THINK IT Services

Dimension Data’s acquisition of OpSource marks the end of an era and illustrates how the Cloud Computing competitive landscape is expanding to encompass every type of tech vendor and service provider.

Although it is only a fraction of the size and has only a fraction of the brand equity of Salesforce.com, OpSource has had a disproportionate impact on the growth of the Software-as-a-Service (SaaS) market and broader Cloud movement.

The company’s CEO, Treb Ryan, has been a tireless evangelist for the business value of SaaS and now the Cloud. He and his staff have invested heavily in educating and facilitating the industry’s growth through an endless stream of webcasts and whitepapers, and founding the industry’s most important annual gathering, the SaaS Summit, now known as “All About the Cloud” and managed by the SIIA.

Rather than simply offer a set of hosting services, OpSource put together the first federated SaaS enablement model and associated ecosystem to help established independent software vendors (ISVs) and start-ups migrate to a SaaS delivery capability. It also acquired one of the pioneers in the SaaS billing and provisioning business, LeCayla Systems.

Despite all of its work to promote SaaS, the company struggled to make a living in this segment of the market because there is only a finite number of aspiring SaaS vendors that could appreciate and afford its services. It was given new life when it broadened its attention on the infinite opportunities in the rapidly expanding Cloud Computing market. It also won a strategic investment and established an alliance with NTT which appeared to have the inside track for an eventual acquisition.

It has long been speculated that Opsource was an acquisitioin candidate for larger service providers, including Verizon and AT&T. IBM, HP and Dell were also considered potential acquirers. This speculation gained even greater intensity with the recent acquisitions of Terremark, Savvis, NaviSite and other Cloud/hosting companies.

Dimension Data is a global value-added reseller and services company that probably wasn’t on many people’s radar screen as a potential acquirer. It has ascended from the price sensitive hardware sales business by offering a widening array of managed services. It recognizes that it now must extend those services to the Cloud level. It will be interesting to see how far and fast OpSource will move them in this direction.

OpSource will retain its brand and become the centerpiece of Dimension Data’s broader Cloud portfolio of products and services. Retaining OpSource’s executive team will be essential to optimizing its value because few companies are as dependent on the brand equity of their executives as OpSource.

However, OpSource also began promoting its ’secret sauce’ recently. It is a Cloud orchestration software suite which accelerates the deployment of Cloud services by traditional service providers and relative start-ups. This solution was recently at the heart of a new alliance with VCE, the joint venture of VMware, Cisco Systems and EMC.

Dimension Data is a key reseller of VCE solutions and integrator of VMware, Cisco and EMC products. So, it will probably try to leverage OpSource’s Cloud enablement functionality to not only support its own Cloud services, but as an additional asset to support its service provider customers.

Regardless of OpSource’s future direction, everyone in the SaaS and Cloud Computing industry owes Treb Ryan and his team considerable thanks for their significant work in building this exciting and rewarding marketplace. Knowing how hard surviving this type of acquisition can be, I wish them well and am hoping for the best from this transaction.

Mark Hurd’s sudden resignation as HP’s CEO has opened a floodgate of speculation regarding who the company will select to succeed him.

Because his departure wasn’t anticipated, there are no clear-cut internal candidates. And, because Hurd himself was a surprise selection for the post in 2006, it is possible that another little-known industry executive may be tapped again for the position this time around.

So, this creates a wonderful opportunity for anyone with a passing interest in HP’s future, and the future of the technology industry as a whole, to throw a few names in the hat.

The HP CEO position is particularly intriguing in part because it has grown to become the largest IT vendor in the industry through a series of acquisitions of Compaq, EDS and others. More importantly, HP like the rest of the IT industry is at a pivotal crossroads brought on by the disruptive forces surrounding cloud computing, globalization, the consumerization of IT, mobility and the economy.

As a consequence, HP and every other established technology (and software) company has to re-think their corporate strategies, redesign their products and services, and restructure their go-to-market tactics.

For HP, this means realigning its hardware, software and service capabilities to more effectively leverage the ‘cloud’ so it can more effectively responding to customers’ rapidly changing requirements and expectations, and compete in an increasingly competitive marketplace.

I was first prompted to think about potential HP CEO candidates immediately after Hurd’s resignation when I was asked by a top-flight headhunter for my quick suggestions and came up with the following names off the top of my head:

