THINK IT Services

A year ago, I published a series of 10 predictions regarding how the Cloud Computing marketplace would evolve in 2011 in E-Commerce Times. Here’s a recap and assessment of my predictions:

1. The Cloud Computing market will grow more rapidly than analyst firms forecast as organizations move from asking “what is Cloud and why is it important” to “where and how can I capitalize on the Cloud today.”
   • I think I did ok on this one, although there remain plenty of organizations who are still trying to define the Cloud and determine why they should seriously consider employing it.
2. This accelerated growth will occur despite a major cloud computing service disruptions and/or significant security infractions, which will heighten customer concerns but won’t discourage wider adoption.
   • This certainly was the case as we watched Amazon’s Web Services (AWS) crash, jeopardizing numerous start-ups and other companies dependent on its Cloud capabilities, yet failing to dissuade more businesses of all sizes to adopt AWS and other Cloud services.
3. A wider array of appliances and applets will be offered by a growing number of Cloud vendors, which will permit users to “download” the functionality they need so they can work offline or deploy cloud-based solutions behind the firewall to satisfy their reliability and security concerns.
   • This wasn’t as prominent a trend as I expected. However, salesforce.com did acquire Navajo Systems, an Israeli-based startup with unique encryption capabilities that are the basis of salesforce.com’s new Data Residency Option (DRO) that permits users to retain control of their data behind their firewall, which could exponentially expand the addressable market for Cloud vendors.
4. Community clouds aimed at specific vertical markets and supply chain relationships will become more prevalent, as various organizations recognize the value of sharing cloud resources and services with their peers.
   • Although the number of community clouds grew in 2011, they didn’t proliferate as much as I expected as most organizations focused their attention on more binary public vs. private cloud alternatives. 
5. Corporate decision-makers will shift their focus from reliability, security and integration concerns to strategic and tactical governance issues, ranging from planning, selection, deployment, monitoring and evaluation to optimization and monetization of cloud initiatives.
   • This trend was more subtle because most corporate decision-makers continue to have serious reliability, security and integration concerns about the cloud, but are also developing corporate policies and procedures to govern their planning, selection, deployment, monitoring and evaluation processes.
6. The rate of cloud company failures and M&A activities will escalate as many startups are unable to keep pace with rising customer expectations and intensifying competitive pressures, and established players attempt to accelerate their development efforts via acquisitions.
   • The magnitude of the Cloud movement permitted the vast majority of startups and established players to prosper. M&A activity has escalated as the year has gone along, capped off with SAP’s acquisition of SuccessFactors, Oracle’s purchase of RightNow and salesforce.com’s recent Rypple buy.
7. Vendors that provide cloud integration tools and professional services, in particular, will be key acquisition targets because they represent a critical component in pulling the various cloud piece-parts together. The acquisitions of Cast Iron Systems and Boomi are just the beginning on the tools side. Consolidation among cloud integration service firms will occur in the coming year.
   • A series of acquisitions by Appirio were the clearest example of this trend on the professional services side of the integration world. But, the number of Cloud integration and consulting companies continues to increase in response to growing demand. The lack of integration tool vendor acquisitions was a bit of a surprise.
8. Social networking will become a required component of enterprise applications, driven by the success of Salesforce.com’s Chatter. By offering Chatter free to a broader population of end-users within its existing accounts, Salesforce.com is not only raising the bar for its direct competitors, but also expanding and redefining its role within the enterprise.
   • Salesforce.com’s intensive marketing campaign promoting the virtues of the ‘Social Enterprise’ have brought broader attention to this idea. It has not only forced other Cloud vendors and established players to promote their social networking capabilities, it helped fuel Jive’s IPO.
9. Datamarts will become a cornerstone of a new generation of cloud-based Data-as-a-Service (DaaS) and Business Process as a Service (BPaaS) solutions, as well as industry benchmark services.
   • Salesforce.com rebranded Jigsaw as Data.com and unveiled Database.com, but examples of BPaaS didn’t get as much attention because they are taking shape within specific vertical markets.
10. New channel programs will be introduced, new channel partners will emerge and new revenue streams will be established. Ironically, the leading cloud vendors — such as Amazon, Google and Salesforce.com — will continue to have the toughest time building successful channel programs because of their direct sales heritage.
    • The success of THINKstrategies’ first Cloud Channel Summit is an indication of the level of interest in building successful partnerships in the Cloud. Although, channel executives from Amazon, Google and Salesforce.com were prominent speakers at this event who have made significant progress with their channel development programs, they all readily admit they are still searching for the right formula for success.

