This week’s announcement of Oracle’s (NYSE: ORCL) acquisition of Virtual Iron caused a bit of a stir. Oracle’s press release is a bit vague and financial terms were not disclosed:
The acquisition acknowledges an architectural shift toward a collapsed stack. Today’s stack includes layers for applications, platforms and infrastructure. A future stack would eliminate the middle layer. Platform components move into the application and infrastructure layers. Applications become more “infrastructure aware”. Infrastructure becomes more accessible to applications. The traditional abstraction layer goes away.
What significance does this have on strategy? This is important for a number of reasons. First, it signals a maturity of the model and readiness to evolve to the next version. Second, it provides a streamlined model for developers to model against. Third (and related to #2), a collapsed stack affords tighter integration between the other two layers. All three of these reasons allow a faster development cycle through streamlined operations.
Moving forward, we should expect to see more consolidation of the platform providers by the larger software and infrastructure players. VMware (NYSE: VMW) is noted as a likely target. However, with a market cap of $10.58B, it becomes harder to swallow. Companies like Rackspace (NYSE: RAX), with a market cap of 1.1B could be a target. Larger organizations such as IBM (NYSE: IBM) or HP (NYSE: HPQ) could acquire a good infrastructure player. Larger software companies such as Microsoft (NASDAQ: MSFT) and Oracle become good candidates to acquire the software end of the spectrum.
With markets down, expect to see an increase in consolidation over the next 6-12 months. For consumers of these services, it becomes even more critical to understand the potential business opportunities. Provider evaluations will continue and you should hedge your bets on the services they provide.