Novell was recently rumored to be shopping itself around for a buyer. The new rumors? That it's doing some shopping of its own. In this, Novell isn't alone, with Dell also looking to pick up companies that can expand its product lines, as both look to grow despite CIOs' decreasing willingness to spend. Open source may factor into both companies' M&A strategies.
As reported in Daily News & Analysis, Novell CFO Dana Russell has said the company is "interested in making acquisition in the high-growth businesses like identity security and compliance management software, data centre tools and open source software." With over $1 billion in the bank, Novell is in a prime position to buy companies on the cheap.
However, Novell should avoid its SiteScape error, viz., buying into a trendy but not yet profitable market. Identity security and compliance management are probably safe, because they're precisely the sort of "boring" markets that CIOs will pay money for in a recession.
Open source is much the same, but it depends on which open-source products it picks up. A Zenoss, Reductive Labs (Puppet), or some other company in IT management/configuration might be a smart bet.
Novell isn't alone in its interest in acquisitions to spur growth. Dell has been widely reported to have a $10 billion war chest set aside for acquisitions and, according to The 451 Group, Dell may be looking to make some significant acquisitions in the storage market:
With existing partners such as Cisco and Oracle...now priming themselves to become players in the server hardware market, Dell clearly needs to build up its portfolio to do battle with these new entrants along with its traditional rivals Hewlett-Packard and IBM. One clear way to do this would be to expand its storage software and hardware lineups since these offerings are complementary to its core server and PC business.
One way to get into the market would be to buy EMC, a current partner, but as The 451 Group notes, Dell has rarely ventured into big acquisitions--its $1.4 billion acquisition of iSCSI storage systems vendor EqualLogic in November 2007 the exception to the rule. I'd expect Dell to buy midrange players along the lines of 3PAR, Exanet, and so on rather than NetApp or EMC. Buying big would be distracting to Dell and take too long to digest and commoditize, Dell-style.
It's possible that Dell might even delve into the open-source storage market. An Infoworld reports identifies the best of the bunch, with vendors/projects like Zmanda, FreeNAS, and StorageIM in the mix.
It's doubtful, however, that any of the vendors in the open-source storage space are big enough to move the revenue needle for Dell. So, while it's SMB strategy may involve a healthy dose of open source, I wouldn't expect its storage strategy to do so...at least, not yet.
Open source could be a boon for both Novell and Dell, but each would need to be pragmatic about what to expect from open source. Currently, the most revenue either can expect from an open-source buy would be in the $50 million range, with most open-source vendors offering much less than that.
However, the one thing that open source can offer both right now is a ready supply of leads, plus branding and relevance in markets where Novell and Dell may not yet have much of either.
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Sun Microsystems is getting some love from Wall Street after its sales and earnings topped estimates, as detailed by Bloomberg. Software sales jumped 21 percent year-over-year.
What is fueling the growth? The same thing that Sun CEO Jonathan Schwartz has doggedly said would lift Sun's fortunes again: open source.
Open source has powered Sun's resurgence in several ways. First, open source makes Sun interesting and relevant again to IT buyers. Sun is shedding its image as the high-cost, high-performance leader to the low-cost, high-performance leader.
Second, Sun's open-source products are starting to contribute real dollars to sales growth. I had heard that MySQL did $81 million in the quarter. While it turns out that number is inflated [I have since confirmed that this is the right number], it is the case that Sun's MySQL division had its best quarter ever, jumping 55 percent quarter-over-quarter and, according to one inside source, closing several large deals that topped anything MySQL had been able to close before. Sun's brand makes an investment in MySQL less risky.
But it's not just MySQL. Indeed, Sun's Open Storage product line is now on a $100 million annual run rate, growing 21 percent in the quarter.
Third, open source gives Sun an efficient distribution mechanism that increases the power of its sales force dramatically. Instead of having to hunt for deals in a cash-starved economy, Sun is able to sell into a growing body of incoming leads. That's the power of open source, and Sun is using it effectively.
Sun still has a long ways to go, but its intelligent use of open source should get it there.
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Sun Microsystems spent a decade getting pummeled by lower-cost, commodity Linux servers. It wants to spend the next decade doing the same to its storage rivals.
I spent time talking with Sun executives over the past few days and was surprised by the intensity and focus the Sun team is bringing to its storage commoditization play. For years Sun has been (often rightly) derided for lacking focus and being stuck in a proprietary UNIX past. It has reorganized its business units as often as some people change clothes.
But I genuinely sense a different Sun is in motion now. With projects like FISHworks (Fully Integrated Software and Hardware), Sun wants to change the economics of the storage industry just as its server rivals once did to it. Ashlee Vance of The New York Times reported this shift in Sun strategy last September, but few others have taken adequate notice.
If you have 90 percent of the features most people want and you win big on price/performance, then you can be very disruptive.
That's the opinion of Mike Shapiro, a distinguished engineer at Sun, and it's one I believe deserves more attention.
