THINK IT Services

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.

Oracle took advantage of IBM’s failed efforts to acquire Sun Microsystems and swooped in with a more lucrative bid today which could reap greater rewards for the company’s rapidly expanding cloud computing strategy.

Oracle’s acquisition of Sun could recast the entire computer industry by giving Oracle control of Sun’s Java software and access to its vast developer community, plus Sun’s Solaris-based server technology. These elements could bolster Oracle’s database systems and serve as a powerful web delivery engine for the company’s widening array of business applications and third-party developers.

Oracle had to be sweating bullets during the IBM/Sun negotiations because, “The Sun Solaris operating system is the leading platform for the Oracle database, Oracle’s largest business…”, according to Oracle’s press release today.

Don’t let Larry Ellison’s past pronouncements that the Software-as-a-Service (SaaS) and cloud computing trends are just over-hyped ideas. Folks within Oracle have been working hard to make sure that the company can benefit from the rapid evolution of the on-demand movement. Now, they have the ability to not only expand their software development arsenal, but add to their computing platform as well.

These assets will not only come in handy for third-party developers and enterprise users who want to acquire them, they will also fortify Oracle’s hosting business and help Oracle quickly convert its hosting capabilities into a true cloud computing environment.

According to Oracle’s President Charles Phillips, “Our largest customers have been asking us to step up to a broader role to reduce complexity, risk and cost by delivering a highly optimized stack based on standards.”

I may be looking at the world through cloud-colored glasses, but this sounds like the preview of a new round of cloud computing initiatives to me.