind are Docker and OpenStack. If OpenStack were a company, this would be the one to watch. In any case, enterprise IT organizations need to keep close watch of this area.
As enterprise IT organizations shift from traditional IT infrastructure to converged infrastructure and onward to cloud-based solutions, the incumbent provider must have an answer to the shift. Let it be noted that the incumbent need not provide all parts of the solution. This is where the ecosystem comes in to create value and fill the gaps in the strategy.
Many ask why the incumbents do not innovate internally and build out their portfolio like they have in past years. With a vibrant industry of up-and-coming potential solutions, there are easier paths to success. Why take the risk and invest significant funding into a number of different strategies only to have one pay off? Instead, watch the space and acquire the right solution that has a proven technology and fits the model well. The key is finding the point when the solution is proven, but not so successful that it demands paying a premium.
For the CIO, this means keeping close tabs on how the cloud space is evolving regardless of the stage of adoption they are at. Cloud solutions impact organization, services, and processes in addition to technology.
Divesting leads to Consolidation
The big breakups of 2014 are leading to further cloud consolidation. Many of the large IT providers have simply gotten too big and too diversified. Divesting is essentially a healthy way to trim their portfolio and refocus the company in leading areas within their industry. Divesting also opens the door to an interesting side effect of acquisition opportunities.
Intersection of cloud consolidation and disruption
Each of the acquisition targets is disruptive in their own right. The market as a whole is also very fragmented with solutions solving a similar problem, but in very different ways. And each company does one thing and one thing very well. The opportunity to explode the solution comes with building out the ecosystem. For the startup, what better way than to sell to a larger organization that has several of the building blocks already integrated and productized. Plus, the alternative of heading toward IPO is just not as appetizing of an equity event as it used to be.