For years, a variety of industry analysts and bloggers have suggested that SAP jumpstart its Software-as-a-Service (SaaS) and broader Cloud initiatives with a major acquisition, such as SuccessFactors. Today’s news that SAP will buy SuccessFactors for $3.4 billion shows that the company’s executives have finally admitted that they can no longer rely on internal development and organic sales efforts to gain a meaningful share of the rapidly growing SaaS/Cloud marketplace.

I can’t say that I’ve been among those advocating this type of bold move because I’ve been a part of a similar acquisition which failed to achieve its strategic objective, and I’m not convinced that SAP will be able to transform its business through this transaction.

Back in 1999, I worked for a fast-growing network professional services company, called International Network Services (INS), which was acquired by Lucent Technologies for $3.7 billion, or 12x revenues! Lucent’s goal was to transform the telco equipment vendor into a multidimensional services provider, like IBM’s Global Services unit. INS’ leaders were given responsibility to run Lucent’s services business in hopes they could reinvigorate the unit and gain market leadership. Despite all the grandiose promises made at the time of the acquisition announcement, deeply rooted corporate politics and a corporate culture which discouraged innovation within Lucent conspired to bury INS’ strengths. As a result, the acquisition couldn’t help Lucent avoid an inevitable death spiral which it never recovered from, and the INS unit was divested three years later for a penny on the dollar.

Today’s announcement states that SuccessFactors’ CEO and Founder Lars Dalgaard will assume responsibility of SAP’s SaaS and Cloud business, and SuccessFactors will continue to operate as an independent business unit. While both these moves are the right way to go for SAP, my guess is that a year from now the luster will be off the rose and many of SuccessFactors’ key executives and employees will be gone when their payouts are fulfilled or the SAP’s politics have driven them out to find new opportunities elsewhere.

This is not an indictment of SAP in particular, but a law of nature in general. There have been few corporate transformations in any industry, especially in the tech sector, fueled by bold acquisitions. Young, aggressive companies don’t fit well into old, entrenched companies. Executive and employee motives, and corporate policies and politics differ too severely to mix well. For example, you can bet many of the key personal at RightNow will also disappear from Oracle a year from now as many of their predecessors have done after past Oracle acquisitions.

I hope I’m wrong. SuccessFactors (and RightNow) has been an important force in the SaaS movement. I know plenty of people within SAP who sincerely want to deliver competitive SaaS/Cloud solutions to satisfy their customers’ changing needs and escalating demands. But, SAP’s leadership and legacy software, operating systems and salary structures will need to be significantly realigned to successfully absorb SuccessFactors and make it a real catalyst for change that will make SAP a market leader in the SaaS/Cloud marketplace.

It will take more than a bold-stroke acquisition to put SAP on a fast-path to success. It will require changing the deeply embedded dynamics which have stood in the way of the company fully accepting the reality of SaaS and magnitude of the Cloud. It will take a long-term and broadbased effort to make SAP a leader in the new world order.

The good news is that the SaaS/Cloud movement is just starting to gain broad-based acceptance and SAP has time to take advantage of the market momentum. But, any indication that the company isn’t truly committed to delivering competitive offerings will drive more current and prospective customers to its SaaS/Cloud-centric competitors, such as Workday.

The recent flurry of major vendor announcements regarding their new Cloud Computing initiatives, latest acquisitions and offerings clearly shows that the “Cloud Rush” is in high gear.

