Late last night under the cover of darkness HP put out a blog admitting that it is exiting public cloud as it simply too far behind to ever catch up, and will now bet everything it has on an OpenStack hybrid model. This follows the announcement of the largest acquisition in tech history (Dell EMC). What’s happening here and what (if anything) we can learn (or afford to ignore) from tech trends of the past?
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what we can learn (or afford to ignore) from tech trends of the past
Hypothesis 1: This time … first mover advantage is real
Historically companies in the tech sector have rarely benefitted from first mover advantage. Instead fast followers have normally been able to avoid the mistakes of first movers and capitalise on the potential of the emerging markets that the first movers have created for them. This was true in the past – MS-DOS was not the first operating system and Lotus 1-2-3 was not the first spreadsheet. And it is as true today – Google was not the first search engine. Facebook was not the first social network. Groupon was not the first deal site. And Pandora was not the first music site.
It is arguable however that in public cloud AWS is benefiting from a real first mover advantage. Why is this? Firstly the capital costs and barriers to entry in public cloud are significant. AWS has had to spend about $1 billion each quarter building out its cloud platform. And secondly differentiation is hard to achieve in cloud, meaning that fast followers are struggling to overcome AWS’s scale advantage by offering obviously improved offerings – usually the approach that fast followers make.
Google could have entered the market at the same time as AWS, but chose instead not to re-sell its own capacity until after Amazon had already perfected the model of selling it on a self-service basis, thus ceding first mover advantage entirely to AWS. Microsoft has had to leverage its Office franchise in order to get Azure into a competitive position. IBM was late to respond with its purchase of SoftLayer, albeit nothing like as late as Oracle and others in their response to the cloud threat. Rackspace lacked the ability to maintain a level of investment to match what Amazon sustained for AWS.
Hypothesis 2: This time … it’s not a bubble (yet)
Not only have we just seen the largest acquisition in tech history, but in the last 18 months the number of privately held technology companies in the US worth more than $1bn has risen from 30 to 80 – that’s in just 18 months. What’s happening here?
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As the WSJ reported FBR analyst Daniel Ives, one of the regulars in our Global #CloudInfluence rankings, has called the Dell EMC deal a “major wake-up call to other mature tech stalwarts.” He also adds: “We believe there will be wide-reaching ramifications across the tech space for years to come from this transaction.” Ives predicts that whether or not the Dell EMC deal is deemed a long-term success, it will force the hands of its competitors making them more aggressive on M&A, or “risk losing their seat at this game of high-stakes poker.” The WSJ blog goes on to give Ives’s list of possible deal candidates.
At the same time the jump from 30 to 80 in the number of privately held technology companies in the US worth more than $1bn isn’t a sign that we are suddenly producing a wave of unicorns. It is simply an indication that these firms are delaying the point at which they move to IPO. The market hasn’t been entirely favourable and there is an increased level of investment by corporate investors including Google, Rakuten, Alibaba, Comcast and others that aren’t necessarily looking for the same speed or level of return that VCs need to.
There are more big happenings coming On the heels the $67 billion Dell EMC deal
On the heels the $67 billion Dell EMC deal, Symantec is spinning out Veritas, Western Digital is buying SanDisk for $19 billion, EMC is spinning out Virtustream and HP is selling TippingPoint To Trend Micro For $300M.
If, as Ives predicts, this continues for the next few years with sustained M&A activity, then the buyers will mainly be the traditional tech companies and so-called pure play technology vendors. Being HP, Cisco, IBM, Microsoft and Oracle, the deals should be relatively large – not only are there more potential targets worth more than $1bn, but while smaller deals will continue, larger ones will be needed to deliver the necessary impact in the necessary timeframe.
One particularly pointed article in Wired went further than Ives, describing HP, Cisco, Dell, EMC, IBM and Oracle as the walking dead, saying: “Oh, sure, they’ll shuffle along for some time. They’ll sell some stuff. They’ll make some money. They’ll command some headlines. They may even do some new things. But as tech giants, they’re dead.”
as tech giants, they’re dead.
If Ives’s prediction of a sustained level of M&A activity materialises, it will maintain values (at least in the immediate term), but in its aftermath there will be far few buyers or targets left standing. Once the dust settles the players left in the game will be very different to those of today.
Hypothesis 3: This time … it will pay to be lean, clean and green
In the past firms have at times made a play of being lean, clean or green. In future they will need to be all three.
Lean: In a lower margin era in which differentiation is hard to create or sustain and competition is fierce, the industry simply won’t be able to sustain the number or size of players that it could in the past. Already we are seeing automation change the industry, with a battle just for top talent. We will see a bifurcation between a small number of massively talented employees addressing the most complex challenges, and a commoditised arena where lower skilled staff either find their roles automated or wages undermined. Whether you’re a developer, a marketer or any other member of staff, if you’re not among the top talent in your area of operation then you will be one of the others.
Clean: Following the Snowden revelations, firms in the US were tarnished with an assumption that they were either colluding with the US government or vulnerable to its investigative powers. They have been quick to demonstrate their independence – with Microsoft resisting US government efforts to access data residing in Dublin and with Apple telling a U.S. judge that accessing data stored on a locked iPhone would be “impossible” with devices using its latest operating system. Survival for such firms will depend on having a clean image and a credible level of independence.
Green: Some data centre operators have made a big play of using renewable energy for at least some of their newest or more prominent facilities. While this may be a point of newsworthy differentiation at present, it will soon become not only the norm, but also an absolute necessity.