Is Consolidation Coming to Cloud Computing?

Is Consolidation Coming to Cloud Computing?

In recent times, the biggest news in cloud computing has been Hewlett-Packard’s (HP) entry into the sector. And this entry is not a side business; the new CEO truly believes the company’s future lies in the cloud, going on record saying, “Everything that we do in the future will be delivered as a service.” (See: HP Declares Ambitious Plans in Cloud Computing Space).

Now, HP is truly a big boy in the IT space, in fact the biggest boy among all the IT companies in terms of annual revenue (by market capitalization it’s a close second behind Samsung); therefore, when HP makes such a strategic decision, it has wide-ranging implications for the entire industry and raises some key questions.

For one, how is HP going to create a niche for itself in a space that has already seen the entry of behemoths like Google, Microsoft, IBM, and more recently, Oracle? How is it going to operate in a market which, though not fully mature, has matured enough to see startups like Salesforce.com become big players?

Now, as any marketing major will tell you, when a company enters a new market, it has three options: a) go it alone, b) tie up with an existing player, or c) buy out an existing player.

Some analysts have speculated that HP may actually entertain the third option, going as far as to approach Salesforce.com.

While big acquisitions are nothing new to HP (its acquisition of EDS is one of the biggest ever), the move to acquire Salesforce.com will most likely not materialize. For one, the new management may have a grand vision, but putting grand money up so soon in their tenure seems unlikely.

Secondly, there is always the chance, or rather, the high probability that Salesforce.com won’t play ball. The company has risen from obscurity to become the golden boy of cloud computing in a mere decade; CEO and co-founder Marc Benioff may not be willing to sign all that away for a few billions.

However, does that mean that acquisitions won’t happen in the cloud computing space? Personally speaking, I don’t think so. It is the characteristic of ever industry that as it matures, a few dominant players emerge with several on the fringes falling away. Therefore, in time, I would expect the cloud computing industry to become consolidated.

At the same time, it’s my opinion that the large number of recent tie-ups in cloud computing is symptomatic of the consolidation wave; companies no longer feel they can drive the industry alone. The last week saw the announcement of three such collaborations – Verizon & SAP, Research in Motion & Microsoft, and EMC & Harris Corp. & Virtual Computing Environment Company. (See: SAP and Verizon announce tie-up: SAP products to be available on Verizon cloud)

Also, while it has remained below the radar, the larger entities have been buying up some of the smaller companies in the recent past. For example, Salesforce.com itself in the last four months has acquired four companies – Heroku (December 2010), Etacts (December 2010), Dimdim (January 2011) and Manymoon (February 2011).

Moreover, it’s worth noting that Google Docs, the product that actually brought cloud computing to the mainstream, was born out of an internal Google development – Google Spreadsheets – and an acquired product – Writely. (See: Cloud Computing and Google Docs).

Although Google Spreadsheets was developed in-house, a lot of the technology was based on the XL2Web product, developed by New York-based 2Web Technologies and acquired by Google in 2005. Writely, on the other hand, was a web-based word processor fully developed by Silicon Valley-based start-up Upstartle. Google acquired the company in 2006. Therefore, the cloud computing space has seen consolidation right from inception.

In conclusion, while large-scale consolidation is still some distance away, consolidation is surely coming to cloud computing. We can expect to hear about a number of deals over the next two years.

By Sourya Biswas

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