• Joe Tucci, EMC’s CEO who has transformed the company from a hardware-centric to a software-driven business model and pulled off a similar feat at Wang Computer where he moved the company from hardware to services. EMC and HP’s corporate capabilities and challenges have many similarities.
• John Chambers, Cisco Systems’ CEO who has successfully transformed the company from a corporate network infrastructure vendor into a multidimensional technology supplier to everyone from major service providers to small office/home office (SOHO) workers. Under Chambers’ leadership, Cisco has withstood every economic and competitive challenge, and is now moving into the data center where HP has made much of its living.
• Marc Benioff, Salesforce.com’s CEO who has transformed the software industry by leading the Software-as-a-Service (SaaS) charge and evangelizing about the added business benefits of moving to a broader array of cloud computing alternatives. If Salesforce.com isn’t going to be acquired by Oracle and Benioff made CEO under Larry Ellison, he would be a great candidate to push HP’s legacy software business into the new world of SaaS and its hardware business into the cloud.
• Steve Mills, IBM’s Software Czar, who has used an aggressive acquisition strategy to recast the company into a powerful middleware vendor within a similar set of hardware, software and service businesses which HP possesses. As a result of his success with the software division, Mills was recently given responsibility for managing IBM’s IBM hardware, storage, and operating systems businesses. But, Mills is also facing a mandatory retirement barrier to further advancement and could put his experience to good use at HP.

My friends, Chris Hoffmann and Scott Donahue at TripleTree, where I am a senior advisor, suggested that we put our heads together to broaden the candidate list. Here’s what we came up with:

• Michael Capellas- He has successfully stepped into even tougher situations at Compaq (now part of HP) and MCI/Worldcom, and is well respected in the tech industry and beyond.
• Bill Campbell - Current Intuit Chairman and former CEO, but more importantly he has been a key advisor at Google and Apple, and is also very well respected in the tech industry.
• Kevin Johnson- Former rising star at Microsoft now running Juniper Networks who understands HP’s products and channels.
• Anne Livermore- Runs HP’s Enterprise unit which brings together its hardware, software and services businesses. He’s been passed over many times but might be the safest best as an inside pick.
• John Thompson- Former CEO, and current Chairman of Symantec, recognized the importance of moving to SaaS but couldn’t overcome channel resistance.
• Meg Whitman - If the Governor thing fizzles…she’s a proven, capable leader who will be looking to prove herself again.
• Ray Lane- Ran Oracle as President, then became an early proponent of the virtues of SaaS as a top-tier VC.
• Charles Philips- Has been driving Oracle’s acquisition strategy and runnng a major portion of its operations. He’s just beginning to learn about the hardware business as a result of the Sun acquisition, but he’s a quick study and forward-minded.
• Jon Rubinstein - Ex-Palm, Ex-Apple…might be too much of an engineer but interesting match for HP. Understand mobility which is where the world is heading, and can help HP fully exploit its Palm acquisition.
• Ed Whitacre- Just announced his resignation from GM where he quicklygot the behemoth back on track with no prior industry experience. Before that, he also pulled together SBC and AT&T, and could bring HP’s far-reaching assets together. He’s in his early 60’s, so it might be a stretch to see him as a long-term CEO at HP. However, he could bring stability until HP cultivates a new leader for the longhaul.   
• Diane Greene- Former CEO of VMware revolutionized IT with virtualization, a key component in HP’s future. Might be too techie, but certainly understands the opportunities and challenges.
• Shantanu Narayen - Well respected, but not well known CEO of Adobe which is a key player in the web development world which is driving cloud services.
• Vivek Paul- CEO of Wipro, known as a visionary in outsourcing, now in private equity, with the global experience which will be essential going forward.

If these industry stalwarts seem too mundane, here are a few frivolous ideas to think about for fun:

• Brett Favre – nominated by my Minneapolis-based friends at TripleTree who worship the indecisive quarterback as a brilliant turnaround artist.
• Joe Montana – my football oriented alternative because of better winning record and Bay Area roots.
• Simon Cowell – he is a tough-minded task-master with time on his hands since he left American Idol.
• Oprah Winfrey – knows how to build businesses and a worldwide following, and might be willing to put aside her upcoming year of long goodbyes as she departs her syndicated talk show.
• Tony Blair- the consummate negotiator who would be a perfect candidate to address the myriad of channel issues which will arise if HP adopts an aggressive SaaS/cloud computing strategy.

As you can see, Mark Hurd’s resignation has given us a great way to while away the dog-days of August with various ideas. I hope this gives you plenty of food for thought for the weekend and welcome your suggestions as well.

Yesterday, Verizon Business introduced an on-demand, “cloud-based” Computing-as-a-Service (CaaS) solution that will be an important indicator of whether telcos can succeed in the cloud.

Anyone who has followed my writings knows that my roots are in the telecom industry, having helped to launch IDC’s Communications Industry Research program in 1983 at the time of the AT&T divestiture.

I’ve watched the telecommunications giants make many failed efforts to penetrate the data center. In the late 1980s and early 1990s, they tried their hand at systems integration and IT outsourcing.  In the late 1990s, they aggressively provisioned fiber optic cables and built out showcase network operations centers (NOCs) to exploit the Internet explosion and capitalize on the over-hyped demand for managed services which never fully materialized.

After the telecom industry shakeout at the beginning of this decade, the telcos bought their way into the Application Service Provider (ASP) market. Verizon acquired Digex and Totality via MCI, and AT&T picked up USinternetworking. These acquisitions have produced limited success because the telcos still couldn’t convince their prospective customers that they fully understood their data center and application support needs.

