Tuesday, July 24, 2007

HP Opens Wide for Wares

Yesterday HP picked up Opsware for $1.6 Billion and Neoware for $214 million. Here's my thinking on what the Opsware deal means for other IT automation providers (my company Emu Software included) and for the market in general. I'll write another entry about the Neoware one.

So, HP paid 15 times sales for Opsware, which is at least double the typical premium. Were they just feeling generous? I doubt it. Rather, it was probably a competitive situation. Who else might have also wanted opsware? I'd guess the list might include EMC, IBM, CA, EDS, who knows, maybe Google.

But that's not where the story ends IMHO. Oh no. Consider the impact of this deal on a company like EDS. I read a story today about how EDS competes with behemoths like IBM global services and HP for big IT outsourcing deals, and the EDS sales pitch goes like this. You don't have to get locked-in to one vendor (or fear getting locked-in) and you don't have to pick and choose best of breed from multiple vendors and do the integration yourself (and deal with no "single throat to choke") . Go with us and our EDS Agility Alliance, and get the best of both worlds - EDS serves as point for the service and the other vendors (little companies like Microsoft, Oracle, Sun and Dell) bring their technology expertise. So, what does this have to do with HP buying Opsware, you ask? Well, EDS was probably Opsware's first customer, and may well be its largest. In 2002 Mr. Andreessen sold the ASP part of Loudcloud to EDS for a reported $63.5 million, and EDS turned around and entered into a 3 year deal (since extended) with the part of Loudcloud that Marc kept, which he renamed Opsware. Basically, some smart Sys Admins at Loudcloud needed a way to more efficiently manage their data centers, and so they built Opsware, and Marc decided he'd rather be in the software business than in the application hosting business.

Alright, so, you're EDS, or you're a member of their Agility Alliance, and your sworn enemy is HP. Do you keep relying on HP Opsware for your data center automation? That would seem to me to be a fairly precarious situation. Now, something as central as Data Center Automation is not going to be replaced quickly, but if I'm EDS, I'm actively considering my options right now.

But the fun doesn't stop there. Nortel and Cisco, who I'll remind you compete with HP's Procurve products, both resell Opsware to their enterprise customers. Cisco, for their part, is announing their own Data Center optimization solution, what they're calling Data Center 3.0, this week. According to Chambers, "Because the network is uniquely positioned to be the platform for the data center, we are investing in innovations to help our customers transform their data centers for improved efficiency and increased business productivity."

I wonder if Opsware can contiue to grow its revenue at the same pace as part of HP with all these powerful companies that prevously were freinds are now, at least in part, competitors

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