Here’s a quick list of the announcements which have caught my attention over the past few weeks in chronological order since HP unveiled its Cloud ‘vision’ last month, and my views regarding their significance,

• Cisco Announces Intent to Acquire newScale, 03/29/11  – Cisco Systems has been pushing into the ‘new data center’ environment for a while with its Unified Computing solutions. It acquired newScale to improve its provisioning capabilities to make it a more viable Cloud vendor for enterprise customers and service provider partners.
• Salesforce.com to Acquire Radian6, 03/30/11  - Now that Salesforce.com has succeeded in popularizing its Chatter social networking capabilities, it wants to give its customers the necessary tools to monitor, manage and measure the effectiveness of these new features.
• Intuit, Salesforce.com Announce Strategic Alliance, 04/01/11  -  Despite its investment in FinancialForce.com and support of numerous integration tools vendors that link salesforce.com’s CRM solution with QuickBooks, salesforce.com is seeking to strengthen its position in the SMB/SME market by building a closer working relationship with Intuit which is also working with Microsoft. Intuit is also trying to reinforce its position within the SaaS/Cloud ecosystem.
• SugarCRM Acquires iExtensions, the Market-Leading CRM for Lotus Notes, 04/05/11  – SugarCRM’s growth is further proof of the growing acceptance of Open Source solutions in the market. Its acquisition of iExtensions strengthens its ties with Lotus Notes which is a pivotal part of IBM’s SaaS/Cloud efforts. And, its growing relationship with IBM illustrates how SugarCRM hopes will gain an even greater foothold in mainstream businesses. Don’t be surprised if this alliance evolves into an acquisition in the months to come.
• SITA Launches Dedicated Air Transport Industry (ATI) Cloud, 04/06/11  – I’ve been saying for the past year that the SaaS/Cloud market is entering a third stage in its evolution, moving from broadly focused horizontal business and IT management apps to a new generation of industry-specific SaaS/Cloud solutions. This new stage is a clear indication that the SaaS/Cloud movement is gaining acceptance across nearly every industry and is now viewed as an important mechanism for reengineering the fundamental business processes within various sectors. SITA has been supporting the operating needs of the airline industry since 1949, and is among the latest industry-specific providers to launch a strategic initiative aimed at Cloud Computing.
• IBM Joins Forces With Over 45 Organizations to Launch Cloud Standards Customer Council for Open Cloud Computing, 04/07/11  - IBM has been aggressively pursuing Cloud opportunities since the concept first gained attention. It made an initial effort to spearhead the Cloud standards process which caused a lot of controversy because many people were suscipious of IBM’s motives at the time. Today’s announcement will generate a more positive response because it is supported by an impressive cross-section of enterprise organizations and Cloud vendors. It also recognizes and endorses the existing Cloud inititives of various standards bodies, the most recent of which was announced by the IEEE on Monday. IBM also rolled out another wave of Cloud products and services today that further expands its portfolio of hardware, software and service offerings, and puts additional pressure on its competitors.
• Dell Invests $1 Billion in Technology Solutions and Services to Help Customers Drive Business Results Today and in the Future, 04/07/11  – Dell is not about to let IBM, HP or Oracle outpace its own Cloud initiatives. The company tried to demonstrate today the magnitude of its efforts to develop and deliver Cloud solutions and services aimed at enterprises and end-users. Dell can tell a good Cloud story because of its long history of delivering automated systems and offering Ecommerce services. It has also done a surprisingly good job leveraging its Perot Systems professional services and systems integration services to create vertical market solutions. Click here to read my initial vision of Dell’s Cloud capabilities two years ago.

These announcements and initiatives illustrate the significance of the Cloud Computing phenomenon. They also show the scalability of the market opportunities, extending from SMBs/SMEs to major industries. And, they demonstrate how the Cloud is fundamentally changing the competitive landscape and customer expectations.

A series of announcements over the past week clearly indicates that Software-as-a-Service (SaaS) financial management and enterprise resource management (ERP) solutions are taking hold among organizations of all sizes worldwide.

