Oh, what a tangled web they weave

Posted on April 01, 2006

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By David Freund

Hewlett-Packard’s acquisition of OuterBay, a database archiving software vendor, comes as yet another example of two accelerating trends: IT-vendor portfolio conglomeration and portfolio entanglement. IT giants such as EMC, HP, IBM, and Sun have articulated goals of being end-to-end information management technology and service providers, and they’ve been racing to fill gaps in their portfolios through numerous acquisitions. Those acquisitions, however, are not merely filling gaps. The ripest acquisition targets tend to be those with multiple reseller and OEM deals. Acquiring those companies often means acquiring supplier agreements with direct competitors.

It wasn’t always this way. Just a few decades ago, systems and software were built and sold as islands, with each monolith claimed as “best.” Then came Unix and the “open systems” movement, with users mixing-and-matching “best-of-breed” components. This shift entirely remade the computing landscape, enabling new and smaller companies to compete for IT dollars and providing fertile ground for technology innovation.

Islands of computing sprang up in multiple departments, with each free to select systems and software that best met each group’s needs. Volume economics kicked in as hardware and operating system choices consolidated to a few “industry-standard” platforms. The model worked so well that open systems and standards are now tacit assumptions. Over the years, however, as companies have stitched together their patchworks of best-of-breed products, they’ve grown weary of the effort, time, and costs associated with integrating components themselves. Vendors that can offer a full suite of products have once again become attractive.

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That doesn’t mean technology buyers are willing to abandon choice. They demand both openness and integration. Only a few IT vendors have risen to industry-giant stature. All have functional gaps in their offerings that they fill through combinations of building, buying, and partnering. Innovation by smaller firms remains alive and well, but big “break-away” opportunities typically involve selling through as many major vendors as possible.

Portfolio entanglement in storage hardware is nothing new. Engenio’s midrange array technology, for example, is used by IBM, NCR, SGI, the former StorageTek, Sun (both before and after its StorageTek acquisition), and others. Hitachi’s high-end arrays are resold under HP and Sun brands. At the low-end, Sun OEMs Dot Hill hardware, and IBM resells Adaptec systems. And HP OEMs StorageTek tape libraries and IBM OEMs Network Appliance gear. The list goes on and on. The battle by smaller players to supply hardware technology to large vendors is only going to intensify as more array-based functions become standard “commodity” features.

Meanwhile, storage vendors have turned to software to differentiate themselves. EMC’s acquisition of Legato caused EMC and Veritas (now Symantec) to become fierce rivals. That acquisition also meant Hewlett-Packard, IBM, and Sun were now EMC strategic partners-even though they (and their respective suppliers) compete with one another vigorously. EMC’s acquisition of VMware merely intensified this relationship. Similarly, acquiring AppIQ made HP a storage-management software supplier for vendors such as Engenio, Hitachi, and Sun.

HP’s acquisition of OuterBay, one of the few providers of database-archiving technology, fills a gap in HP’s information lifecycle management (ILM) product set. It also makes rival EMC a major customer, because EMC uses OuterBay’s ADM suite in its DatabaseXtender product family. But HP is unlikely to cut off EMC from access to OuterBay technology, because HP needs VMware and Legato products-which are owned by EMC.

These are just a few examples. Entanglements of this sort among competitors are increasing throughout the IT industry.

The broader the portfolio held by an IT vendor, the deeper and more interwoven its entanglements with competitors. It’s an odd world in which friends, enemies, friends of friends, and friends of enemies essentially boil down to the same companies.

As IT giants EMC, HP, IBM, and Sun race to build and augment their portfolios by acquiring smaller software companies-firms that frequently have reseller and OEM deals with multiple IT giants-the net result is a complex web of inter-dependencies among rivals. With the addition of each purchase, acquiring firms continue to promise uninterrupted openness and partnership. In reality, this “entanglement web” creates a balance of power among vendors, making it nearly impossible for any one IT company to successfully corner the market. That bodes well for the industry, and most important, for IT customers.

David Freund is practice leader, information architectures, at research and consulting firm Illuminata (www.illuminata.com).


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