It's easy to write off Sun's chances, but consider: Sun has a tremendously deep engineering talent pool with a history of producing exceptional hardware and software. Its back against the Wall Street wall, Sun now has an economic incentive to take big risks on open source/commodity business models. It also has a long memory of how its proprietary server business was pulverized by Linux in the past decade.
Sun sees storage as the next big market demanding commodity economics, and this time it wants to be the one to put the squeeze to its competitors. This, along with Sun's Open Web initiative, make Sun a dangerous competitor, precisely because its competitors have so much to lose even as Sun makes big, risky bets.
Who would have thought that storage could be so sexy?
In a recent blog post, Jonathan Schwartz, Sun's brainy CEO, makes a valiant effort to show how storage can be innovative, cost efficient, and, yes, sexy. I think he succeeds, and I'm the first to admit I don't think much about storage (until I run out of it).
Talking up Sun's newest open storage device, the very blandly named Sun Storage 7000, Schwartz compares storage to the book market in his neighborhood:
The 7000 has one remarkably interesting attribute: it learns. The longer it's doing its job, interacting with applications and serving data, the faster it becomes. How it accomplishes this relates to the bookstores I first discussed....
It's common sense: if you put the bestsellers on the first shelf a visitor sees when they walk in the door, they're more likely to buy one than if you put them in alphabetical order around the store. As the bestsellers change, so do your promotions and displays - if you adapt to demand, you capture more of it. That's the basic premise behind the 7000, to use systems innovation to drive performance, eliminate latency and radically cut purchase and operating cost.
That behavior might make a bookstore less beloved in my neighborhood, but it makes Sun more beloved in the datacenter. And it makes the 7000 a great candidate to be one of the storage industry's best sellers.
Sun's open storage business is booming, demonstrating the innovation (through commoditization of hardware, of all things) still commands customer interest. As Sun shows more of its "innovation through commoditization" hand, I suspect both customers and Wall Street will perk up to its story.
Sun has not set.
In fact, it may well be the perfect company to showcase how customers can both save and spend through the recession, the perfect antidote to our global recession. Open source provides a way to spend on the initiatives needed by IT while simultaneously saving precious dollars (or Euros, or whatever currency you please). Save while you spend. That's open source, and it's a strategy Sun is putting to good use in its open storage product line.
Sun CEO Jonathan Schwartz has been doomed to serve as the resident Thanksgiving roast for the media, but apparently he didn't get the memo. Instead he's trumpeting the dramatic growth of Sun's MySQL and Open Storage initiatives:
Like Wikipedia, most of the planet's largest web sites (just look at the top 100) are built atop Sun's MySQL database. Which is why we've just introduced a line of systems platform designed specifically to run MySQL - at up to 3x the performance of whitebox alternatives (after all, it's far easier marketing to audiences that have already chosen Sun). We're now expanding those offerings with our newest Open Storage portfolio, as well - built to run ZFS from 5 to 50x traditional performance. And again, all such systems are available here for free trial - pick the system you want to try, we'll cover shipping costs to and from your site.
Open Storage grew 150 percent last quarter, which is great, but still small ($25 million). I still think Sun might do well to carve out a few businesses and focus on open source but, as Techdirt notes, Sun may well need software to serve as a "loss leader" for its hardware and services business.
We'll see. Interesting times for Sun. From conversations I've had with various executives there, I think Sun still has a fighting chance. It needs to execute, but Schwartz at least has the right ideas about where and how it needs to execute.
Despite a recent write-down on the value of its StorageTek acquisition, Sun is banking on updates to its open-storage initiative to drive revenue growth for the company, according to The Wall Street Journal. Is it putting too much faith in storage, and open-source storage at that, to repair its fortunes?
For me, it's not a question of whether Sun's open-storage business is viable, but whether it's big enough to save Sun in time. In other words, as the Journal points out, open storage is growing at a torrid pace, but will it be enough?
Sun's open storage line includes a hybrid server-storage machine called Thumper, introduced two years ago. Sales of such products are a small bright spot for a company beset lately by declining revenue. In the first fiscal quarter ended in September, for example, Sun reported $25 million in open-storage sales -- nearly triple the amount in the year-earlier period -- while Sun's total revenue declined 7% to $2.99 billion. "Certainly open storage is one of the bright spots in the storage industry," says John Fowler, executive vice president for systems at Sun.
It's during times like this that Sun would do better as a private company. It really needs some time away from Wall Street's unblinking eye so that it can turn the ship around.
With initiatives like open storage and open-source MySQL, Sun has demonstrated that it knows how to grow again. The major remaining question, however, is whether it will be fast enough to appease Wall Street. As an open-source proponent and Sun fan, I hope the answer is 'Yes.'
Correction, 11:08 a.m. PDT: This story initially misstated the source of a report about Southeastern. It is IDG.
Something is about to happen at Sun. Unfortunately, no one outside the company seems to know what that "something" is.
