Dell plans to acquire Perot systems. The momentum picks up! Dell expects this deal to position itself as a more formidable player parading both its hardware and services expertise given the fast changing nature of the business and the faster adoption of cloud computing. Dell was as always seen as a laggard when it to comes to services and given that its principal competitors – HP & IBM are now very big in services, Dell had to anyway bite the bullet of acquiring some big service player. Perot’s strengths are mostly in Banking, Financial Services, Healthcare & Government and would to a limited extent help Dell directly with its footprint. The capabilities of Perot system may be more useful to Dell compared to its current customer base. Perot systems customers would have to factor in the new reality of Perot systems ownership changing to Dell, though the existing CEO would continue to run the business. Two things struck me:
A. Dell must have acquired a services company at least two - three years back when it confronted serious growth troubles – At around the same time, HP muscled in to acquire EDS. I predicted that HP may buy EDS in years before ithappened.
B. Perot has limited scale compared to the other global service players and India headquartered service players. Perot’s offshore capability also is generally seen to be quite limited compared to other traditional global players. Valuation looks interesting here: 2.8 billion USD revenue gets a valuation of 3.9USD billion after providing a substantial premium to last quoted trade.
I am not too sure if this move by Dell would perturb IBM or HP given the lack of scale of Perot's operations, while this may give some limited upside to Dell. The corporate integration may get accomplished easily given that both companies are headquartered in Texas. I was actually expecting Dell to make a serious move to get into smartphone market - say by acquiring Palm. It may happen in the future - we will have to wait and see. It would be interesting to see how Oracle (which recently acquired Sun) looks at this development. I am very keen to watch what Cisco does now – it has entered into the more competitive server business (big competition to Dell , IBM, HP) and has more ambitions in unified computing. Cisco cash position and appetite for acquisition is well known and in the recent past there had been rumors of Cisco looking at acquiring Accenture.While am not clear about how this acquisition may decisively benefit Dell, I do believe that Dell’s move may trigger a new momentum in Cisco’s next acquisition move as well!
Jonathan Schwartz highlights about the revenue synergies of Sun’s acquisition of MySQL. Over 100 million copies of MySQL's open-source database software code have been downloaded for free since the product was first released more than a decade back. A number of business houses rely on MySQL's software. Clearly the acquisition has no cost synergies, given that most of the MySQL team works from their respective home(s). The question in the enterprise software industry is articulated well by MR about the acquisition here
So why would a veteran disruptor and ready-to-IPO MySQL sell to Sun? Perhaps MySQL heard some concrete, savvy thinking about how the deal would propel the combined entity to the top of the open source vendor ladder – something MySQL couldn’t do alone. Perhaps there was a bit of fear that the slowing U.S. economy would make its IPO less than stellar. Perhaps MySQL needed the financial security of a Sun to help it build its business away from the eyes of investor scrutiny"
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Jonathan points out, Wherever MySQL is deployed, whether the user is paying for software support or not, a server will be purchased, along with a storage device, networking infrastructure - and over time, support services on high value open platforms. Last I checked, we have products in almost all those categories. He thinks that the single biggest impediment to MySQL's growth wasn't the feature set of their technology - which is perfectly married to planetary scale in the on-line/web world. The biggest impediment was that some traditional enterprises wanted a Fortune 500 vendor ("someone in a Gartner magic quadrant") to provide enterprise support. This reinforces Kim Polese view on opensource support models. Sun believes that it can augment MySQL's great service team with an extraordinary set of service professionals across the planet - and provide global mission critical support to business. Sun says support to Oracle & Postgres remains unchanged. In the past IBM had succeeded with such strategies but the go-to market strategy and field power of the two companies are not comparable. We now have to see this strategy win for Sun.
Microsoft announces intent to acquire FAST search. FAST, one of the significant player in the enterprise search space post the Verity acquisition by Autonomy, now bites the dust. FAST has had some financial woes of late – but it has good technology capabilities and a large customer base. FAST specializes in enterprise search –particularly centered around unstructured data and has a enterprise scale application with good deployments to showcase. Microsoft has indeed made the right move. The valuation is at around 6X EV/Sales. Clearly, the acquisition of FAST bolsters Microsoft's positioning in the enterprise search market, making it that much more formidable in its enterprise search business against Google. Lets look at this –Microsoft can now span across the stack –covering the entire back-end infrastructure inside the enterprise and with collaboration tools and search – on paper, it shows formidable strength for someone trying to compete with it.