The first was Intacct’s announcement that it had grown its customer subscription base 68% in 2010 and added more than 800 new client organizations. The company also reported 94.2% of clients surveyed indicated they would recommend Intacct to their colleagues, which is a perfect example of the customer-driven referral engine which is powering the overall growth of SaaS solutions. Intacct also said that 11 of the top 100 largest CPA firms in North America have joined the Intacct Accountants Program from CPA2Biz, showing that mainstream professional service firms are also adopting SaaS and recommending their clients take advantage of these solutions as well.

Plex Systems,  a provider of SaaS-based manufacturing ERP software, announced today its overall revenues grew 27% and its recurring revenue increased 26%. The company added 37 new customers in 2010. This may not seem like a lot, but Plex’s customers represent a cross-section of the most traditional of manufacturing companies who many would think are not likely candidates for SaaS or other Cloud-oriented solutions, but are increasingly interested in alternatives to legacy applications. Plex Systems also won its largest account in 2010, Invensys Controls, a London-based, technology company focused on industrial automation, rail transportation and controls. This illustrates the global growth of the SaaS market.

Today was capped off with NetSuite’s yearend results announcement which included 16% revenue growth overall and 18% in recurring revenues in 2010, and 21% year-to-year growth in the fourth quarter. It is also boasting a growing partner network and gaining momentum through its third-party channels.

These yearend results clearly show that CFOs and CEOs are increasingly adopting SaaS to run their back-office operations.

SAP’s renewed efforts to compete in the SaaS market with its latest version of BusinessByDesign will accelerate market growth because it will give it greater credibility and visibility. Oracle’s heightened emphasis on Cloud-based solutions will also lend further validation to SaaS-based, back-office solutions.

The year of the Cloud has come to a climax at Salesforce.com’s Dreamforce conference in San Francisco where over 30,000 registrants converged to celebrate the rapidly expanding world of ‘on-demand’ solutions and collaboration tools.

Salesforce.com used the event to beat back the recent efforts of Oracle and Microsoft to gain a share of the Cloud Computing market with a new round of initiatives aimed at building on its phenomenal momentum and success.

The two most significant announcements on Day One were Salesforce.com’s offer of free Chatter accounts across its customer base along with a public version of the social networking service in February, and a new Database.com offering as a spin out of its Force.com Platform-as-a-Service (PaaS).

Day Two began with the news that Salesforce.com plans to acquire the Open Source oriented, Ruby-based application development platform, Heroku, for $212 million in cash. Salesforce.com and BMC Software also announced that they are joining together to offer RemedyForce, a new Cloud-based IT service management and support offering built on Force.com. Salesforce.com also unveiled SiteForce, a new and improved version of its website design tool which was introduced previously.

Talking About Chatter

A year ago, Dreamforce attendees responded to the unveiling of Chatter with a lot of apprehension about why they should permit a Facebook-like social networking tool into their organizations. In response to this lukewarm reception, Salesforce.com put its marketing engine to work to overcome this hesitancy and has generated growing customer acceptance. 

Much of the opening session of Dreamforce was focused on the practical benefits of Chatter in corporate environments through a series of demos of use-cases and customer success story testimonials. Salesforce.com also emphasized how Chatter bridges the old and new worlds of the business user by linking to Microsoft Outlook and mobile devices.

Salesforce.com announced Chatter Free to extend its reach further into organizations beyond the sales and marketing departments. This initiative will permit Salesforce.com users to invite others within their organizations to utilize Chatter, in the same way Facebook users can invite friends to join their social networks.

With less fanfare, but possibly of greater significance, Salesforce.com plans to also roll out a public Chatter.com service in February aimed at popularizing Salesforce.com’s social networking capability in the open market. Both these moves will broaden Chatter’s footprint within organizations and brand equity in the marketplace. These moves will also make the folks at Facebook rethink whether they should have pursued the corporate market rather than relinquishing it to Salesforce.com. It will also get the attention of SuccessFactors which has been proclaiming that its Business Execution Software solution has a greater installed base of end-users than Salesforce.com.

Fortifying Force.com

Salesforce.com isn’t just seeking to permeate the enterprises via Chatter. It also wants to convince the developer world, both independent software vendors (ISVs) and internal enterprise developers, that Force.com is a credible PaaS for a new generation of enterprise-class, Cloud-based, mobile apps.