As reported in Barron's, Southeastern Asset Management, Sun's largest institutional investor, just upped its stake in Sun to 21.2 percent and recently filed with the U.S. Securities and Exchange Commission to indicate that it has significant plans for Sun:
The filing says that Southeastern "has talked to" Sun's management, and will have additional conversations with Sun and potentially with third parties "regarding opportunities to maximize the value of the company for all shareholders." Interestingly, the company with this filing changes the status of its filings from 13G, which implies a passive holding, to 13D, in order to "obtain the flexibility to discuss various alternatives."
Is Southeastern planning to take Sun private? Sell off major assets like StorageTek, for which Sun recently had to write down a massive amount of goodwill? Or is it planning to install a new CEO?
No one outside Southeastern seems to know what it has in mind, though IDG has reported Southeastern's belief that Sun is a software company, not a hardware company, and that may mean that Sun hardware will get the boot. Could Sun's increasing focus on open-source software generate outsized returns in the short term? It's unclear, though Larry Dignan of ZDNet is doubtful.
One thing is clear: Sun may look like a very different company over the next six months. For Sun investors, that may be very positive. For its employees...? That's potentially a different story.
The Wall Street Journal has announced its 2008 Technology Innovation Awards. Among the heavyweights on the list - Salesforce, Applied Materials, GlaxoSmithKline, etc. - is open-source storage vendor, Cleversafe, a company that I've long followed and admired.
It's great to see Cleversafe getting its due credit, especially from a list of judges that includes the CTO of Agilent, EVP of Software at SAP, and more distinguished names.
Here's what caught the judges' eyes:
[Cleversafe's] Dispersed Storage software breaks files up into slices and then sends the slices over the Internet to multiple storage locations on a network. By themselves, the slices are unreadable to hackers or anyone else not authorized to read them, but the original file can be easily reassembled, even if not all the slices are available due to equipment failure or natural disaster. The software also promises to be less expensive than traditional storage methods, which rely on creating full, multiple copies to protect against loss.
Jane Royston, professor of entrepreneurship and innovation at the Swiss Federal Institute of Technology in Lausanne and an Innovation Awards judge, says the software "could be an important part of Internet data storage systems."
What a great testament to Cleversafe's continued progress and product excellence.
When Apple's MacBook Air first came out, I was woefully unimpressed. Sure, it was plenty pretty, but it lacked the thing I needed most: a big hard drive.
Well, a funny thing has happened in the past year. I've stopped using my hard drive.
Yes, I still install applications, all of which require hard-drive space. And yes, I still use Handbrake to rip DVDs to my hard drive to watch on long flights.
But I've also started keeping all of my e-mail on my company's Zimbra server. But it's not just e-mail: I keep all of my files in my e-mail folders, too. I work with a file long enough to edit it and then immediately delete it from my hard drive once I know it's safe on my e-mail server.
In fact, as I upload photos and just about everything else to remote servers, it's becoming less and less clear why I need much of a hard drive at all.
Maybe I shouldn't be loading up my e-mail system like it's a file system. Back in early 2007 Jeff Nolan wrote about poor performance with Microsoft Outlook/Exchange, quoting a Microsoft product manager who blamed the performance on people who were "misusing" an e-mail system as a file system.
As Nolan wrote, that product manager is completely wrong. Products, if their designers hope to have them endure, must live up to adoption patterns. At any rate, it's too late to go back: I like the freedom from my laptop that remote storage provides for me.
Or maybe I'll come to desire the security of my hard drive again. After watching a few friends struggle with dying hard drives, I'm not optimistic that this will happen.
So maybe, just maybe, I'm finally part of this whole "cloud" trend. I'm conservative and have never been very good at being trendy. This just happened to me. It started making more and more sense to store things remotely, because, well, they no longer felt all that remote.
You feeling the same?
Sun Microsystems has spent years getting bludgeoned by commodity hardware and software. Now it's planning to apply those painful lessons to its competitors in the storage industry, as highlighted by The New York Times reporter Ashlee Vance:
In the early part of this decade, Sun learned all too well just how disruptive ("good enough" technology at a significant discount) can be. Customers moved away from products built on Sun's own custom microprocessors and software to cheaper servers that relied on Intel processors and the open-source Linux operating system. While larger customers still wanted Sun's high-end hardware for some tasks, the Intel-and-Linux combination could satisfy the majority of most customers' needs.
Software plays a large role in any discussion of this type, and again Sun thinks it has something that can rattle NetApp and EMC.
Sun spent years fighting this trend toward "good enough at a great price," but now it's wielding the weapon of open-source software and commodity hardware (as well as its not-so-commodity hardware). It seems to be working. The Register reports that Sun grew its market share in the external disk storage market faster than any other vendor in the second quarter of 2008 at 34.7 percent to NetApp's 22.9 percent growth.
The key for Sun will be to sustain this growth. It won't be an easy task, but customers should be cheering as Sun lowers the cost of storage and improves choice and flexibility through open source. NetApp may not like it, but then, Sun didn't like getting beaten up for its former proprietary intransigence, either. Sun learned its lesson. Will NetApp also learn?