As Mary J Foley points out, Microsoft’s enterprise-search strategy is focused on SharePoint Server, a family of back-end servers and services which includes content-management and search. Microsoft also offers a Microsoft-hosted version of SharePoint, known as Office SharePoint Online, which is currently targeted at companies with more than 5,000 seats. After all Microsoft viewed Sharepoint as thenext big operating system from Microsoft. – sharepoint is aggressively muscling inside enterprises.
Seen at another level, this is part of consolidation streak and clearly almost all companies aged upwards of six-seven years in the <200 Mn$ sales are surefire hurts/beneficiaries in the consolidation fever and almost all software enterprises less than 500 Mn$ would be evaluating options, except for very niche players and those seeing growth. We can now expect some action from other big players here – to storm into a fast growing enterprise search space. This wave of consolidation is not necessarily a great development from a customer perspective - in terms of pricing and support. I also believe that this would unleash a lot more entrepreneurism in the market - people and money are floating out now. Players upwards of 1 Bn$ sales would be looking at this from a different perspective of identifying the potential catch - I guess the name of the game is changing.
Just arrived in Australia to see IBM announcing the acquisition of Telelogic. An interesting buy – while many see it as a complementary purchase to Rational – it is much beyond that. Telelogic is a leading vendor in the areas of business requirements management and IT (object-oriented analysis and design) modeling and code generation with tools such as DOORS, TAU, Telelogic Modeler and Rhapsody. Quite recently, Telelogic acquired a leading BPA tool in Popkin's System Architect and has been integrating it into its portfolio in support of enterprise architecture and application development. Few quarters back, Telelogic announced the release of Telelogic Modeler, a free-of-charge UML design environment for engineers, designers and developers of embedded, real-time and enterprise IT applications. Telelogic Modeler has the potential to foster follow-on complementary sales for Telelogic's other model-driven development and application life cycle management tools, such as Tau, Rhapsody, Doors and Synergy. A study of these tools make interesting reading :
System Architect (SA) and Telelogic's other tools appeal to the architect category of buyers. SA also appeals to the BP and BPMS modeler categories of buyers. The requirements management capabilities of DOORS, coupled with the ability to feed models from SA to TAU or other leading IT modeling tools and BPM tools is a testimony to its versatility. SA was also known for its strong simulation capabilities that are instrumented for BAM feeds among all three BPA categories of buyers Recent estimates suggest that it had a little less than 10 % share of market revenue. Telelogic is seen as a good players and is seen as a visionary compared to several of it BPA peers. This continues the tradition of IBM cherrypicking good candidates from emerging spaces - Filenet, Maximo etc. With this acquisition, a reasonably priced one at that, I see IBM has armed itself well to storm into the BPA space with this acquisition. Other players like Ultimus, TIBCO and the like now have a formidable competitor to reckon with.
Then we heard about the rumours & denials about Yahoosoft.
WPP Group announced that it was buying 24/7 Real Media & Silver Lake Partners and ValueAct Capital announced earlier that they were buying Acxiomand taking it private. Now comes the big ticket acquisition – Microsoft buying aQuantive for a big number – 6billion US$ in cash. aQuantive is a public company had a market cap of just $2.8 billion as of yesterday & the acquisition price of $6 billion is a roughly 2x premium on yesterday’s closing price – indication that there was competition in acquiring this and in more ways than one shows microsoft’s desperation. Google shelled 3bn for DoubleClick and Yahoo paid about 650 million for Rightmedia. Real Media deal is valued at 650 million and Axciom deal valued in excess of 2 billion dollars. Microsoft claims that it has been a customer of aQunative for sometime and its justification for acquisition makes interesting reading : As it sees the online ad market is $40 billion annually and growing 20% per year. It claims that the next step in the evolution of its ad network from its initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet. Microsoft says it is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity and sees this deal as giving them a more complete end to end solution (paid search, display ads, CPA). Microsoft says the deal will make their time to market much quicker and says the advantages to the stakeholders are manifold:
Advertisers and ad agencies will benefit from a world-class media planning, buying and campaign management solution to drive maximum ROI and optimize their reach to audiences across the increasingly fragmented, interactive media landscape. Media owners/publishers will gain access to best-in-class inventory optimization and monetization solutions across a full suite of rich media, video and targeting capabilities.