In its typical style, Salesforce.com unveiled Database.com as a new capability even though it is actually a part of Force.com which has been unbundled to create a new standalone offering and point of entry to Salesforce.com’s PaaS environment.

The standalone Database.com capabilities are being offered to respond to the changing way in which applications and databases are being architected in a more pluralistic fashion in the Cloud. The goal of Database.com is to democraticize database development, and give Salesforce.com’s customers and partners another reason to expand their use of its applications and PaaS. 

Salesforce.com has also been working hard to fend off competitive claims and developer concerns that its Force.com PaaS is too proprietary. It made a strong move in this direction with its alliance with VMware earlier this year, which produced VMforce.

Salesforce.com’s acquisition of Heroku reinforces this point, quickly giving Salesforce.com a strong foothold in the Open Source/Ruby application development environment, and immediate access to the rapidly growing Heroku developer community.

Heroku is considered by many to be the top Ruby platform in the Cloud market. The company has experienced 50% growth in application development activity in the past few weeks alone according to its Founder/CEO during his keynote presentation. Heroku will maintain its brand and become Salesforce.com’s seventh Cloud offering.

The Heroku acquisition and Database.com are geared to the new world of social, mobile apps. They are also intended to offset Microsoft’s aggressive efforts to gain customer and partner acceptance of its Azure PaaS, and undercut Oracle’s ‘false cloud’ offerings which it calls “Cloud-in-a-Box”. The Heroku acquisition is also a dramatic contrast to SAP’s purchase of Sybase, with Heroku representing the rapidly growing world of Cloud-based applications and Sybase viewed as an old-world development vendor attempting to recreate itself around mobile apps.

As Salesforce.com’s executives strongly stated during an industry analyst/press briefing, the message which the company is trying to convey to the market with this acquisition is that Force.com will be open and that Salesforce.com is going to be a platform company. A number of enterprise customers confirmed the importance of Salesforce.com’s PaaS efforts in their decisions to select the company as a strategic vendor.

SaaSifying IT Management

Salesforce.com’s announcement of RemedyForce in conjunction with BMC is significant for a number of reasons.

It is the company’s first attempt to provide a solution aimed specifically at the IT organization which is increasingly embracing SaaS-based alternatives to traditional IT management software. I’ve been telling clients and others about that the SaaSification of IT management and why this trend in the Cloud Computing market eliminates another barrier to greater customer adoption.

It is also the first time Salesforce.com has teamed with another company to launch one of its product-lines, or “Clouds”. This represents an important endorsement for BMC, as well as a risk for Salesforce.com. Teaming with an established ISV is an interesting choice for Salesforce.com. Like every established ISV which has attempted to add a SaaS component to its portfolio, it hasn’t been an easy road for BMC. But, the company has a highly committed CEO and has built a SaaS solution on Force.com which is gaining customer acceptance in the market.

This alliance puts Salesforce.com in the peculiar position of depending on a partner for the success of one of its product-lines. It also renews questions and concerns among its other partners about who gets preferential treatment within Salesforce.com’s ecosystem and why.

Closing Thoughts

One of the lingering complaints about Salesforce.com’s solutions is their premium price. Marc Benioff even joked about this point in his opening remarks at Dreamforce and got a hearty laugh from the audience. In an attempt to capitalize on this issue, Microsoft has launced a marketing campaign offering $200/user rebates  to Salesforce.com customers who jump ship in favor of Microsoft’s Dynamics CRM Online.  Benioff made light of Microsoft’s PR ploy by bringing the actor/model who is pictured in the Microsoft ads on stage during the Day Two morning keynote session and successfully convincing him to come back to Salesforce.com.

All joking aside, Salesforce.com’s premium prices hasn’t slowed its tremendous growth and hurt customer satisfaction/retention rates, or diminished the enthusiasm of the customers and partners attending Dreamforce this year.

