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By Bill Gerneglia
Who derives more value from the cloud - the CIO or CFO?
As the CIO you are tasked with leading innovation and seeking
ROI across new initiatives. As the CFO you are tasked with P&L management
through cost containment initiatives.
The CIO-CFO dynamic is why some well established tech companies
are willing to pay big premiums for some very boring computing firms. Specifically
why is that? In a short answer because they have the brick and mortar required
to be successful in the global cloud computing industry. Acquiring these firms enables cloud service
providers to be more competitive.
IBM has dominated in this outsourcing / cloud sourcing space
for years with very little competition for the very large ( > 1 Billion
Dollar) outsourcing contracts. Now the landscape is changing, it is not just
the very large companies looking to move to the cloud but the small and medium
companies as well. Back in the 1990s there was an IBM business unit named ISSC that
lead the charge within this nascent industry. They targeted small, medium, and
large companies, and specifically the CIOs and CFOs within them.
There have been a series of tech acquisitions recently to
reinforce developing corporate cloud strategies among the cloud service
providers. The big question is, are the recently acquired companies worth the
premiums paid to them for their technology?
When HP and Dell started a bidding war over 3PAR, they
introduced the public to an area of technology that is becoming indispensable
to many of today's organizations: cloud computing. In fact, HP's $2.4 billion
acquisition of 3PAR was just one in a recent series of acquisitions.
Four
smaller cloud-related companies have also recently been acquired by some of the
tech giants.
Significant Cloud based Acquisitions: ( According to Fortune )
1. Last month, virtualization software-maker VMware
announced it would buy Integrien, a provider of network analysis software as
well as TriCipher, a security software developer.
2. Citrix Systems
acquired VMLogix for its cloud management technology.
3. Red Bend Software
Inc. purchased VirtualLogix. VirtualLogix enables Intel and ARM-based mobile devices to
run multiple operating systems on a virtual machine.
Why is this important
and how does this trend help the needs of the CIO and or CFO?
The fact that virtualization allows an organization to
better leverage their hardware investment and derive more value from existing
systems rather than deploying new one makes
a compelling argument for deployment. The CIO gets better mileage out of their hardware
and software budget and the CFO contains computing costs. They both benefit so
the cloud is a win/win for them.
HP and Dell are embracing cloud services because they enable
outsourcing, usually via the Internet, of scalable and virtualized IT services.
This includes but not limited to data storage, software, to billing and payment.
The convenience offered by the cloud is significant to the CIO and CFO. No need
for the business to hire app developers and systems administrators to handle
the headaches and cost of building infrastructure internally when they can be
offloaded to cloud services. This results in an improved ROI for CIOs which is right in
their sweet spot.
Some believe the recent acquisition activity is attributable
to the relative longevity of cloud and cloud-based services. There is also the inertia produced when an organization chooses to move their applications to the cloud. It is disruptive to change service providers once you have selected a vendor. Cloud customers tend to stick around a long time. Examples of cloud service providers with a long track record include Amazon
with its EC2 virtualization service - started in 2006, and SalesForce.com,
founded in 1999.
Is cloud computing capacity overvalued?
The hype around cloud could be why we are seeing cloud based
service providers go to war now over
companies like 3Par: they are taking risks now in hopes that those bets will pay
off later -- both financially and technologically. The goal is to be better
positioned to profit going forward as more and more businesses decided
to outsource to the cloud.
In late 2003, EMC Corporation bought virtualization software
company VMWare for $635 million. Then in 2007 EMC spun off part of VMWare to
unlock shareholder value and retain talent.
The company's market cap is now approximately $34 billion.
As EMC still owns 80% of the firm, and VMWare's software remains the foundation
for the majority of cloud computing services that require some form of virtualization.
Any big company picking up a cloud firm today has to be hoping for a similar
outcome.
HP in July 2007 HP picked up Opsware, a data center
automation start-up for $1.6 billion. This seemed like an expensive acquisition
at the time. The Wall Street Journal recently questioned whether valuation even
matters in the cloud sector right now, citing an analysis by the ISI Group
which reported that over the last five years, HP typically paid 1.9 times a
company's 12-month revenue in hardware and networking acquisition.
Which companies are possibly on the short list for potential
acquisition? ( According to Gartner)
1) Zuora -- Equivalent to the SalesForce.com of
subscription-based payment and billing.
Many subscription based businesses still rely on costly and
complex in-house billing systems, but Zuora offers cloud based payment and billing services
for subscription-based businesses.
2) Nimbula -- The private cloud company with big name
backers.
Nimbula employs the same team that built Amazon's EC2,
former execs Chris Pinkham and Willem van Biljon lead the team.
3) Heroku -- You can use them to build an application
platform on the cloud.
Started in 2008, this cloud provider focuses on
"platform as a service," which emphasizes ease of use, automation and
reliability for app builders. Heroku employs a multi-tenant software
architecture, so one instance of software on a server can serve more than one
client company. This type of resource sharing drives down the total cost of
ownership for the company using their cloud offering. Third party add-ons let
developers easily integrate additional features into their deployed apps.
I think one can conclude that the CIO needs the cloud to
drive ROI as well as innovation, and the CFO needs the cloud to contain costs
and limit head count. Win the cloud as a service provider and you may win the
war by maximizing market share. Embrace the cloud as a CIO and CFO and win
efficiencies in technology, ROI, and cost containment.
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