Microsoft has really upped the ante here - having learnt what Google could do with its big ticket acquisitions like YouTube. I think this shows one more thing – talks of Microsoft buying out Yahoo at Yahoo’s terms goes down and this move could potentially put more pressure on Yahoo. This is a precursor to bigger changes that could happen in the larger internet space.
I wrote a brief note on Oracle’s acquisition of Agile Software. While the top-tier vendors boast of wide ranging integrated functionalities with deep pockets, specialized solutions like PLM, SRM, MDM, Content management, BPM, Document management, Compliance solutions, Vertical solutions coming from best - of - breed players continue to remain attractive to buyers of different spectrum. Finding it difficult to beat them in their own game, cash rich mega vendors are doing what they are best at doing : buying out point vendors.
I was sitting next to the amiable Bryan Stolle, Agile's chairman in a recent meet. Agile is the last standalone PLM standalone solutions company, after the acquisition of its closest competitor, Matrix One, by Dassault Systems last year. After its 2003 acquisition of Eigner, which gave the company a solid foothold in the European discrete manufacturing market, it acquired Cimmetry in early 2005. Cimmetry’s visualization flagship product, AutoVue, now has over 9,500 customers in a number of vertical industries, including manufacturing, electronics, architectural/engineering/construction, and industrial. Agile is expanding its product portfolio to support the CPG industry. In mid-2006, Agile announced the acquisition of Prodika, a PLM applications vendor with a focus on CPG.
Oracle has acquired more than 25 companies – of varying size & color to shore up its strength in the enterprise application space. The acquisitions have been in almost every enterprise category, ranging from ERP (enterprise resource planning) to CRM (customer relationship management) and grid computing to business intelligence. This is part of oracle’s stated strategy of acquiring scale and depth by acquiring complementary products and customer bases which it can cross sell a wider range of products to, in competition with MIS players in the MISO family. Agile provides Oracle with a decent set of solutions in the SCM and PLM enterprise solutions space. The thinking behind the merger is that there is limited or no overlap between oracle’s existing product range and that of Agile. Oracle has committed approximately 5.0x maintenance revenue multiple for Agile – a position that is more or less its benchmark based on previous acquisitions. On paper, this appears to be a sound deal for Oracle - Agile has a significant customer base and its maintenance renewal ratio is also said to be on the higher side. For Oracle, looking at increasing its footprint in the manufacturing space, this opportunity is a god send one.
In the enterprise PLM software space, clearly vendor consolidations will reduce the number of players and further strengthen those that already hold a substantial share of the PLM market. This would force collapse a number of products to be highly feature rich. This would mean that typically functionalities that two years ago were still offered as separate modules/products may become part of larger product suites. Oracle shall clearly gain with this acquisition as it braces to take on the likes of IBM, Dassault & SAP. Read the full note here.
I wrote this brief note for sandhill.com on SAP acquiring OutlookSoft. BI/CPM is clearly the fastest growth area in enterprise application space today. The consolidation in the BI space was expected for sometime. I wrote immediately after the oracle -Hyperion deal that Outlooksoft looks promising. I heard their CEO Phil Wilmington present at Enterprise 2006 , on why predictive performance management is the next killer enterprise application and how OutlookSoft has the competitive technology advantage. The company was chosen as one of the next big thing winners in the meet. OutlookSoft’s focus was providing modernized solutions for the CFO leveraging Web 2.0 technologies to enable collaboration across the enterprise and delivering real-time, predictive analytics capabilities and finance-ready business process flows, using an extensible library of procedures guiding business users through all performance management activities and facilitating collaboration. This is an important function in an enterprise enabling, “closing the loop” between analytics and operation.
In essence, SAP's purchase of OutlookSoft is more or less a quick move in protecting its installed base following Oracle’s acquisition of Hyperion. In the recent past Hyperion had been seeing SAP as the competitor in many deals and so the acquisition of Outlooksoft, a company where ex-hyperion executives are key people running it, makes sense from SAP perspective. Besides, this is also significant as this gives the opportunity for SAP to protect itself against moves by ORCL to penetrate into SAP's installed base since a large number of them already use Hyperion’s consolidation capabilities. While public details of valuation are not available, informed sources indicate a valuation of $250-350mn, probably representing about 6-8x the street estimates of $40mn in LTM revenues.