The buzz and activity at Dreamforce 2010 is not only a clear indication of the Salesforce.com’s growing success, but also an impressive illustration of the widening movement to the Cloud.

[Disclosure: Salesforce.com paid for my hotel accommodations during my attendance at Dreamforce.]

Dell’s acquisition of Boomi today is the latest example of the tech industry’s herd mentality.

In the same way that Dell followed HP’s example when it purchased Perot Systems after HP acquired EDS, Dell is now copying IBM’s acquisition of Cast Iron Systems with its own move into the integration business.

Besides trying to keep up with other ’systems’ vendors, Dell is also attempting to fortify its Cloud Computing capabilities which hinge on helping potential customers cost-effectively migrate and integrate data from various legacy applications and databases into a new set of cloud services.

Dell indicated at an analyst briefing in Boston last week that it wants to ‘move up the stack’ and build a platform which can help enterprises and independent software vendors (ISVs) develop and deliver applications. Dell can’t compete with the other major Platform-as-a-Service (PaaS) vendors — including Salesforce.com, Google and Microsoft — from a software development standpoint. But, it can challenge them and others, such as Amazon and IBM, from an Infrastructure-as-a-Service (IaaS) point of view.

Why Boomi?

Because it is small enough for Dell to digest easily to test the integration market opportunities and requirements. It is still assimilating Perot Systems into its operations and corporate culture, and may not have been ready to acquire a bigger player, like Informatica or Pervasive.

Why is Boomi selling at this time?

My sense is they were at risk of becoming a victim of their own success and their rapid growth was creating operational strains which would take significant new investment to offset. Rather than make this investment, Boomi’s investors and management team felt that the Dell deal would not only give them a solid ‘exit’ but also the corporate resources necessary to ‘cross the chasm’.

It will be interesting to see if Dell is able to do a better job assimilating and growing Boomi’s business than it has with some of its previous Software-as-a-Service (SaaS) acquisitions — Everdream, SilverBack Technologies and MessageOne.

By coincidence, I heard about today’s news while attending Pervasive Software’s IntegratioNEXTconference, down the road from Dell in Austin, TX. You can bet there were a lot of smiling faces among the Pervasive staff who expect Dell’s move to trigger additional integration vendor acquisitions. I’m sure Pervasive’s counterparts at Informatica, which is also hosting a partner conference this week, were equally excited about Dell’s move.

While speculation about a Boomi acquisition has been rising since the Cast Iron Systems purchase by IBM, Dell was not high on the list of potential suitors suggested by various industry observers, including myself. Instead, the clearer candidates seemed to be HP, SAP, Oracle, EMC or even Microsoft.

All these companies continue to be likely acquirers for the handful of remaining integration vendors, including Hubspan and SnapLogic, in addition to Pervasive and Informatica. Not to be overlooked as potential buyers are also Google and Cisco Systems.

NetSuite has unveiled a great video to promote its new Hairball Institute for Business and associated Award program aimed at curing “Software Hairball Syndrome” (SHS).

The video is a fun and effective way to bring attention to the fundamental flaws of pulling together an enterprise resource planning (ERP) system, including the endless integration, customization and support issues.

However, NetSuite’s video and award program takes aim primarily at applications focused on the individual piece-parts of an ERP system in the small- and mid-size business (SMB) segment of the market, specifically inventory and project management represented by Microsoft Great Plains and Project, financials illustrated by Intuit QuickBooks, and eCommerce exemplified by Websphere. It also can’t help itself and includes its sibling rival, Salesforce.com, as a ’standalone’ CRM solution vendor.

Yet, the real culprits of this syndrome are the bigger players–SAP and Oracle–along with a myriad of like-minded legacy software vendors. Unless NetSuite has another video and award program up its sleeve, it has missed an opportunity to squarely attack the source of SHS.

This is unfortunate because NetSuite has attributed much its recent success to the inroads it has made penetrating the regional offices and other business units within large-scale organizations who were either fed up with their legacy enterprise applications or unwilling to go down the on-premise app path.