Now, the telcos are trying to redirect their assets and energies to capitalize on growing customer interest in cloud computing. AT&T announced its cloud computing capabilities, called AT&T Synaptic Hosting, in August 2008. At the time, AT&T described Synatic Hosting as a “next-generation utility computing service with managed networking, security and storage for businesses.” Last month, AT&T rolled out a Storage-as-a-Service ‘cloud’ solution.

Verizon Business’ CaaS announcement is noteworthy because the company has pulled together a number of its corporate assets to address prospective customers’ varying cloud computing preferences. In addition to its data center and application management resources from the Digex/Totality units, Verizon Business has also included its professional services teams who will provide front-end consulting and project management skills during the CaaS deployment process. It has also added the Cybertrust Security Management Program to alleviate customer concerns about security and privacy.

In addition, Verizon Business has spent more than two years architecting and implementing a ‘next-generation’ data center to support its CaaS offering powered by an assortment of leading technology providers including HP, VMware and Red Hat.

The net result is that Verizon Business has built a cloud computing engine which isn’t aimed at dislodging Amazon EC2 as a low-cost alternative. Instead, it is a more holistic set of services aimed at addressing the varying needs of a wide array of enterprise and mid-sized organizations who would prefer to rely on a service provider they know and trust.

Verizon Business must now deliver on its promises in a cost-effective fashion and hope there is a sufficient number of enterprise and mid-sized organizations who are comfortable turning to a telco to meet their cloud computing needs.

A friend at AT&T, Joe Weinman, continues to pump out thoughtful blog posts regarding the rapid evolution of the cloud computing industry. His latest post on GigaOm entitled, “6 Half-Truths About the Cloud”, includes a link to a previous post which offers “10 Reasons Why Telcos Will Dominate Enterprise Cloud Computing “.

I was drawn to his previous post because Joe added a link in today’s post for his definition of “CLOUD” – Common, Location-independent, Online Utility provisioned on-Demand.

But, I was also compelled to respond to Joe’s suggestion that the telcos are in the best position to capitalize on the growing demand among enterprises for cloud computing services.

I was originally attracted to the technology industry in 1982 not because I was a geeky engineer but because I was a MBA student looking for a hot new market opportunity and saw the impending divestiture of AT&T as my opportunity.  I joined IDC in 1983 to help launch its communications research program to track the transformation the telecommunications industry in particular, and the technology industry as a whole.

The AT&T divestiture produced a new generation of Regional Bell Operating Companies (RBOCs) promising a new era of competition and innovation. Over the subsequent years, they made numerous efforts to expand beyond communications into the data center with a variety of computer hardware sales and systems integration services initiatives with limited success.

Twenty years of infighting led to a new round of consolidation which has left only two major U.S. telecom giants still standing–AT&T and Verizon–along with Qwest and a wide array of seconday players. AT&T, Verizon and Qwest have succeeded in becoming important hosting companies, but they are by no means leading the market from a thought-leadership or innovation standpoint. Instead, they are delivering dependable ‘dialtone’ for companies seeking simple, straightforward hosting services.

While there is nothing wrong with delivering reliable services, in today’s rapidly evolving cloud computing environment reliability is quickly becoming table-stakes as businesses of all sizes seek cloud computing services which can give them greater agility, better economies and added functionality to reduce their operating costs and strengthen their competitive positions. These are not attributes which people associate with telcos.

In the past, we could attribute the failure of telcos to penetrate the data center as an outgrowth of the internal feuds between voice and data communications engineers within most mid- and large-scale organizations. Those internal battles have subsided as many organizations consolidated their inhouse staffs. But, the telcos continue to sell ‘dialtone’ and have been unable to demonstrate any real value-add in the data center.

In fact, even responding to new ideas and business models in their core communications business continues to be a struggle for the telcos. They watched landline revenues dry up as wireless services exploded. They watched traditional transport services give way to Internet services. Now, Skype is the largest international long-distance carrier.

Telcos are still struggling to figure out managed services, which have been around for over a decade, as a new wave of Software-as-a-Service (SaaS) and cloud computing services become mainstream.

I contributed a series of commentaries to the Web Hosting Industry Review (WHIR) from 2004-2007 that discussed the tremendous potential of the telcos in the hosting, SaaS and utility (now, ‘cloud’) computing arena which have yet to be fully realized.

Of course, telcos are not alone in their struggles with today’s disruptive technologies and rapidly changing customer preferences. Today’s issue of the Boston Globe includes a fascinating story about its own myopia which led to it missing a perfect opportunity over a decade ago to acquire a major share of Monster.com, which eventually became one of the major catalysts of the current decline of the newspaper industry.

As my friend Joe Weinman correctly states, the telcos are in a perfect position to dominate the enterprise cloud computing market. They have the technical resources, channels to market and brand equity. But, can they overcome their history, culture and other internal barriers to success?