SAP has always stayed away from large-scale, multibillion-dollar acquisitions and looks at buying focused smaller companies that fits in their vision of meeting enterprise information needs. It’s a cash acquisition and moving forward, integration challenges, from a product technology perspective would be the key – organizational challenges may be less given that OutlookSoft used to have a small operation while culturally adjusting into the SAP world would have been clearly assessed by Outlooksoft team. The 700 + customers of OutlookSoft would now be eager to see support and investment plans for the future – particularly the non- SAP customers of Outlooksoft. Overall a good move for all involved herein. Now we have to see how the rest of the gang in the BI & CPM space( particularly BO & Cognos) prepare to respond to this. Please read the full notehere.
WSJ reports that talks happened between the two companies & that the merger discussions are no longer active, but that doesn't preclude the two companies from some other form of cooperation. So the merger possibilities have died down – temporarily!! To me it points to a couple of things – both indisputable: There is no logic to say that large deals may not happen – as a matter of fact, I feel that in this current age, no deal, no matter how large, or one that appears audacious ,is out of the realm of possibility. Secondly, stakeholders are expecting Yahoo to act decisively to regain the lost edge it had in the internet space – where Google is sees as smartly marching ahead.Yahoo is massively under leveraging its brand strength, content and platform superiority. Companies like Microsoft, eBay and Yahoo would always keep talking about possibilities and frankly they should be talking and it is fair to expect some action centered around Yahoo in the days to come.
Will Microsoft buy Yahoo? That’s the prospect that’s gaining currency this morning . I wrote a brief note at Sandhill.com on this emerging development. Few days back, I wrote that Google’s aggression is not only going to help its cause but very likely to drive Yahoo and Microsoft to come together. Its interesting to see what all a shrewd market leader can do – expand the market, consolidate its position and define what competition needs to do!! The increased likelihood for consolidation within the Internet space given the challenges of running the optimal mix of businesses, which we have identified as content, portal, search, marketplace/e-commerce, communications (IM, e-mail, VoIP), and payments looks like is waiting to happen. Every advance being made in anyone of the spaces here needs resources to build and expand but Google’s money making machinery makes all these advances from players like MSN & Yahoo look puny. How can the competition get on an even keel – perhaps when Microsoft buys out Yahoo. It needs a sustainable critical mass in terms of content, infrastructure and advertiser base and Yahoo comes in handy there. Chances of organic growth look too dim for Microsoft to look at alternate ways of getting there center stage and literally fight eyeball to eyeball with Google for traffic and monetization opportunities. Outside of Yahoo, the only other player that Microsoft can look at is eBay. The acquisition can provide Microsoft with powerful assets – proven scalable platforms, stakeholder relationships, monetizable content and channels drawing eyeballs. On the flip side, mega deals always carry huge risks – no one can forget Time Warner – AOL fiasco . I get a sense that something might happen – but as again execution would be the key – the opportunity to change the rule of the game is very bright if these two players choose to come together. Read the full note here.
I am just back from a long period of travel and catching up on last weeks developments - need to fiish a lot before I set out to travel again. John Battelle writes, the fact that DoubleClick went to Google strikes me as a seminal moment in the history of this industry. Microsoft could not win it, despite the cash it was willing to spend. He reports that he learns that Microsoft did offer to match it, and was willing to pay even more to insure that Google did not corner the online ad market. But for whatever reason, the private equity firm that owned the majority of DoubleClick’s shares decided to go with Google.
John Batelle builds his thinking on the basis of what he could gather from his sources and need to be seen as such.I wouldn’t just like that take it as fact that DoubleClick was offered more by Microsoft and that they turned it down. If what John says is true( I would imagine that this should be true given his connections), I do think that it is indeed a significant win for Google. I have dealt with DoubleClick in the past and know its vast potential. For Google, this is indeed significant – they outdistanced a potential big time threat – Microsoft but at the same time have expanded their core service offerings. The deal is not just that – it has helped Google to increase its customer base as well. Google paid 100% more than what it paid to acquire YouTube. Its no wonder why competitors like Microsoft, Yahoo, AT&T are crying foul. I think more than anything else the allure of cash must have helped Hellman-Friedman decide in favor of Google considering their acquisition cost was a mere one billion and odd dollars. My good friend and fellow enterprise irregular points out that Hellman-Friedman is not just a doubleclick pony. I think, at the least, this would help Google keep its focus on what it wants to do for securing its future, not worrying about competition for some time. Moves like this put pressure on players like Yahoo – particularly in its ability to get more value out the current set of raw materials. Google’s aggression is not only going to help its cause but very likely to drive Yahoo and Microsoft to come together. Its interesting to see what all a shrewd marketleader can do – expand the market, consolidate its position and define what competition needs to do!!
Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