Unlike Salesforce.com which has always been very clear through simple and straightforward messaging about the on-premise vendors who it is seeking to displace, NetSuite too often obsures its message about its primary competitors while trying to set itself apart from other SaaS vendors, and undercuts its effectiveness.

But, this is a nuance which does not seriously diminish the terrific job NetSuite has done with its latest marketing program. Instead, the video and award program should strengthen its position in the market, and help the rest of the SaaS/Cloud Computing community articulate the shortcomings of traditional software.

When Oracle announced its intention to acquire Sun Microsystems in April 2009, CEO Larry Ellison proclaimed the acquisition, “transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems.”

Although he was not ready to use the term at the time, it didn’t take long for Oracle to refer to its combined capabilities as a Cloud Computing solution set, which it recently put on full display at its annual OpenWorld conference.

The event was also a coming out party for its new President, Mark Hurd, the high flying former HP CEO who departed in disgrace only a month earlier. Hurd’s appointment wasn’t hard to understand given his hardware experience at HP and NCR, and now gives Oracle’s move into the system business even more significance.

HP has retaliated by announcing the appointment of Leo Apotheker as its new CEO, along with Ray Lane as its non-executive chairman of the board. Apotheker comes to HP with extensive experience in the software industry, suggesting that the company is ready to counter Oracle’s move by escalating its own efforts in the enterprise software business.

But, Apotheker comes to HP with far less success as a software executive than Hurd achieved in his comparable time in the hardware business. Apotheker resigned as CEO of SAP AG in February after the company had fallen into a deep malaise of slow sales coupled with low customer satisfaction and employee morale.

Despite his dismal record, HP has swapped a successful hardware executive for an unsuccessful software executive.

Like nearly every other industry watcher, my friends at Triple-Tree and I didn’t see this coming when we generated our own list of potential candidates, although we were half-right in suggesting Ray Lane would be a good candidate for the top job at HP, but we didn’t necessarily mean the board chairmanship role.

Apotheker’s appointment is not only aimed at attacking Oracle’s rising threat on the systems side, but is also intended to fend off IBM’s continued push into the software business as well. Big Blue has been on a software buying spree and has done more than HP to position itself in the cloud. CA Technologies has also been acquiring an assortment of young software companies squarely focused on the cloud computing phenomenon. HP also has to reexamine its relationships with Cisco Systems and Microsoft because of their moves into the server and services businesses as well.

HP has also been engaged in an escalating battle with Dell, most recently in its fight-to-the-finish bidding war for 3PAR while it was CEO-less. In addition to competing in the server market, both companies have also deepened their services capabilities by acquiring EDS and Perot Systems respectively. I’ve questioned these moves because they are focused on the old world of IT outsourcing rather than the new world of cloud computing.

But, Apotheker’s appointment also raises serious questions about why senior executives within HP continue to be passed over for the CEO job as outsiders seem to come and go. My guess is that some of these executives will be jumping ship shortly, leaving Apotheker with the additional challenge/opportunity of building a new leadership team.

So, can Apotheker transform HP into a software-driven company? More specifically, can he transform HP’s current software business into a competitive player in the Software-as-a-Service (SaaS) market? And, can he combine HP’s software, hardware and service capabilities to create a viable cloud computing portfolio which can compete on an even broader battlefield?

If the past is any indication, the odds are against him. However, anyone who is familiar with the controversy which surrounded Bill Belichick’s hiring as the New England Patriots’ head coach in 2000 knows that he arrived with plenty of skeptics because he had failed dismally in his only other head coaching experience. Yet, he proved the skeptics wrong by leading the Patriots to three Super Bowl titles in his first five years and has continued to be a contender for the better part of the past five years as well.

Maybe Apotheker can pull off a similar surprise at HP. But, he’ll be facing far greater challenges and failure could have far greater consequences.

Some are already suggesting that one of Apotheker’s first moves should be to acquire SAP, which boasts an attractive installed base of customers who currently rely heavily on IBM systems to power SAP’s enterprise applications. Acquiring SAP would enable HP to square off against Oracle and dislodge IBM from many of these accounts. But, it could also burden HP with an aging set of on-premise applications and the same set of disgruntled customers who were happy to see Apotheker leave SAP before. (I’d be more comfortable seeing HP acquire Symantec, which would fill its security and storage management void, and would fit better into HP’s product portfolio, channel strategy and corporate culture.)

Companies often make bold moves to serve as a catalyst for change. This is certainly the intent of Apotheker’s hiring. However, HP’s board better be sure they found the right guy before they compound their past mistakes by trying to become an enterprise application vendor as well. It wasn’t too long ago that Carly Fiorina was in the midst of a series of highly publicized internal battles trying to prove the logic of her proposed acquisitons of Compaq and PwC.

The Compaq acquisition, in addition to EDS, has made HP the biggest company in the tech sector. But, they haven’t made it a leader in the rapidly evolving Cloud Computing market which is transforming the tech industry.

Apotheker refused to comment about Oracle’s strategies in response to a question during his introductory press conference, but acknowledged that the technology industry is in the midst of a very disruptive transition period as demand for cloud computing services explodes. His ultimate challenge will be transforming HP into a company which can capitalize on this extraordinary opportunity.

There have been a series of acquisitions over the past few weeks which clearly illustrate how the competitive landscape in the tech industry and beyond is being fundamentally changed by the rapidly evolving cloud computing phenomenon.

The two most recent examples came this week. The first was CA Technologies’ acquisition of 4Base Technology, a virtualization and cloud infrastructure consulting firm, which CA plans to use as a cornerstone of its expanded cloud computing professional services capabilities. This is the latest in a series of acquisitions which CA has made to transform the company from a software-only to a multi-dimensional corporate portfolio which personifies its new CA Technologies company name. CA’s transformation echos the moves of other players seeking to become one-stop shops for hardware, software and services. The most significant of these was Oracle’s acquisition of Sun Microsystems.

Intel made an even more dramatic acquisition this week with its announced plans to purchase McAfee. This acquisition moves Intel into the Softwae-as-a-Service (SaaS) based security solutions market by embedding security software functionality into a chip. Paul Otellini, Intel’s President and CEO, put the acquisition into perspective by stating in the company’s announcement, 

“In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences.”

These moves come on the heels of a series of other acquisitions over the past few months aimed at repositioning various technology and business services vendors seeking to capitalize on the burgeoning cloud computing market.

Less newsworthy, but equally intriguing have been the following acquisitions:

• ADP’s acquisition of Cobalt, a digital marketing services vendor, in July. This acquisition was the latest example of ADP’s efforts to offer a widening array of business and information services to make itself a more strategic, single-source of a full lifecycle of business services, such as marketing solutions.
• IBM followed ADP’s example by acquiring Unica,a marketing software solutions vendor, early this month augmenting its middleware and infrastructure enablement capabilities. IBM clearly stated its goals regarding the Unica acquisition in its announcement,

“Assembling transformational capabilities to help clients create…relevant cross-channel brand experience to promote customer loyalty and satisfaction…This acquisition along with IBM’s recent acquisitions of Sterling Commerce and Coremetrics will enhance IBM’s ability to support customers increasing demands in this growing market.”

• Salesforce.com’s acquisition of Jigsaw earlier this year was also aimed at redefining the company’s capabilities and helping to reposition it in the market.  Jigsaw’s online lead generation database will feed essential data into Salesforce.com’s SaaS-based customer relationship management (CRM) solution, making it easier for the company’s users to satisfy their needs. Jigsaw also provides analytics regarding the productivity of users’ sales efforts. As a result, Salesforce.com is able to now transform itself from a SaaS company to a business or information service provider offering Data-as-a-Service (DaaS).

The commonality of all of these acquisitions is not only that they extend the scope of the companies’ corporate portfolios, but that they do it by adding SaaS capabilities to their delivery methodologies.

These are just some of the ways various technology and software companies are transforming their businesses through acquisitions to capitalize on and  better target today’s quickly growing cloud computing opportunities. They also open a Pandora’s Box of ancillary organizational and go-to-market challenges for the acquiring companies.

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.